Benefits Glossary

Affordable Care Act acronym. Comprehensive health care reform legislation signed into law by President Obama on March 23, 2010. Also known as the Patient Protection and Affordable Care Act (PPACA) or Obamacare.

An annual measurement, generally at the beginning of the Plan Year, of a pension plan’s assets versus liabilities, using investment, economic, demographic and other actuarial assumptions to determine the funded status of the plan. It is used to provide financial information required by the IRS, PBGC, plan auditors and other interested parties, and for plan accounting purposes.

The value of a pension plan’s investments and other property, used by the Actuary for the purpose of an Actuarial Valuation. It may or may not equal the market value of the pension fund.

A business professional who analyzes the financial consequences of risk in areas with uncertain future events such as pensions and insurance. Actuaries determine how much needs to be contributed to pension plans in a given year so that benefits will be available when employees retire.

Coverage is defined as affordable if the participant’s cost for self-only coverage does not exceed 9.5% of the participant’s household income. There are three allowable method to determine the household income amount: the employee’s W-2 pay, the rate of pay, and the FPL.

Adjusted Funding Target Attainment Percentage acronym. It is calculated in the same way as the FTAP, except that both the numerator and the denominator are increased by the aggregate amount of annuities purchased by the plan for participants (other than HCEs) during the 2 preceding Plan Years.

A pension plan must give participants this notice no later than 120 days after the end of each Plan Year. The notice must include, among other things, the plan’s funding percentage, a statement of the value of the plan’s assets and liabilities, a description of how plan assets are invested as of specific dates, and a description of the benefits under the plan that are guaranteed by the PBGC.

A series of periodic payments, payable monthly or at other specified intervals, often over the lifetime of the recipient. Pension payments are often paid to retirees in the form of an Annuity.

Any company or organization that has an average of at least 50 full-time employees or "full-time equivalents" (FTE). For the purposes of the Affordable Care Act, a full-time employee is someone who works at least 30 hours a week.

Administrative Services Only acronym. An arrangement in which an employer hires a third party to deliver administrative services to the employer such as claims processing and billing; the employer bears the risk for claims. This is common in self-insured health care plans.

The process of spreading investment gains and losses over a period of time. Rather than using the market value of a pension fund’s assets, an Actuary may calculate the Actuarial Value of Assets by taking a multi-year average of the investment gains or losses in order to help reduce volatility related to a plan's assets for purposes of calculating the Minimum Required Contribution.

For a Defined Benefit (DB) plan, the person designated to receive pension benefits in the event of the death of the participant, either before or after the participant begins receiving pension payments.

For a Defined Contribution (DC) plan, the person designated to receive a participant’s retirement account in the event of the death of the participant. Following a participant’s death, the account becomes the property of the Beneficiary.

Following are some common payment methods for pension plan benefits:

• Single Life Annuity – An Annuity paid for the life of the retiree, with no additional payments to survivors.

• Joint and Survivor Annuity – An Annuity paid for the life of the retiree, with a percentage of the original Annuity (e.g., 50% , 75%, 100%) paid to a Beneficiary following the death of the retiree

• Certain and Life Annuity – An Annuity paid for the life of the retiree, with a guaranteed number of payments. If the retiree dies before receiving the guaranteed number of payments, then the remaining payments will be paid to a Beneficiary.

• Level Income Annuity – An Annuity paid for the life of the retiree, designed to provide a level amount of income when combined with Social Security Benefits. The Annuity reduces to a smaller amount (or $0) when the retiree’s Social Security Benefits begin at age 62 or 65.

• Lump Sum Payment – A single payment of the value of a retiree’s entire pension plan benefit.

When a plan sponsor makes major changes to the plan, such as a decision to switch from one DC Plan vendor to another, there is typically a period during which participants are not permitted to make changes in their investment selections or request loans or distributions. This is known as the Blackout Period, and it can last up to 60 days.

A plan category in the ACA Marketplace which describes individual health insurance plans with the least expensive Premiums and the highest Co-payment and Coinsurance amounts. Bronze Health Plans often have high deductibles.

A comprehensive review of an insurance company to ensure that all payments are correct and appropriate for legitimate expenses covered by the health plan. A Carrier Audit may be completed on both Fully and Self-Insured Plans to achieve plan efficiencies, ensure legal compliance, recover cash and eliminate future spending problems.

The process of comparing insurance carriers’ records of covered members to the employer/plan sponsor’s and/or administrator’s records to ensure accuracy and consistency of covered members, which ultimately leads to confirming accuracy of premiums and ASO fees.

Employee benefits and enrollment data that a plan sponsor provides electronically to an insurance company for open enrollment, life change events, new hires, terminations, and address and other changes to ensure the carrier has current and accurate information about plan members.

The process of comparing the insurance company’s records of premiums and payments to the employer plan sponsor’s records to ensure accuracy and consistency with the contract.

A plan category under the ACA that is a high-deductible health plan for people who are under age 30 or who qualify for a Hardship Exemption. The Premium amounts are generally lower, but the out-of-pocket costs for Deductibles, Co-payments and Coinsurance are generally higher.

A feature of 401(k) Plans, 403(b) Plans and most 457 Plans that permits an eligible employee who has attained age 50 to make a higher annual contribution to the plan. See also super catch-up contribution.

View current IRS limits for retirement plans.

Children’s Health Insurance Program acronym. Provides health coverage to low- and moderate-income children. It is jointly funded and administered by the states and the federal government. It was originally called the State Children’s Health Insurance Program (SCHIP).

Someone who processes claims for an insurance company or an independent claims adjudication facility. They investigate and negotiate claims filed by insurance policy holders. They verify eligibility for coverage and get claims paid – or find out why they have been denied. Also known as a Claims Adjuster.

A pension plan that is closed to new participants as of a specified date.

Centers for Medicare & Medicaid Services acronym. The federal agency that runs Medicare, Medicaid, the CHIP, and the Marketplace.

A fixed dollar amount—such as $25 for each doctor visit—that a covered plan member pays for medical services. Also referred to as Co-pay.

Consolidated Omnibus Reconciliation Act (COBRA) acronym. This law provides certain former employees, retirees, spouses, former spouses and dependent children the right to temporary continuation of health coverage at a former employer’s group rates for a limited period of 18 or 36 months. A plan may provide longer periods of coverage beyond the minimum period required by law.

A percentage of a health care cost—such as 20%—that a covered employee pays after meeting the deductible. Coinsurance rates may differ between services received from an approved provider and those received from providers not on the approved list.

A way of pricing insurance where every policyholder pays the same Premium, regardless of health status, age or other individual factors.

An adjustment (increase) made to a pension benefit payment in order to counteract the effects of inflation.

Health insurance coverage that meets a minimum set of qualifications. Types of Creditable Coverage plans include group health plans, individual health insurance, student health plans, as well as a variety of government-sponsored or government-provided plans.

A fixed dollar amount that an insured person pays out of pocket each year before the plan will begin reimbursing for covered medical expenses. Plans may have both individual and family deductibles. Some plans have separate deductibles for specific services.

An employee group retirement plan established and maintained by an employer that uses a predetermined formula to calculate the amount of an employee’s retirement benefit. The benefit formula may take into consideration an employee’s years of service and/or pay during employment. No individual accounts are maintained. Often referred to as pension plans.

A retirement plan where employers, employees, or both make regular contributions, and future benefits are based on how much money goes into the plan and how the plan's investments perform. DC Plans provide an individual retirement account for each participant, with employees bearing the risk of investment losses. The 401(k) is a well-known example of a DC Plan.

A dependent, usually a spouse or child, of an insured person who is eligible for insurance coverage.  Under the ACA, individuals may be able to claim a Premium Tax Credit to help cover the cost of coverage for themselves and their dependents.

An audit which typically involves hiring an outside vendor to verify the eligibility of all enrolled dependents in an employer’s health plan. This is sometimes also referred to as a Dependent Audit, Verification Audit, or Dependent Verification Audit.

A termination of employment as a result of a totally disabling injury or illness occurring before a participant is eligible for Early Retirement or Normal Retirement. Pension plans may provide additional benefits due to a Disability Retirement, and such benefits may be payable immediately or deferred.

All tax qualified retirement plans must be administered in compliance with numerous regulations to comply with IRS guidelines. IRS guidelines for DB and DC plans require a number of compliance tests to ensure that plan coverage and benefits do not favor HCEs. DC Plan compliance tests include ACP and ADP tests. The common term for these compliance tests is called Discrimination Testing.

A broad approach to coordinating the entire disease treatment process for a patient. The process is intended to reduce health care costs and improve the quality of life for individuals by preventing or minimizing the effects of a disease, usually a chronic condition.

A coverage gap which exists in most plans with Medicare prescription drug coverage (Medicare Part D). After the insured and the plan have spent a certain amount of money for covered drugs, the insured has to pay all costs out-of-pocket up to an annual limit. After costs reach this limit, the coverage gap ends and the plan helps pay for covered drugs again.

A termination of employment before a participant is eligible for Normal Retirement, but after he is eligible for an accrued benefit. Early Retirement eligibility is usually based on an age or a combination of age and service. An Early Retirement benefit often reflects a reduction factor for the number of years by which the Early Retirement age precedes the Normal Retirement age.

Amounts contributed to a plan by the employer at the employee's election and which, except to the extent they are designated Roth or after-tax contributions, are excludable from the employee's gross income. Elective deferrals include deferrals under 401(k) and 403(b) Plans.

An Actuary who has satisfied the qualifications set forth in the regulations of the Joint Board for the Enrollment of Actuaries and who has been approved by the Joint Board to perform actuarial services under ERISA.

Employee Plans Compliance Resolution System acronym. The IRS offers the following three programs to identify and correct plan mistakes and avoid the consequences of plan disqualification:

• Self-Correction Program (SCP) - permits a Plan Sponsor to correct certain plan failures without contacting the IRS or paying any fee.
• Voluntary Correction Program (VCP) - permits a Plan Sponsor to, any time before audit, pay a fee and receive IRS approval for correction of plan failures.
• Audit Closing Agreement Program (Audit CAP) - permits a Plan Sponsor to pay a sanction and correct a plan failure while the plan is under audit.

Exclusive Provider Organization acronym. An EPO is a plan that obligates employees to use their providers exclusively to receive coverage, in contrast to a PPO which merely offers a financial incentive for enrollees to use preferred providers. An EPO is a specific type of PPO plan that can be either self-insured or insured through an insurance company.

Employee Retirement Income Security Act acronym. ERISA, passed in 1974, is federal legislation which is designed to protect the interests of employees participating in employer-sponsored benefit plans.

For pension plans, ERISA also sets minimum standards for plan design to increase the security of private sector employees’ benefits, including requirements for pension plan disclosures, participation standards, vesting rules, funding and administration.

Employee Stock Ownership Plan acronym. A plan in which the employer pays a designated amount into a fund which then is invested primarily in company stock. Stock is distributed to employees according to a formula.

Employer Shared Responsibility Payment acronym. ACA requires certain employers with at least 50 FTEs to offer health insurance coverage to its FTEs (and their Dependents) that meets certain minimum standards set by the ACA or to make a shared responsibility tax payment called the ESRP.

ACA requires all health plans offered in the individual and small group markets, both inside and outside the Marketplace, offer a comprehensive package of items and services. Essential Benefits include services within core categories, including hospitalization, outpatient services, maternity and newborn care, prescription drugs, emergency care and preventive and wellness services.

ACA created “American Health Benefit Exchanges” in each state to assist individuals and small businesses in comparing and purchasing a Qualified Heath Plan. Exchanges determine who qualifies for subsidies and make subsidy payments to insurers on behalf of individual receiving them. They also accept applications for other health coverage programs, such as Medicaid and the CHIP.

The review of a health plan’s determination that a health care service or treatment is not or was no medically necessary. The review is done by a person or entity with no affiliation or connection to the health plan. ACA requires all health plans to provide an external review process that meets minimum standards.

A method of health insurance payments in which doctors and other health care providers are paid for each particular service performed. Examples of services include tests and office visits.

For Defined Benefit (DB) plans, any person who exercises power and control, management or disposition with regard to a pension plan’s assets, or who has authority to do so or who has authority or responsibility for plan administration.

For Defined Contribution (DC) plans, any person with discretionary authority over plan administration or investments. Plan fiduciaries ordinarily include the employer, trustees, and investment advisers. Fiduciaries must discharge their duties solely in the interest of the plan participants and are accountable for any actions which may be construed by the courts as breaching that trust.

Also known as a Section 125 Cafeteria Plan. An employer-sponsored benefits plan that offers employees a choice between permissible taxable benefits, including cash, and nontaxable benefits such as life and health insurance, vacations, retirement plans and child care. The plan may be funded solely by the employer or through joint employer-employee contributions.

Family and Medical Leave Act acronym.  A federal law that guarantees up to 12 weeks of job protected leave for certain employees when they need to take time off due to serious illness or disability, to have or adopt a child, or to care for another family member. When on leave under FMLA, an employee continues coverage under the employer’s health plan.

The part of an employee’s account balance (employer contributions) that is lost because it is not vested when the employee terminates employment. 

A cover sheet used by insurance providers when they send the Internal Revenue Service (IRS) information about who has health coverage that meets the standards of the Affordable Care Act.

IRS transmittal form that must be filed with the Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) as required under the Affordable Care Act.

Health insurance tax form sent by insurance providers that is used for verification of qualifying health coverage (referred to as “minimum essential coverage”) for some or all months during the year.

Employer-Provided Health Insurance Offer and Coverage is an IRS tax form that each Applicable Large must send at year’s end reporting health coverage offered to employees.

A list of prescription drugs covered by the health plan, often structured in tiers that subsidize low-cost generics at a higher percentage than more expensive brand-name or specialty drugs.

Federal Poverty Level acronym. A measure of income issued each year and used to determine eligibility for Medicaid and CHIP coverage, as well as eligibility for Premium and cost-sharing subsidies in the Exchange and other federal programs.

A Closed Pension Plan that limits future benefit accruals for some or all active plan participants. Some frozen plans may not allow participants to accrue any additional benefits, while others may change the prospective benefit formula in such a way as to limit future benefit accruals.

Flexible Spending Account or Arrangement acronym. FSAs are accounts offered and administered by employers that provide a way for employees to set aside, out of their paycheck, pretax dollars to pay for medical expenses not covered by the employer’s health plan. FSAs can also be provided to cover childcare expenses, but those accounts must be established separately from medical FSAs.

Funding Target Attainment Percentage acronym. It is calculated as the Actuarial Value of Assets divided by the Funding Target and is expressed as a percentage. The FTAP is one measure of how well a pension plan is funded on a current basis.

Full-Time Employee acronym. A FTE is generally one who is employed an average of 30 or more hours per week for more than 120 days in a year.

In an insured plan, the employer contracts with another organization to assume financial responsibility for the costs of enrollees’ medical claims and for all incurred administrative costs.

A statement clarifying the goals and objectives for funding a pension plan, and how the plan sponsor will achieve them. The policy may include the amounts and timing of future contributions.

The present value (determined as of the date of the Actuarial Valuation) of all benefits under the pension plan that have accrued as of the first day of the Plan Year based on prescribed actuarial assumptions and cost methods.

A plan category in the ACA Marketplace which describes health insurance plans that pay for more out-of-pocket costs than Bronze or Silver Health Plans. Gold Health Plans pay, on average, 80% of the cost for covered benefits.

A health plan that an individual was enrolled in prior to March 23, 2010 when the ACA was signed into law. Grandfathered health plans are exempted from most of the changes required by ACA. Depending on each company’s rules, new employees may be added to group health plans that are grandfathered, and new family members can be added to all grandfathered health plans.

An employee welfare benefit plan that is established or maintained by an employer, an employee organization (such as a union) or both, that provides medical care for participants and/or their dependents through insurance, reimbursement or some other means.

For plan years before 2019, most people had to pay a fee if they didn’t have health coverage that qualified as MEC. One exception was for people who faced certain "hardships" that prevented them from becoming insured.

Employees usually are not penalized when money is withdrawn from a DC Plan as a result of a hardship, often defined as a death or illness of a family member, educational expenses, sudden uninsured losses, or a need to prevent eviction from one’s primary residence.

Highly Compensated Employee acronym. An employee who received more than the published IRS limit in compensation during the preceding Plan Year and, if the employer so chooses, was in the top 20% of employees when ranked by compensation OR is a greater than 5% owner in the company.

View current IRS limits for retirement plans.

View current IRS limits for health plans.

High-Deductible Health Plan acronym. An HDHP features higher annual deductibles than traditional health plans, such as a PPO or HMO. With the exception of preventive care, covered employees must meet the annual deductible before the plan pays benefits. HDHPs, however, may have significantly lower Premiums than a PPO, HMO or other traditional plan.

The U.S. Department of Health and Human Services acronym. HHS is a federal agency that oversees CMS. The stated mission of HHS is to enhance and protect the health and well-being of all Americans.

Under the ACA starting in 2018, an excise tax on insurance companies that provide high-cost plans. This tax encourages streamlining of health plans to make Premiums more affordable. It is also called the Cadillac Tax.

Health Insurance Portability and Accountability Act of 1996 acronym. A federal law enacted in 1996 which made it easier for individuals to move from job to job without the risk of being unable to obtain health insurance or having to wait for coverage due to a Pre-Existing Medical Condition.

Status once an individual has had 18 months of continuous Creditable Coverage and met other certain requirements. Being a HIPAA Eligible Individual gives a person greater protections when buying individual health insurance than they would otherwise have under state law.

Health Maintenance Organization acronym. HMOs assume both the financial risks associated with providing comprehensive medical services and the responsibility for delivering health care in a particular geographic area, usually in return for a fixed, prepaid fee from members. HMOs emphasize preventive care and cover most types of care in full or subject to a copayment.

Health Reimbursement Arrangement acronym.Also known as Health Reimbursement Account. Unlike HSAs, only an employer may fund an HRA and the funds revert back to the employer when the employee leaves the organization. HRAs are not subject to the same contribution limits as HSAs, and they may be paired with either HDHPs or traditional health plans.

Health Savings Account acronym. HSAs may be opened by employees who enroll in a HDHP. Employees can put money in an HSA, up to an annual limit, using pre-tax dollars. Employers may also contribute funds to these accounts within the prescribed limit. HSA funds may be used to pay for medical expenses, and no tax is owed on funds withdrawn from an HSA to pay for medical expenses. HSAs are individually owned and the account remains with an employee after employment ends.

A pension plan that does not have a traditional defined benefit formula:

• Cash balance plan – For each year of work, employees are credited with contributions to a notional account, along with interest on the contributions, which will provide a set account balance at retirement. Benefits are generally paid as a lump sum.

• Pension equity plan – For each year of work, employees are credited with a percentage of their final average earnings. Benefits are generally paid as a lump sum.

Doctors, clinics, hospitals and other providers with whom the health plan has an agreement to care for its members and not to balance bill patients for amounts beyond the agreed upon fee. Health plans cover a greater share of the cost for in-network providers than for providers who are out-of-network.

A distribution from a 401(k) Plan to employees who have not terminated employment. In-Service Distributions are restricted by federal law and by most plans.

A health insurance policy that is not connected to job-based coverage. It is a policy that an individual purchases, on either an individual or family basis, as opposed to obtaining it through an employer. Policies can be purchased through the Exchange or directly from a health insurance carrier and they are regulated under state law.

Under this type of plan, an employer contracts with another organization to assume financial responsibility for the costs of participants’ medical claims.

A pension plan design in which an employer’s contributions to Social Security (FICA taxes) are taken into account when plan benefits are computed. Integration is accomplished by an offset or a step-rate method.

• Offset method – Part of a participant’s Social Security benefit is subtracted from the pension benefit otherwise payable by the plan. The most common offset is 50 percent.

• Step-rate method – Lower benefit accrual rates are applied to earnings up to the specified taxable Social Security wage base; higher rates are applied to earnings above the wage base.

A statement clarifying the goals and objectives for investing a pension plan’s assets. The policy may include general investment goals and objectives along with target allocations for various asset classes (for example, stocks, bonds, real estate and cash).

Individual Retirement Account acronym. An IRA is a retirement savings plan. There are several types of IRAs: Traditional IRAs; Roth IRAs; Simplified Employee Pensions (SEP) IRAs; and Savings-Incentive Match Plans for Employees (SIMPLE) IRAs. Traditional and Roth IRAs are established by individuals, while SEP and SIMPLE IRAs are retirement plans established by employers.

Affordable Care Act IRS tax code calling for every provider of minimum essential coverage to report coverage information by filing an information return with the IRS and providing a statement to individuals.