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We understand that our industry has some peculiar words. Here is a list of some common terms that you may hear us say.
A group of related employers consisting of two or more organizations that maintain a service relationship and, in certain cases, also share an ownership relationship.
The concept of treating an individual as having ownership in a company, even if they do not directly own any portion of it. This typically applies to the spouse, children, or parents of an actual owner.
In a 401(k) plan, once a participant reaches the age of 50, they become eligible to make an additional elective deferral. The allowable catch-up contribution amount is determined annually by the IRS.
You can reference these limits HERE.
A group of related employers connected through common ownership. Generally, a common ownership threshold of at least 80% is required for the group to be classified as a controlled group.
A participant’s income that qualifies for benefit calculations under a retirement plan. This income must be subject to Social Security and payroll taxes. Distributions or dividends passed through to an owner of an S-Corporation or LLC are not considered eligible compensation.
A person is considered a fiduciary if (s)he can be described as one of the following:
The act of exercising discretionary authority or control over the administration of a plan, or exercising authority or control over the management or disposition of its assets.
A person who provides investment advice for a fee or other compensation, whether direct or indirect, concerning any assets of the plan, or who has the authority or responsibility to provide such advice, even if it is not actually given.
The person who holds discretionary authority or responsibility in the administration of the plan.
An employee who directly owns more than 5% of the employer, or whose ownership is attributed to them through family members (such as a spouse, parent, or child) who own a portion of the company. Ownership attribution can cause an individual to be considered a five-percent owner, even if they do not directly own more than 5%.
The annual information return filed by employee benefit plans with the Department of Labor (DOL) and the Internal Revenue Service (IRS). It provides important data about the plan's financial condition, investments, and operations.
An employee is an HCE for a plan year if they meet one of the two following tests:
The test used to determine if an employee owns more than 5% of the employer at any point during the current plan year or in the 12 months preceding the plan year.
The test used to determine if an employee is a Highly Compensated Employee (HCE), based on whether their compensation during the lookback year exceeds the prescribed dollar amount set by the IRS for that year. You can reference these limits HERE.
The process by which a qualified plan must meet certain requirements to ensure it does not disproportionately favor highly compensated employees, ensuring fairness and compliance.
A retirement plan that meets specific safe harbor requirements outlined in the 401(a)(4) regulations, which automatically satisfy certain nondiscrimination tests. These plans often include mandatory employer contributions, such as matching or nonelective contributions, to ensure the plan does not disproportionately favor highly compensated employees.
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