Benefits Glossary

Affordable Care Act IRS tax code which outlines what an Applicable Large Employer needs to do to notify their employees and the IRS about the health care coverage they offer. 

Any employee (including former or deceased employees), who at any time during the Plan Year was: an officer making more than an annual pay amount specified by the IRS;  a 5% owner of the business; or an employee owning more than 1% of the business and making over an annual pay amount specified by the IRS.

DC Plans may allow participants to borrow employer funds, with interest, from their accounts. Loan amounts often are limited to a portion of the account balance. They usually have to be repaid within 5 years, but longer payment periods may apply for home purchase or renovation loans.

A temporary opportunity for specified pension plan participants to receive their vested accrued plan benefit in a one-time lump-sum payment.

Common term for a law signed in 2012 called the Moving Ahead for Progress in the 21^st Century Act that established new funding rules for pension plans.

A transparent, competitive insurance market where individuals and small businesses can purchase affordable and Qualified Health Plans. This is also used for dependent children who age out of coverage eligibility. Also known as the Health Insurance Marketplace.

A type of employer contribution to a DC Plan which requires an employee to contribute to the plan. The Matching Contribution usually depends on the Participant Contribution.

The maximum amount payable by the insurer for covered expenses for an insured and each covered dependent. Plans can have a yearly or a lifetime maximum dollar limit. A common maximum dollar limit is a lifetime amount of $1 million per individual.

Minimum Essential Coverage acronym. Any health insurance that meets the ACA requirement for having health care coverage. Individuals with MEC do not have to pay the penalty for being uninsured, which applied through the 2018 plan year. Examples: individual plans, including Marketplace plans; job-based plans; Medicare; Medicaid and the CHIP. Also referred to as Qualifying Health Coverage.

A joint state and federal program that provides health care coverage to eligible categories of low-income individuals. Rules for eligible categories and for income and asset requirements vary by state. Coverage is generally available to all individuals who meet these state eligibility requirements. Medicaid often pays for long-term care (such as nursing home care).

A federal program that provides health coverage for all eligible individuals age 65 or older or under age 65 with a disability, regardless of income or assets. Eligible individuals can receive coverage for hospital services (Medicare Part A), medical services (Medicare Part B), and prescription drugs (Medicare Part D). Benefits can also be provided through a Medicare Advantage Plan (Medicare Part C).

An option Medicare beneficiaries can choose to receive most or all of their Medicare benefits through a private insurance company. Plans contract with the federal government and are required to offer at least the same benefits as Medicare, but may follow different rules and may offer additional benefits.

An optional program that helps pay for prescription drugs for people on Medicare who join a plan that includes Medicare prescription drug coverage. These plans are offered by insurance companies and other private companies approved by Medicare. Covered individuals use the insurance carrier’s network of pharmacies to purchase prescription medications.

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.

Private insurance policies that can be purchased to “fill-in the gaps” and pay for certain out-of-pocket costs such as Deductibles and Coinsurance not covered by Medicare (Part A and Part B). This is also known as Medigap Insurance.

The minimum amount of cash that must contributed to a pension plan by the plan sponsor, calculated for a given Plan Year. Contributions are generally required to be paid on a quarterly basis, with the final contribution due 8½ months after the end of the Plan Year.

A type of plan where the employer agrees to make fixed contributions each year for eligible employees. The contribution is typically expressed as a percentage of the employee's pay. The contribution must be made each year, regardless of employer profits, and can only be varied by plan amendment. Although treated differently under federal tax law, it is fundamentally a DC Plan.

In general, a group health plan that is sponsored jointly by two or more employers. This type of health plan typically covers workers of two or more unrelated companies in accordance with a collective bargaining agreement.

Non-Highly Compensated Employee acronym. An employee who is not a Highly Compensated Employee (HCE).

A type of employer contribution to a DC Plan which does not require an employee to make their own contributions to the plan.

A termination of employment when a participant is eligible to retire and receive all accrued benefits. Normal Retirement eligibility is usually based on an age (often age 65) or a combination of age and service.

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 the Affordable Care Act (ACA).

An HMO that allows enrollees to receive services outside the network, but at higher costs. The additional costs may be in the form of higher deductibles, copayments, or coinsurance.

A period of time when employees may elect or change the benefit options available through their employer, such as health, dental and life insurance and ancillary or Voluntary Benefits such as legal services or pet insurance.

A health plan will cover treatment for doctors, clinics, hospitals and other providers who are out-of-network, but covered employees will pay more out-of-pocket to use out-of-network providers than for in-network providers.

The most an employee could pay during a coverage period (usually one year) for his or her share of the costs of covered services, including Co-payments and Coinsurance. Until the limit is reached, the plan and the member share in the cost of covered expenses. After the limit is reached, the insurer pays all covered expenses, often up to a lifetime maximum.

An eligible employee who is covered by a retirement plan.

The money that an employee contributes to their DC Plan account.

Pension Benefit Guaranty Corporation acronym. This federal corporation was established by ERISA to provide a safety net for participants in private-sector pension plans. The PBGC guarantees basic benefits under the plan in the event that the employer-sponsored pension plan becomes insolvent. Plan Sponsors are required to pay premiums to the PBGC each Plan Year for this benefit guarantee.

A regular payment made during a person's retirement from a pension plan fund to which that person and/or the person’s employer has contributed to during their working life.

For Defined Benefit (DB) plans, the person(s) or entity ultimately responsible for the oversight, management and administration of the pension plan, and the administration and investment of the pension fund. The Plan Administrator may delegate some or all of its responsibilities for administering the pension plan and administering and investing the pension fund to various service providers.

For Defined Contribution (DC) plans, the person(s) or entity identified in the Plan Document as having responsibility for the oversight, management and administration of the DC Plan. It could be the employer, a committee of employees, a company executive or someone hired for that purpose. The Plan Administrator may delegate some or all of its responsibilities to various service providers.

A comprehensive legal document that sets forth the rights of the plan’s participants and beneficiaries and guides the Plan Sponsor and Plan Administrator in making decisions and executing their responsibilities.

The company or employer that establishes a plan for the benefit of the organization’s employees.

The process, prescribed by the IRS, that a Plan Sponsor must go through to end a pension plan. PBGC coverage ends once a plan is terminated. There are two ways an employer can terminate its pension plan:

• Standard termination – occurs when a pension plan has enough money to pay all benefits owed to participants. The plan must either purchase an annuity from an insurance company to provide the participants’ benefits or offer participants a single lump-sum payment of the entire benefit.

• Distress termination – occurs when a pension plan is not fully funded and the employer is in financial distress. The employer must prove to a bankruptcy court or the PBGC that it cannot remain in business unless the plan is terminated. PBGC will take over the plan as trustee and pay guaranteed plan benefits using plan assets and PBGC guarantee funds.

The one-year period for which plan records are maintained. The Plan Year may be a calendar year, the employer’s fiscal year or another one-year period specified in the Plan Document.

Point-of-Service acronym. A POS plan combines features of PPOs and traditional HMOs. POS enrollees receive more generous benefits for services within the network and for specialist care authorized by their primary care physicians. Benefits are less generous for care received outside the network and for self-referrals.

Pension Protection Act of 2006 acronym. The PPA made significant reforms to U.S. pension laws and regulations, sought to hold Plan Sponsors more accountable for underfunded pension plans, and attempted to strengthen the overall pension system and reduce reliance on the PBGC.

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

Preferred Provider Organization acronym. A PPO is a type of managed care health insurance plan that provides maximum benefits if an employee visits an in-network physician or provider, but still provides some coverage for out-of-network providers. Additional costs for out-of-network providers may be in the form of higher deductibles, higher coinsurance rates, or both, or undiscounted charges.

An illness or medical condition for which an individual received medical advice, diagnosis, care or treatment prior to the date of enrollment in a health benefit plan.

The amount that must be paid for a health insurance plan by covered employees, by their employer, or shared by both. A covered employee's share of the annual Premium is generally paid periodically, such as monthly, and deducted from his or her paycheck.

A tax credit that eligible individuals who enroll for a Qualified Health Plan through the Marketplace can use to lower health plan Premiums. Individuals who quality can take the Premium Tax Credit in the form of advance payments to lower their monthly Premiums. The amount of the credit depends on how much income the eligible individual or family expects to earn.

Covered services that are intended to prevent disease or to identify a disease while it is more easily treatable. ACA requires insurance plans to provide coverage for Preventive Benefits without Deductibles, Co-payments or Coinsurance.

A DC Plan in which a company credits shares of profits to participants’ accounts; employee contributions are not required. Plans may have a fixed formula for sharing profits, but it is not required. Profit sharing contributions to employees’ accounts may be discretionary. Contributions may be allocated proportional to employees’ salaries or in an equal allocation to all employees.

Qualified Default Investment Alternative acronym. A QDIA is a default investment used in a 401(k) Plan when money is contributed to an employee's account, but the employee has not made their investment election.

Qualified Domestic Relations Order acronym. A judgment, decree or domestic order that creates or recognizes an alternate payee’s right to receive all or a portion of a participant’s benefit. An alternate payee may be the participant’s former spouse, child or other dependent.

Qualifying Life Event acronym.  A change in a person’s situation — such as getting married, having or adopting a baby, or losing health coverage — that makes the individual eligible to enroll in or change health insurance and other Flexible Benefits Plan elections outside the yearly Open Enrollment Period.

A health insurance policy that is sold through an Exchange. ACA requires Exchanges to certify that Qualified Health Plans meet minimum standards contained in the law.

Any health insurance that meets the ACA requirement for having health care coverage. Individuals with Qualifying Health Coverage do not have to pay the penalty for being uninsured, which applied through the 2018 plan year. Examples: individual plans, including Marketplace plans; job-based plans; Medicare; Medicaid; and the CHIP. Also referred to as MEC.

A health plan that provides coverage to retirees beyond what is mandated by COBRA or other health continuation laws. The retiree plan does not have to be the same plan that an employer provides its active employees, and the retiree may or may not pay the entire Premium.

A direct transfer of assets from one qualified retirement plan to another qualified retirement plan or IRA. In a direct rollover, the employee is not taxed on the payment until it is withdrawn or distributed later. This is sometimes called a "trustee to trustee" transfer, which is made without any funds being sent directly to the plan participant.

A 401(k) Plan feature that allows employees to make contributions on an after-tax basis. Qualified withdrawals are generally tax free if made after five years and after attaining age 59½.

Roth Individual Retirement Account acronym. A retirement account to which an individual can make annual after-tax contributions according to annual limits that are specified by the IRS.

A 401(k) Plan that is designed in such a way that the plan automatically passes Discrimination Testing or avoids it all together. It is similar to a traditional 401(k) Plan, but the employer is required to make Matching Contributions or Non-Elective Contributions for each employee.

DC Plans in which employees may contribute a predetermined portion of earnings (usually pre-tax) to an individual account. Employers may match a fixed percentage of employee contributions or a percentage that varies by length of service, the amount of employee contribution, or other factors. Contributions are invested as directed by the employee or employer.

Summary of Benefits and Coverage acronym. An easy-to-read summary used to make apples-to-apples comparisons of costs and coverage between health plans. Individuals can use the SBC to compare plan options based on price, benefits, and other features.

Also known as a Flexible Benefits 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.

Under this type of plan, the employer directly assumes the major cost of health insurance for its employees. Some self-insured plans bear the entire risk while other insure against large claims by purchasing stop-loss coverage. Some plans use insurance carriers or third-party administrators for claims processing and administration, while others are self-administered.

Simplified Employee Pensions acronym. An IRA is established for each eligible employee. The employee is immediately vested in employer contributions and generally directs the investment of the money. These arrangements are sometimes called SEP IRAs.

Special Enrollment Period acronym. A time outside the yearly Open Enrollment Period when an individual can sign up for health insurance. To qualify for a SEP, an individual must have a QLE, such as losing health coverage, becoming eligible for Medicare coverage, moving, getting married, having a baby, or adopting a child.

A plan category in the ACA Marketplace which describe health insurance plans that pay for more out-of-pocket costs than Bronze or Catastrophic Health Plan but fewer costs than Gold or Platinum Health Plans. Silver Health Plans pay, on average, 70% of the cost for covered benefits.

Savings-Incentive Match Plan for Employees acronym. A plan limited to employers with fewer than 100 employees who do not have any other qualified retirement plan. SIMPLE plans can be either part of a 401(k) Plan or established as IRAs. Employers must either make Matching Contributions of up to 3% of pay or make 2% of pay Non-Elective Contributions to all eligible employees.

Summary Plan Description acronym. An SPD is a document that an employer must automatically provide at no cost to plan participants. The SPD is an understandable summary of the benefits the plan provides and how the plan works.

Contributions are placed in a trust fund that invests in securities, including those of the employing company. This type of plan is financed by the employer or jointly by the employer and employee. Upon the employee’s retirement or separation from the company, proceeds from the trust fund are paid out in the form of company stock or cash.

Health coverage available at reduced or no cost for people with incomes below certain levels. The employer and employee share the cost of coverage, if any. Examples of Subsidized Coverage include Medicaid and the CHIP. Marketplace insurance plans with Premium Tax Credits are sometimes known as Subsidized Coverage too.

A feature of 401(k) Plans, 403(b) Plans and most 457 Plans that permits an eligible employee aged 60 to 63 to contribute up to 150% of the standard catch-up contribution limit to the plan. See also catch-up contribution.

View current IRS limits for retirement plans.

The present value (determined as of the date of the Actuarial Valuation) of all benefits under the pension plan that are expected to accrue during the current Plan Year based on prescribed actuarial assumptions and cost methods.

A party hired by a Plan Sponsor or Fiduciaries to aid in performing management and/or recordkeeping functions for the DC Plan.

A DC plan is tested annually for Top Heavy status. A plan is Top Heavy when more than 60% of the plan’s assets are attributable to Key Employees. If determined to be Top Heavy, the plan is subject to certain minimum contribution and vesting requirements.

An HMO that provides no benefits for services obtained outside the network.

Traditional Individual Retirement Account acronym. A retirement account to which an individual can make annual tax-deductible contributions according to annual limits that are specified by the IRS.

A pension plan that has a traditional defined benefit formula:

• Career earnings formula – Benefits are based on a percentage of an average of career earnings for every year of service recognized by the plan.

• Dollar amount formula – Benefits are based on a dollar amount per month for each year of service recognized by the plan.

• Final average earnings formula – Benefits are based on a percentage of average earnings during a specified number of years at the end of a worker’s career (or when earnings are highest), multiplied by the number of years of service recognized by the plan.

The entity or group of individuals who hold the assets of a plan in trust. Trustees are either designated in the Plan Document or appointed by another Fiduciary, typically the Plan Sponsor.

The cost associated with a health care service that is consistent with the going rate for identical or similar services within a particular geographic area. Reimbursement for an Out-of-Network Provider is often set at a percentage of the UCR, which may differ from what the provider actually charges for a service.

The amount of time a participant must work before earning a non-forfeitable right to a benefit.

For Defined Benefit (DB) plans, once a participant is vested, the accrued benefit is retained even if the worker leaves the employer before eligibility for Early Retirement or Normal Retirement. There are two types of DB plan vesting:

• Cliff vesting – No vesting occurs until an employee satisfies the service requirements for 100%  vesting—for example, 5 years.
• Graded vesting – An employee’s non-forfeitable right to a benefit increases over time, until reaching 100%.

For Defined Contribution (DC) plans, vesting schedules vary under ERISA and only apply to employer contributions; employee contributions (including pre-tax contributions) are always 100% vested. There are three types of vesting schedules:

• Cliff vesting – No vesting occurs until an employee satisfies the service requirements for 100%  vesting—for example, 5 years.
• Graded vesting – An employee’s non-forfeitable percentage of employer contributions increases over time, until vesting reaches 100%.
• Immediate full vesting – Employees are immediately eligible to receive 100% of employer contributions.

Benefits offered by employers that are paid partially or completely by employees through payroll deductions. Examples of Voluntary Benefits include life and disability insurance, critical illness and accident insurance, pet insurance, ID theft protection and legal services.

A period of time that an individual must wait either after becoming employed or submitting an application for a health care plan before the coverage becomes effective and claims may be paid. Premiums are not collected during this period.

Prior to normal payout (usually at retirement), DC Plan participants may be allowed to withdraw all or a portion of the employer funds from their accounts. Although most early withdrawals incur tax penalties, Hardship Withdrawals do not. To avoid tax penalties, many plans have loan provisions that allow employees to borrow from their accounts, with interest, for a specified period.