12b-1 Fee: A fee assessed on certain mutual funds or share classes permitted under an SEC rule to help cover the costs associated with marketing and selling the fund. 12b-1 fees may also be used to cover shareholder servicing expenses.
401(a) Plan: A retirement savings plan set up by an employer that allows for contributions by the employee, the employer, or both. Contribution amounts may be dollar-based or percentage-based. The sponsoring employer sets the level of these amounts as well as eligibility and vesting schedule, and may establish more than one plan, each to serve the needs of a distinct group of employees.
401(k) Plan: A defined contribution plan usually sponsored by a private sector employer, governed under Section 401(k) of the Internal Revenue Code, and intended primarily for long-term retirement saving. Typically, employees (“participants”) contribute pre-tax money each payday into an annuity or a custodial trust account set up for them by the 401(k) plan, and invest that money so that it can grow tax-deferred. When a participant withdraws money from the plan, it’s taxed as ordinary income. However, if the plan offers a Roth option, participants may elect to designate some or all of their contributions to be made with after-tax dollars, allowing them to take withdrawals tax-free, subject to certain rules and regulations.
402(f) Notice (also known as “Special Notice of Tax Treatment”): The administrator of a qualified plan (such as a 401(k) plan) is required to provide to any participant who will receive a distribution that is eligible to be rollover into another qualified plan or individual retirement arrangement (IRA). It is a notice that is designed to be easily understood by the participant and explains the rules that the individual may elect to receive their distribution as a direct rollover or as a cash distribution. This notice contains detail explanations regarding both Roth and non-Roth rollover distributions, pursuant to the IRS code. If the employee decides to take a systematic withdraw from their plan then they will receive this notice annually for the length of the paid out.
403(b) Plan: A defined contribution plan similar to a 401(k) plan, but one which is sponsored by public schools and universities, some nonprofit employers and cooperative hospital service organizations. It gets its name from the Internal Revenue Code section that governs it. Typically, employees (“participants”) contribute pre-tax money each payday into an annuity or a custodial trust account set up for them by the 403(b) plan, and invest that money so that it can grow tax-deferred. When a participant withdraws money from the plan, it’s taxed as ordinary income. However, if the plan offers a Roth option, participants may elect to designate some or all of their contributions to be made with after-tax dollars, allowing them to take withdrawals tax-free, subject to certain rules and regulations.
403(b) Tax-Sheltered Annuity Plan: A 403(b) plan that uses an annuity to maintain participant accounts.
457(b) Governmental Plan: A defined contribution plan for governmental employees that is governed under Section 457(b) of the Internal Revenue Code and commonly known as a governmental deferred compensation plan. Typically, public employees (“participants”) contribute pre-tax money each payday into an annuity or a custodial trust account set up for them by the 457(b) plan, and invest that money so that it can grow tax-deferred. When a participant withdraws money from the plan, it’s taxed as ordinary income. However, if the plan offers a Roth option, participants may elect to designate some or all of their contributions to be made with after-tax dollars, allowing them to take withdrawals tax-free, subject to certain rules and regulations.
Note: Certain non-governmental employers may establish 457(b) plans. However, these plans are under separate rules and regulations and are not interchangeable with governmental 457(b) plans.
Account Accuracy Rule: Relates to the FACTA of 2003, the act that addressed identity theft concerns. FACTA allows consumers to request and obtain a free credit report once every twelve months from three consumer credit reporting companies (Equifax, Experian and TransUnion).
Active Management: The trading of securities to take advantage of market opportunities as they occur, in contrast to passive management. Active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.
Adjustment: Financial transaction initiated by a fund company or employer used to correct a participant's account balance. Includes the following: daily interest, dividends, capital gains, unit adjustments, bad price or price conversions, payroll adjustments, and fund reimbursements.
Aggressive Growth Fund: An investment fund that takes higher risk of loss in return for potentially higher returns or gains.
Allocation: The way deferrals or contributions, are invested among the existing plan funds.
Annual Contribution Limit: Maximum dollar amount a participant can contribute, or defer, to a 401k, 403b and/or 457b plan account(s) or IRA in a tax year. The IRS sets contribution limits annually.
Annual Report: A yearly report or record of an investment’s (e.g., a mutual fund’s or company’s) financial position and operations.
Annual Rate of Return: The annual rate of gain or loss on an investment expressed as a percentage.
Annualized Return: Rate of return for a given period that is less than one year, but computed as if the rate were for a full year.
Annuity: A form of insurance contract that provides a stream of periodic payments, typically for life. Annuities are available in a variety of forms. See also Life Annuity, Joint and Last Survivor Annuity.
Annuity Commencement Date: The date set forth in the annuity contract on which annuity payments will start. Also, known as the “annuity start date.”
Appreciation: An increase in the value of an investment.
Asset: Anything with commercial or exchange value owned by a business, institution or individual. Examples include cash, real estate and investments.
Asset Allocation: A method of investing by which investors include a range of different investment classes such as stocks, bonds, and cash alternatives or equivalents in their portfolios. See Diversification.
Asset-backed Securities: Bonds or notes backed by loan paper or accounts receivable originated by banks, credit card companies, or other providers of credit and often "enhanced" by a bank letter of credit or by insurance coverage provided by an institution other than the issuer.
Asset-based fees: expenses that are based on the amount of assets in the plan and are generally charged as percentages or basis points.
Asset Class: A group of securities or investments that have similar characteristics and behave similarly in the marketplace. Three common asset classes are equities (e.g., stocks), fixed income (e.g., bonds), and cash alternatives or equivalents (e.g., money market funds).
Asset Management Charge: An administrative charge taken as a percentage of assets held by the retirement plan. The purpose of the charge is to cover the expenses/costs of plan education, marketing, recordkeeping and administration services.
Asset Rebalancing: An investing strategy through which a participant periodically exchanges or moves between funds in their account, in an effort, to maintain a specific investment mix designated.
Automatic Asset Rebalancing: An optional service that will periodically exchange money between funds in a participant’s account to maintain the investment mix designated by the participant.
Average Annual Total Return: The yearly average percentage increase or decrease in an investment’s value that includes dividends, gains, and changes in share price.
Back-end Load: A fee imposed by some funds when shares are redeemed (sold back to the fund) during the first few years of ownership. Also, called a contingent deferred sales charge.
Balanced Fund: A fund with an investment objective of both long-term growth and income, through investment in both stocks and bonds.
Basis Point: One-hundredth of one percent, or 0.01%. For example, 20 basis points equal 0.20%. Investment expenses, interest rates, and yield differences among bonds are often expressed in basis points.
Benchmark: An unmanaged group of securities whose performance is used as a standard to measure investment performance. Some well-known benchmarks are the Dow Jones Industrial Average and the S&P 500 Index.
Beneficiary(ies): A person or persons designated by the participant or the plan who is entitled to benefits under the Plan after the death of a participant or alternate payee.
Blue Chip Stocks: Stocks of well-established companies that have had a history of earnings and dividend payments, as well as a reputation for sound management and quality of products and services. While not all large cap stocks are blue chip stocks, there is usually a large cap bias to blue chip stocks.
Bond: A debt security which represents the borrowing of money by a corporation, government, or other entity. The borrowing institution repays the amount of the loan plus a percentage as interest. Income funds generally invest in bonds.
Bond Fund: A fund that invests primarily in bonds and other debt instruments.
Bond Rating: A rating or grade that is intended to indicate the credit quality of a bond, considering the financial strength of its issuer and the likelihood that it will repay the debt. Agencies such as Standard & Poor’s, Moody’s Investors Service, and Fitch issue ratings for different bonds, ranging from AAA (highly unlikely to default) to D (in default).
Broker: A person who acts as an intermediary between the buyer and seller of a security, insurance product, or mutual fund, often paid by commission. The terms broker, broker/dealer, and dealer are sometimes used interchangeably.
Brokerage Window: An optional service which allows a participant to establish a self-directed brokerage account. This option carries distinct charges.
Capital Appreciation Fund: An investment fund that seeks growth in share prices by investing primarily in stocks whose share prices are expected to rise.
Capital Gain: An increase in the value of an investment, calculated by the difference between the net purchase price and the net sale price.
Capital Gains Distribution: Mutual fund distributions, or profits, paid to shareowners from the sale of stocks and/or bonds.
Capital Loss: The loss in the value of an investment, calculated by the difference between the purchase price and the net sale price.
Capital Preservation: An investment goal or objective to keep the original investment amount (the principal) from decreasing in value.
Capitalization (Cap), or Market Capitalization: The total market value of all a company’s outstanding shares. Small-cap generally refers to a company with market capitalization of between $300 million and $2 billion. Mid-cap, between $2 and $10 billion. Large-cap, more than $10 billion. Many mutual funds are categorized based on the average market capitalization of the stocks that they own.
Cash Alternative or Cash Equivalent: An investment that is short term, highly liquid, and has high credit quality.
Cash Refund Annuity: An annuity that makes periodic payments for the life of an individual and a benefit payable to a beneficiary upon death equal to the premium(s) paid less payments made to the individual.
Catch-Up Contributions: The Age 50+ Catch-Up Provision says 457b, 403b and 401k plans may allow participants age 50 and over to contribute more than the maximum contribution limit annually. In addition, 457(b) plans allow a one-time Special Normal Retirement Age 457 Catch-Up contribution. 403(b) plans offer “Qualified Organization Catch-Up Deferrals”.
Category Risk: Morningstar assigns Category Risk Level to each group of mutual funds that invest in the same types of assets. These scores range from 1, for funds with the least amount of relative risk, to 10, for funds with the greatest amount. In determining the Category Risk Level, the scores based on the Morningstar Risk are reviewed by Morningstar's Research Committee. The Committee reviews the preliminary output, and makes changes where necessary, to ensure that the final scores are logically consistent and are updated to reflect current market conditions. How Morningstar Calculates Category Risk Scores: The first step is to determine the average Morningstar Risk for each category over the previous five years. Morningstar Risk is the difference between the Morningstar Return (excess total return over the risk-free rate, adjusted for loads) and the Morningstar Risk Adjusted Return (excess total return over the risk-free rate, adjusted for loads and risk). Risk is measured by the variations in a fund's monthly total returns during the period, with greater risk leading to a lower risk-adjusted return. The Morningstar Return and Morningstar Risk Adjusted Returns for each Category are found using equal weighted average of the total returns of all the funds in the category for a certain time period. The category's Morningstar Risk is then used as the starting point for the Category Risk Level assignments. Assignments can be modified in one of two ways. One method of modification is by logic. For instance, if one municipal bond category falls just across the dividing line from another municipal bond category, even though both invest in very similar types of assets, both categories are adjusted so that they are given the same risk assignment. They may also be adjusted by judgment. One example of this would be Long-Short Market Neutral stock funds. Although these funds tend to show very low risk scores based solely on the variations in their returns, the complexity of their strategies suggests that they should receive a higher risk score than the raw data indicates. In this case, the Category Risk score is adjusted accordingly.
Certificates of Deposit (CDs): Savings certificates issued by banks and insured by the FDIC. They can be issued in any denomination and offer a fixed interest rate payable at a specified maturity date.
Class A shares: Typically impose a front-end sales load and tend to have a lower 12b-1 fee and lower annual expense than other mutual fund share classes. Some mutual funds reduce the front-end load as the size of the investment increases.
Class C shares: These generally have a level load and might include a 12b-1 fee, other annual expenses and either a front- or back-end sales load.
Class I shares: Are often called institutional shares because they are generally intended for financial institutions purchasing shares for their own clients’ accounts. These shares have no front-end sales charge and cannot be purchased by the general public.
Class R shares: These typically provided exclusively to retirement plans and charges can vary based on the plan’s requirements and recordkeeping preferences.
Collective Investment Fund: Investments created by a bank or trust company for employee benefit plans, such as 401(k) plans, that pool the assets of retirement plans for investment purposes. They are governed by rules and regulations that apply to banks and trust companies instead of being registered with the SEC. These funds are also referred to as collective or commingled trusts.
Commission: Compensation paid to a broker or other salesperson for his or her role when investments are bought or sold.
Common Stock: An investment that represents a share of ownership in a corporation.
Company Stock Fund: A fund that invests primarily in employer securities that may also maintain a cash position for liquidity purposes.
Compensation: Money paid to a person or entity for services provided.
Compounding: The cumulative effect that reinvesting an investment’s earnings can have by generating additional earnings of their own.
Conservative: An investment approach that accepts lower rewards in return for potentially lower risks.
Consumer Price Index (CPI): Also, known as the CPI or Cost-of-Living-Index. Released monthly by the US Department of Labor’s Bureau of Labor Statistics, it measures prices of a fixed basket of goods bought by a typical consumer in the United States. Goods include food, transportation, shelter, utilities, clothing, medical care, entertainment, etc.
Contingent Beneficiary: Anyone designated to receive a death benefit in the event of the death of the primary beneficiary. Also, referred to as a secondary beneficiary.
Contingent Deferred Sales Charge (CDSC): A fee imposed when shares of a mutual fund or a variable annuity contract are redeemed (sold) during the first few years of ownership. Also, called a back-end load.
Contribution: The amount an employer and employees (including self-employed individuals) pay into a retirement plan.
Core Account: Portion of a participant’s account that is invested in funds offered select by the Plan Fiduciary. The term is used primarily by plans that either offer a self-directed brokerage option to distinguish assets a participant holds “inside the plan” from assets held in the brokerage account or Fund Window to distinguish assets invested in funds outside of the core funds which are selected by the employer.
Corporate Bond: A bond issued by a corporation, rather than by a government. The credit risk for a corporate bond is based on the re-payment ability of the company that issued the bond.
Cost-of-living adjustments (COLAs): Generally equal to the percentage increase in the consumer price index for urban wage earners and clerical workers (CPI-W) for a specific period.
Credit Risk: The risk that a bond issuer will default, meaning not repay principal or interest to the investor as promised. Credit risk is also known as "default risk."
Cumulative Total Returns: Cumulative total return reflects actual performance over a stated period of time.
Current Yield: The current rate of return of an investment calculated by dividing its expected income payments by its current market price.
Custodian: A person or entity (e.g., bank, trust company, or other organization) responsible for holding financial assets.
Deemed IRA: A separate account or annuity under a Section 457(b) or other employer-sponsored qualified plan that is treated and administered as an Individual Retirement Account (IRA). A deemed IRA can be either a Roth or traditional IRA and required IRA language must be included as part of the plan document.
Deferral: Pre-tax or Roth employee contributions that are a generally a percentage of the employee's compensation. Some plans permit the employee to contribute a specific dollar amount each pay period. 401(k), 403(b) or SIMPLE IRA plans may permit elective deferral contributions.
Deferred Annuity: An annuity contract under which periodic income payments begin at a future date. See Annuity Commencement Date.
Deferred Compensation Plan: Type of retirement plan in which the employer allows employees to contribute a portion of their income to invest in options offered by the plan. Contributions can grow tax-deferred until withdrawal, when the money is taxed as ordinary income.
Defined Benefit Pension Plan: Employer-sponsored retirement plan that promises to pay a specified benefit to each person who retires after a set number of years of service. These plans do not pay taxes on their investments and in some cases, employees contribute.
Defined Contribution Pension Plan: Employer-sponsored retirement plan in which the amount of the annual contribution is specified. Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts plus any investment earnings on the money in the account. In defined contribution plans, future benefits fluctuate on the basis of investment earnings.
Deflation: The opposite of inflation a decline in the prices of goods and services.
Depreciation: A decrease in the value of an investment.
Depression: A severe and prolonged recession, a depression is an economic condition characterized by falling prices, excess of supply over demand, rising unemployment, accumulating inventories, decrease in purchase power and general public fear.
Designated Investment Alternative: The investment options picked by your plan into which participants can direct the investment of their plan accounts.
Direct Deposit (Electronic Fund Transfer or EFT): Is the deposit of funds electronically into a bank account rather than using a paper check. Many employers use direct deposit for employees' pay to be placed directly into their bank account, rather than issuing paper checks.
Distribution: An amount withdrawn from a participant’s plan account, also known as a payout or payment. Depending on the terms of the plan, distributions may be for: Termination of Employment, In-Service, Hardship, Unforeseeable Emergency, Death, or Disability.
Diversification: The practice of investing in multiple asset classes and securities with different risk characteristics to reduce the risk of owning any single investment.
Dividend: Money an investment fund or company pays to its stockholders, typically from profits. The amount is usually expressed on a per-share basis.
Dividend Yield: Portion of what a mutual fund earns from its holdings, stated as an annualized percentage of the fund’s current market price. A quarterly dividend would be equal to one-fourth of the percentage stated in an investment report or prospectus.
Dollar-Cost-Averaging: With dollar-cost-averaging, you invest a fixed amount on a regular basis - regardless of the current market trends. The investor buys more shares when the price is low and fewer shares when the price is high; the overall cost is lower than it would be if a constant number of shares were bought at set intervals. Dollar-cost-averaging does not assure a profit or protect against a loss in a declining market.
Dow Jones Industrial Average (Dow or DJIA): A widely followed price-weighted index of 30 of the largest, most widely held U.S. stocks.
Earned income: Includes all the taxable income and wages you get from working or from certain disability payments.
Earnings: Income derived from an investment or financial product.)
Earnings Per Share (EPS): A measure of a company's earnings or profitability. EPS is calculated by dividing net income for the past 12 months by the number of outstanding common shares of the company.
Effective Date: Date on which an agreement or transaction, such as a contract or insurance policy, takes effect. With transactions, some companies require that they must be submitted by the close of the New York Stock Exchange (NYSE) – normally 4 p.m., ET to be effective on that day. After that time, transactions are usually not effective until the next business day the NYSE is open.
Emerging Market: Generally, economies that are in the process of growth and industrialization, such as in Africa, Asia, Eastern Europe, the Far East, Latin America, and the Middle East which, while relatively undeveloped, may hold significant growth potential in the future. Investing in these economies may provide significant rewards, and significant risks. May also be called developing markets.
Emerging Market Fund: A fund that invests primarily in emerging market countries.
Employee Retirement Income Security Act of 1974 (ERISA): a federal law that imposes various requirements on voluntary established pension plans in the private industry and establishes standards in order to provide protection for plan participants.
Employer Contributions: Contributions made by the employer for the employee. Includes Employer Discretionary Account, Employer Match, and Employer Mandatory (Money Purchase).
End-Result Exchange: Reallocating your current balance changes the investment mix of your portfolio and is sometimes referred to as an end-result exchange. It's an easy way to manually rebalance your entire portfolio without exchanging one fund at a time.
Equity/Equities: A security or investment representing ownership in a corporation, unlike a bond, which represents a loan to a borrower. Often used interchangeably with “stock.”
Equity Fund: A fund that invests primarily in equities.
Equity Wash Restriction: A provision in certain stable value or fixed income products under which transfers made from the stable value or fixed income product are required to be directed to an equity fund or other non-competing investment option of the plan for a stated period of time (usually 90 days) before those funds may be invested in any other plan-provided competing fixed income fund (such as a money market fund).
ERISA: Is a law to protect the interests of employees (and their beneficiaries) who are enrolled in employee benefit plans, and to ensure that employees receive the pensions benefits that have been promised by their employers. For more information, visit www.dol.gov/ebsa/FAQs/faq_compliance_pension.html?vm=r.
Estate: Legal term for the sum of the assets and liabilities for an individual, generally used after the death of an individual.
Estate Planning: Advance planning for how to manage an estate when the owner dies. This is often done years in advance to ensure that the owner’s wishes are met. It can include setting up trusts, planning a will, buying life insurance to cover expenses triggered at death, and coordination of tax liability.
Excessive Trading: A policy that limits the number of times you can exchange into and out of a fund within a given time frame. This is intended to discourage frequent trading that increases the costs to all the fund's investors.
Exchange: Moving of a partial or total current account balance from one investment choice to another choice(s) available in the same plan.
Exchange Traded Fund (ETF): An investment company, such as a mutual fund, whose shares are traded throughout the day on stock exchanges at market-determined prices.
Expense Ratio (Gross): Expense ratio is a measure of what it costs to operate an investment, expressed as a percentage of its assets, as a dollar amount, or in basis points. These are costs the investor pays through a reduction in the investment's rate of return. For a mutual fund, the gross expense ratio is the total annual fund or class operating expenses from the fund's most recent prospectus (before waivers or reimbursements) paid by the fund. If the investment option is not a mutual fund, the expense ratio may be calculated using methodologies that differ from those used for mutual funds. Keep in mind the cumulative effect of fees and expenses can substantially reduce the growth of your retirement savings, but is only one of many factors to consider when you decide to invest in an option. Visit the Department of Labor’s website for an example of the long-term effect of fees and expenses.
Expense Ratio (Net): Expense ratio is a measure of what it costs to operate an investment, expressed as a percentage of its assets, as a dollar amount, or in basis points. These are costs the investor pays through a reduction in the investment's rate of return. For a mutual fund, the net expense ratio is the total annual fund or class operating expense from the fund's most recent prospectus, after any fee waiver and/or expense reimbursements that will reduce any fund operating expenses for no less than one year from the effective date of the fund's registration statement. This number does not include any fee waiver arrangement or expense reimbursement that may be terminated without agreement of the fund's board of trustees during the one-year period. If the investment option is not a mutual fund, the expense ratio may be calculated using methodologies that differ from those used for mutual funds.
Federal Deposit Insurance Corporation (FDIC): A federal agency that insures money on deposit up to a statutory limit in member banks and thrift institutions.
Fiduciary: any person or party who exercises any discretionary authority or control over the management of a plan, or any authority or control over the management or disposition of its assets. Renders investment advice for a fee with respect to the funds or property of the plan, or has the authority to do so. Or has any discretionary authority or discretionary responsibility in the administration of the plan.
Financial Industry Regulatory Authority (FINRA): A self-regulatory organization for brokerage firms doing business in the United States. FINRA operates under the supervision of the SEC. The organization’s objectives are to protect investors and ensure market integrity.
Financial Statements: The written record of the financial status of a fund or company usually published in the annual report. The financial statements generally include a balance sheet, income statement, and other financial statements and disclosures.
Fixed Annuity: An annuity contract in which the insurance company makes fixed or guaranteed payments to an individual for the term of the contract.
Fixed Immediate Annuity: Investment contract sold by an insurance company that guarantees fixed payments, either for life or for a specified period (such as 15 years). The insurance company guarantees both earnings and principal, but guarantees are subject to the claims-paying ability of the issuing insurance company.
Fixed Income Fund: A fund that invests primarily in bonds and other fixed-income securities, often to provide shareholders with current income.
Fixed Investment Five (5) year option: A 60-month automatic exchange or transfer program that allows participants to move 100% of the balance of a fixed fund over a 60-month period. A portion of the balance is automatically moved every month for 60 months to the participant’s variable investment election.
Fixed Return Investment: An investment that provides a specific rate of return to the investor.
Flat rate expenses: base fees charged to a plan regardless of the number of participants and may or may not include preparation of the Form 5500, discrimination testing, vesting calculation, etc.
Flexible Premium Policy: A policy that after the initial premium allows the policy owner to select the frequency and amount of the premiums going forward. Typically, flexible premiums are used in variable universal life and universal life policies. This is opposite of a whole life insurance policy which usually has a fixed premium.
Front-end Load: A sales charge on mutual funds or annuities assessed at the time of purchase to cover selling costs.
Fund Family: A group or “complex” of mutual funds, each typically with its own investment objective, and managed and distributed by the same company. A Fund Family also could refer to a group of collective investment funds or a group of separate accounts managed and distributed by the same company.
Fund Window: A plan feature that permits participants to purchase investments that are not included among the plan’s general menu of designated investment alternatives.
Glide Path: The change over time in a target date fund’s asset allocation mix to shift from a focus on growth to a focus on income.
Global Fund: A fund that invests primarily in securities anywhere in the world, including the United States.
Government Securities: Any debt obligation issued by a government or its agencies (e.g., Treasury Bills issued by the United States).
Gross Domestic Product (GDP): Total value of goods and services produced in a country in one year.
Group Annuity Contract: An annuity contract entered into between an insurance company and an owner for the benefit of a designated group, such as retirement plan participants.
Growth Fund: A fund that invests primarily in the stocks of companies with above-average risk in return for potentially above-average gains. These companies often pay small or no dividends and their stock prices tend to have the most ups and downs from day to day.
Growth and Income Fund: A fund that has a dual strategy of growth or capital appreciation and current income generation through dividends or interest payments.
Guaranteed Interest Account: An account within a fixed annuity or a variable annuity that is guaranteed by the insurance company to earn at least a minimum rate of interest while invested in the contract.
Guaranteed Investment Contract: A contract issued by an insurance company that guarantees a specific rate of return on an investment over a certain time period.
Guaranteed Lifetime Withdrawal Benefit or Guaranteed Minimum Withdrawal Benefit: A feature that may be offered under an annuity contract in which the insurance company promises an individual may withdraw a specified amount from an account, even if the account balance is reduced to zero: (1) for the life of the individual, or the joint lives of two individuals (e.g., the individual and spouse); or (2) for a specified period of time.
High-Yield Funds: High yield funds may invest in lower quality debt securities, which generally offer higher yields, but also carry more risk.
In-Service Withdrawals: A withdrawal made from a qualified plan account before the holder experiences a triggering event. A triggering event, such as reaching a certain age, or leaving an employer, is often needed to be able to withdraw funds from a plan, such as a 401(k). Companies only charge a distribution fee which is the same for all distributions, the in-service maybe subject to the 10% additional tax by the IRS if made prior to attaining age 59 ½ or some other tax (or fee) depending on the situation.
Immediate Annuity: An annuity contract under which periodic income payments begin within 12 months of purchase.
Inception Date: The date that a fund began operations.
Income Annuity: With an income annuity, an insurance company will provide you with an income guaranteed for as long as you live in return for a lump sum purchase. Your income represents a combination of both interest and principal. Once payments begin, no withdrawals or surrenders are allowed. There are fixed and variable income annuities. A fixed income annuity can provide you with a source of income that includes principal and earnings. Earnings continue to grow at a fixed rate of return on the remaining balance. The amount of income you receive is based on the performance of a specified portfolio in which your lump sum is invested. A variable income annuity turns the growth from the portfolio into an immediate source of income. A variable income annuity can provide you with a source of income which has the potential to increase to help you keep pace with inflation. The amount of income you receive is based on the performance of portfolios you can choose, many of which are equity based portfolios to help you keep pace with inflation. A variable income annuity turns the growth from equity based portfolios into an immediate source of income.
Income Fund: A fund that primarily seeks current income rather than capital appreciation.
Index: A benchmark against which to evaluate a fund's performance. The most common indexes for stock funds are the Dow Jones Industrial Average and the Standard & Poor's 500 Index.
Index Fund: An investment fund that seeks to parallel the performance of a particular stock market or bond market index. Index funds are often referred to as passively managed investments.
Individual Annuity Contract: An annuity contract generally entered into between an insurance company and a person or persons. Individual Retirement Account (IRA): Retirement accounts owned and funded by an individual. Two common types of IRAs are traditional IRAs and Roth IRAs. Contributions to a traditional IRA are eligible for a credit when the individual files a federal income tax return. Withdrawals are taxed as ordinary income. Contributions to a Roth IRA are not eligible for a tax credit, but withdrawals may be taken tax-free (subject to certain conditions and restrictions).
Individual service expenses: those charges that are applied individually to participants who elect certain special plan features, such as participant loans.
Inflation: The overall general upward price movement of goods and services in an economy. Inflation is one of the major risks to investors over the long term because it erodes the purchasing power of their savings.
Interest/Interest Rate: The fee charged by a lender to a borrower, usually expressed as an annual percentage of the principal. For example, someone investing in bonds will receive interest payments from the bond’s issuer.
Interest Rate Risk: The possibility that a bond’s or bond fund’s market value will decrease due to rising interest rates. When interest rates (and bond yields) go up, bond prices usually go down and vice versa.
Internal Revenue Code (IRC): Body of law containing federal tax provisions, including those that govern or impact 457b, 403b, 401k and 401a plans, IRAs and defined benefit pension plans. References to specific section numbers in more formal documents are often preceded by §, as in IRC §457(b) for Section 457(b) of the Internal Revenue Code.
Internal Revenue Service (IRS): The U.S. government agency responsible for tax collection and tax law enforcement.
International Fund: A fund that invests primarily in the securities of companies located, or with revenues derived from, outside of the United States.
Investment Adviser: A person or organization hired by an investment fund or an individual to give professional advice on investments and asset management practices.
Investment Company: A corporation or trust that invests pooled shareholder dollars in securities appropriate to the organization’s objective. The most common type of investment company, commonly called a mutual fund, stands ready to buy back its shares at their current net asset value.
Investment Objective: The goal that an investment fund or investor seeks to achieve (e.g., growth or income).
Investment Return: The gain or loss on an investment over a certain period, expressed as a percentage. Income and capital gains or losses are included in calculating the investment return.
Investment Risk: The possibility of losing some or all of the amounts invested or not gaining value in an investment.
IRA Transfer: Custodian-to-custodian transfer of an IRA. The owner does not take possession of the assets – they’re transferred directly from one plan custodian to another.
Joint Account: Account where two or more individuals (account owners) who jointly (equally) share its concomitant rights and liabilities. Joint holders of an account are regarded in law as together making up the 'owner.'. Two types of Joint Accounts are Joint Tenants-in-Common and or Joint Tenancy Accounts
Joint and Last Survivor Annuity: An annuity that provides periodic payments for the joint lives of two individuals with benefits payable upon the death of one individual to the surviving individual at, for example, 50%, 75% or 100% of the original payment amount depending upon the terms of the contract.
Joint Tenants-in-Common: Is usually owned by two or more business partners or directors in which signatures of all owners are required to exercise certain rights such as making withdrawals. In case of one or more owners' death the other owner(s) may take control of account assets only in accordance with the terms of agreement entered between them before such eventuality. A company account operated by two or more signatories as a means of accounting control or security is not a joint account in the legal sense.
Joint Tenancy Account: Type of joint account where the owners (owned usually by a married couple) in which either owner may individually exercise full rights to make deposits or withdrawals on his or her signatures. In case of either owner's death, the survivor automatically takes the sole control of account assets without probate.
Keogh Plan: Qualified retirement plan that is a tax-deferred and is available to self-employed individuals or unincorporated businesses for retirement purposes. A Keogh plan can be set up as either a defined-benefit or defined-contribution plan, although most plans are defined as contributions.
Large Capitalization (Cap): A reference to either a large company stock or an investment fund that invests in the stocks of large companies.
Large Cap Fund: Funds that invest in stocks of large-cap companies (those with a market capitalization value of more than $10 billion) and represent the majority of the U.S. equity market. They are often looked to as core portfolio investments. Characteristics often associated with large cap stocks include transparency and stability.
Large Cap Stocks: Stocks of companies with a large market capitalization. Large caps tend to be well-established companies, so their stocks typically entail less risk than smaller caps, but large-caps also offer less potential for dramatic growth.
Life Annuity: An annuity that makes periodic payments only for the life of one individual. Also, known as “single life annuity.”
Lifecycle Fund: A fund designed to provide varying degrees of long-term appreciation and capital preservation based on an investor’s age or target retirement date through a mix of asset classes. The mix changes over time to become less focused on growth and more focused on income. Also, known as “target date retirement” or “age-based” funds.
Lifestyle Fund: A fund that maintains a predetermined risk level and generally uses words such as “conservative,” “moderate,” or “aggressive” in its name to indicate the fund’s risk level. Used interchangeably with “target risk fund.”
Liquidity: The ease with which an investment can be converted into cash. If a security is very liquid, it can be bought or sold easily. If a security is not liquid, it may take additional time and/or a lower price to sell it.
Loan: An optional provision available to retirement plan sponsors. If adopted by the sponsor, participants may request to borrow money from their retirement account.
Loan Principal: The amount borrowed – interest is calculated on the principal.
Longevity Risk: The risk that you will live longer than expected with the potential result that you run out of money before you die.
Long-Term Gain: Profit earned from the sale of a security held longer than 12 months.
Management Fee: A fee or charge paid to an investment manager for its services.
Managed Account Service: An option, for-fee, professional money management service offered to all participants of a retirement plan which allows participants to direct their investments. An independent financial expert selects and monitors investments based on a participant’s personal profile, age and risk tolerance. The investment strategy seeks to enhance diversification, increase returns and control risk.
Mandatory Employee Contribution: Each Participant, as a condition of employment, will be required to make a Mandatory Employee Contribution in the amount elected by the Plan Sponsor. Under this option, the Employee, as a condition of employment, must make an irrevocable election to contribute a percentage of his/her Compensation no later than his/her Plan Entry Date. The Mandatory Employee Contributions are excludible from the Employee’s gross income. During the period of the Participant’s participation in the Plan, the Participant may not revoke the election and receive cash in lieu of the contribution, nor may the Participant change the amount of the Mandatory Employee Contribution. The Employer may “pick-up” these contributions under IRC Section 414(h).
Market Capitalization or Market Cap: The market value of a company. Market capitalization can be determined by multiplying the number of outstanding shares of a company’s stock by the stock’s current market price per share.
Market Risk: The possibility that the value of an investment will fall because of a general decline in the financial markets.
Market Timing: The frequent movement between and among mutual funds to potentially capitalize on perceived or anticipated market trends. Market timing does not ensure profitability and, because it often operates to the detriment of other investors, fund managers may assess fees on sales of funds held for short periods.
Matching Contribution: A matching contribution made by an employer to the account of the participant who makes a similar contribution to their employer sponsored retirement plan. These contributions are generally based on a percentage of the participant's compensation. This arrangement preserves the participant’s ability to make maximum contributions to their retirement plan account regardless of any employer contribution.
Maturity Date: The date on which the principal amount of a loan, bond, or any other debt becomes due and is to be paid in full.
Maximum Deferral: Largest amount of compensation a participant can defer into a retirement plan annually. This limit is set by the IRS.
Mid-Capitalization (Cap): A reference to either a medium sized company stock or an investment fund that invests in the stocks of medium-sized companies.
Mid Cap Fund: A fund that invests primarily in mid-cap stocks.
Mid Cap Stocks: Stocks of companies with a medium market capitalization. Mid caps are often considered to offer more growth potential than larger caps (but less than small caps) and less risk than small caps (but more than large caps).
Money Market Fund: A mutual fund that invests in short-term, high-grade fixed-income securities, and seeks the highest level of income consistent with preservation of capital (i.e., maintaining a stable share price).
Money Source: Origin of contributions made to a retirement plan or of funds being transfer/rollover into the retirement plans. The source may affect how an asset is treated within a plan type in regards to distribution rules and taxation.
Morningstar: A leading mutual fund research and tracking firm. Morningstar categorizes funds by objective and size, and then ranks fund performance within those categories.
Municipal Securities: A general term referring to securities issued by local governmental subdivisions such as cities, towns, villages, counties or special districts, as well as securities issued by states and political subdivisions or agencies of states. A prime feature of these securities is that interest on them is generally exempt from federal income taxes and, in some cases, state and local taxes too.
Mutual Fund: An investment company registered with the SEC that buys a portfolio of securities selected by a professional investment adviser to meet a specified financial goal (investment objective). Mutual funds can have actively managed portfolios, where a professional investment adviser creates a unique mix of investments to meet a particular investment objective, or passively managed portfolios, in which the adviser seeks to parallel the performance of a selected benchmark or index.
Nationwide ProAccount®: Nationwide Investment Advisors, LLC, (“NIA”) offers a discretionary managed account service, Nationwide ProAccount, that provides professional management of assets in participant directed or plan sponsor/trustee directed defined contribution and deferred compensation retirement plans. NIA, an SEC registered investment adviser and a Nationwide affiliate, has hired Wilshire Associates (“Wilshire”) to be the independent financial expert (“IFE”) for Nationwide ProAccount. NIA is responsible for the selection of Wilshire as IFE and the periodic monitoring of its services. As the IFE, Wilshire’s investment process is designed to take into account the evolving investment needs of retirement plan participants over time, as well as varying tolerances for risk. Wilshire has sole control and discretion over the development and ongoing maintenance of the Nationwide ProAccount portfolios, including periodic rebalancing and changes to asset allocation and fund selection.
NASDAQ: The National Association of Securities Dealers Automated Quotation also called the “electronic stock market.” The NASDAQ composite index measures the performance of more than 5,000 U.S. and non-U.S. companies traded “over the counter” through NASDAQ.
Net Asset Value (NAV): The net dollar value of a single investment fund share or unit that is calculated by the fund on a daily basis.
New York Stock Exchange (NYSE): The oldest and largest stock exchange in the United States, founded in 1792.
No-Load Fund: A mutual fund whose shares are sold without a sales commission and which does not charge a combined 12b-1 fee and service fee of more than 25 basis points or 0.25% per year.
Normal Retirement Age (NRA): The age at which people can receive full benefits upon leaving the work force.
Note: A debt obligation similar to a bond, but with a maturity date less than five years from date of issue.
Operating Expenses: The expenses associated with running or operating an investment fund. Operating expenses may include custody fees, management fees, and transfer agent fees. See Expense Ratio and Total Annual Operating Expenses.
Passive Management: The process or approach to operating or managing a fund in a passive or non-active manner, typically with the goal of mirroring an index. These funds are often referred to as index funds and differ from investment funds that are actively managed.
Payout: see Distributions
Payroll Frequency: The amount of time between employee pay days. Common pay frequencies include: monthly, semi-monthly (twice each month), bi-weekly (every other week), weekly, and daily.
Per participant charges: charges that are based on the total number of eligible employees or actual participants in the plan.
Performance: The results of an investment over a period of time.
Performance Benchmark: Index used to evaluate a mutual fund’s performance.
Period Certain: A payment feature that may be available in an annuity contract which guarantees periodic payments for no less than a set period of time. For example, in a life annuity, periodic payments would be made for the longer of either: (1) the guaranteed period, to the individual or a beneficiary, or (2) the life of the individual.
Plan administrative expenses: charges used to cover services provided for the day-to-day operations of the plan, such as record keeping, accounting, customer service support, daily valuation, etc.
Plan Document: A written instrument under which the plan is established and operated.
Pooled guaranteed investment contract (GIC) fund charges: charges for a common fixed income investment option that includes a number of contracts issued by an insurance company or bank which pays an interest rate; includes investment management and administrative fees.
Portfolio: A collection of investments such as stocks and bonds that are owned by an individual, organization, or investment fund.
Portfolio Manager: The individual, team or firm who makes the investment decisions for an investment fund, including the selection of the individual investments.
Portfolio Turnover Rate: A measure of how frequently investments are bought and sold within an investment fund during a year. The portfolio turnover rate is usually expressed as a percentage of the total value of an investment fund.
Post-Tax: A contribution made to any designated retirement or any other account after taxes has been deducted from an individual's or companies’ taxable income. After-tax contributions can be made on a tax deferral, and on a non-tax deferral basis, pending on the type of account the entity is making contributions to.
Pre-Tax: Any contribution made to a designated pension plan, retirement account or other tax deferred investment vehicle where the contribution is made before federal and/or municipal taxes are deducted.
Preferred Stock: A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights. The precise details as to the structure of preferred stock are specific to each corporation. However, the best way to think of preferred stock is as a financial instrument that has characteristics of both debt (fixed dividends) and equity (potential appreciation). Also, known as "preferred shares."
Prime Rate: Interest rate commercial banks charge their best clients - generally large corporations. Many consumer loans, such as mortgages, automobile and credit card loans are tied to the prime rate.
Principal: The original dollar amount of an investment. Principal may also be used to refer to the face value or original amount of a bond.
Prospectus: The official document that describes certain investments, such as mutual funds, to prospective investors. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services, and fees.
Provider/recordkeeping expenses: these expenses are a combination of various charges that are included into one, called the asset management charge (AMC). These are also known as the wrap charge.
Purchase Block: Is a policy established by a mutual fund to prevent investors, including retirement plan participants, who move $5000 or more out of its mutual fund in a single day, and prohibit them from moving $5000 or more back into the same mutual fund for a period of 30 days. This is to prevent frequent trading, which tends to increase costs to all investors in the fund.
Qualified Domestic Relations Order (QDRO): is a judicial order in the United States, entered as part of a property division in a divorce or legal separation that splits a retirement plan or pension plan by recognizing joint marital ownership interests in the plan, specifically the former spouse's interest in that spouse's share of the asset. A QDRO's recognition of spousal ownership interest in a plan participant's (employee's) pension plan awards a portion of the plan participant's benefit to an alternate payee. An alternate payee must be a spouse, former spouse, child or other dependent of the plan participant. A QDRO may also be entered for spousal support or child support.
Qualified Plan: must satisfy the Internal Revenue Code in both form and operation. That means that the provisions in the plan document must satisfy the requirements of the Code and that those plan provisions must be followed. The IRS administers a determination letter program that enables plan sponsors to get advance assurance as to the form of their retirement plan document. Employers should establish practices and procedures to ensure the plan is operated in accordance with the plan document so participants and beneficiaries receive their proper retirement benefits. Be aware that the law and regulations in the retirement plans area frequently changes. Make sure your plan document and determination letter, if applicable, are up to date. Employer-sponsored defined benefit and defined contribution plans, including governmental 403(b) and 401(k) plans, are qualified plans. 457(b) plans are not technically qualified plans but share most of the same tax characteristics of qualified plans.
Rate of Return: The gain or loss on an investment over a period of time. The rate of return is typically reported on an annual basis and expressed as a percentage.
Real Rate of Return: The rate of return on an investment adjusted for inflation.
Reallocate: Process of rebalancing the investment mix of an entire portfolio instead of exchanging one mutual fund at a time. Participants may reallocate their account when they get closer to retirement, to potentially invest in less aggressive mutual funds, for instance.
Rebalance: The process of moving money from one type of investment to another to maintain a desired asset allocation.
Recession: General economic decline that generally lasts from six to eighteen months.
Redemption: To sell fund shares back to the fund. Redemption can also be used to mean the repayment of a bond on or before the agreed upon pay-off date.
Redemption Fee: A fee, generally charged by a mutual fund, to discourage certain trading practices by investors, such as short-term or excessive trading. If a redemption fee is charged it is done when the investment is redeemed or sold.
Required Minimum Distributions (RMD’s): Generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 72 years of age or, if later, the year in which he or she retires.
Return: The gain or loss on an investment. A positive return indicates a gain, and a negative return indicates a loss.
Risk: The potential for investors to lose some or all the amounts invested or to fail to achieve their investment objectives.
Risk-based Funds: Mutual funds that include an asset mix (stocks, bonds, cash and cash-like products) based on a participant's investment style and tolerance for risk (e.g., moderately conservative).
Risk Tolerance: An investor's ability and willingness to lose some or all of an investment in exchange for greater potential returns.
Rollovers: Distributions that can be rolled over are called "eligible rollover distributions”. They are funds from a retirement plan or IRA are paid directly to the investor, who deposits some or all of the funds in another retirement plan or IRA.
Roth contribution: Amount contributed to a designated Roth account is includible in gross income in the year of the contribution, but eligible distributions from the account (including earnings) are generally tax-free. 401(k), 403(b), or Governmental 457(b) plans are the only plan types that are allowed to hold designated Roth contributions.
Rule of 72: A calculation used to estimate how many years it will take an investment to double in value. To use the Rule of 72, divide 72 by the assumed rate of return of the investment. For example, if $1,000 is invested at an 8% annual rate of return, the money may double in nine years. Since variable investments fluctuate in value, there can be no guarantee how long it will take to double the money.
Salary Deferral: Please see Deferral
Sales Charge: A charge for buying an investment.
Sector Fund: A fund that invests in a particular or specialized segment of the marketplace, such as stocks of companies in the software, healthcare, or real estate industries.
Securities and Exchange Commission (SEC): Government agency created by Congress in 1934 to regulate the securities industry and to help protect investors. The SEC is responsible for ensuring that the securities markets operate fairly and honestly.
Security: A general term for stocks, bonds, mutual funds, and other investments.
Self-Directed Brokerage Account: An account in which a plan participant makes individual decisions about what stocks, bonds and mutual funds to buy through a brokerage window. Additional fees for this service may apply.
Separate Account: An insurance company account that is segregated or separate from the insurance company’s general assets. Also, refers to a fund managed by an investment adviser for a single plan.
Share: A representation of ownership in a company or investment fund.
Share Class: Some investment funds and companies offer more than one type or group of shares, each of which is considered a class (e.g., “Class A,” “Advisor” or “Institutional” shares). For most investment funds, each class has different fees and expenses but all of the classes invest in the same pool of securities and share the same investment objectives.
Shareholder: An owner of shares in an investment fund or corporation.
Shareholder-Type Fees: Any fee charged against your investment for purchase and sale, other than the total annual operating expenses.
Short-Term Capital Gains: Profits from the sale of a stock and/or bond held for one year or less.
Short-Term Investments: Short-Term Investments include two basic underlying asset types: (1) cash, which refers to short term securities, such as bank certificates of deposit (CDs) and money market funds and (2) fixed income, which includes securities issued by the U.S. Government, U.S. Agencies, corporate bonds, residential and commercial mortgage-backed securities, and other asset-backed securities. Typically, short-term investments encounter less market risk than do stocks, diversified real return, and bonds because of their short duration. Therefore, they usually provide a lower rate of return than investments in those categories.
Single Premium Deferred Annuity (SPDA): Type of annuity contract that is established with a single lump-sum payment by the owner which may grow on a tax-deferred basis until annuitized. An SPDA may be either fixed or variable, distributions are only taxed when you take them and there are no investment limits.
Small Capitalization (Cap): A reference to either a small company stock or an investment fund that invests in the stocks of small companies.
Small Cap Fund: A fund that invests primarily in small-cap stocks.
Small Cap Stocks: Stocks of companies with a smaller market capitalization. Small caps are often considered to offer more growth potential than large caps and mid-caps but with more risk.
Specialty Fund: Funds that invests predominantly or exclusively in a single industry, sector, or region of the world. Specialty funds perform well when their industries perform well, but they are risky because there is no attempt at diversification.
Spousal IRA: This type of individual retirement account allows a working spouse to contribute to a nonworking spouse's retirement savings. This creates an exception to the provision that an individual must have earned income to contribute to an IRA.
Stable Value Fund: An investment fund that seeks to preserve principal, provide consistent returns and liquidity. Stable value funds include collective investment funds sponsored by banks or trust companies or contracts issued by insurance companies.
Standard & Poor's 500 Stock Index (S&P 500): An index comprised of 500 widely held common stocks considered to be representative of the U.S. stock market in general. The S&P 500 is often used as a benchmark for equity fund performance.
Stock: A security that represents an ownership interest in a corporation.
Stock Fund: A fund that invests primarily in stocks.
Stock Market: Commonly referred to in the singular form "market", all stock markets are auctions, where traders come together to buy and sell ownership shares in companies, investment bonds, and other investment items. Some of the largest stock markets include The New York Stock Exchange, The Chicago Mercantile Exchange, The NASDAQ and The London Stock Exchange. Similar to most auctions, prices are driven by supply and demand, the real or perceived value of the item and/or emotion. It's for this reason that prices continually change on the market.
Stock Market Correction: A drop in the stock market in a short period of time. A stock market correction typically occurs following a sharp increase or a negative event.
Stock Symbol: An abbreviation using letters and numbers assigned to securities to identify them. Also, see Ticker Symbol.
Summary Prospectus: A short-form prospectus that mutual funds generally may use with investors if they make the long-form prospectus and additional information available online or on paper upon request.
Systematic Withdrawal Plan: Plan where a fixed dollar amount or percentage is redeemed from a retirement account at regular intervals (monthly, quarterly, etc.). This plan is popular with retirees who will have a certain amount redeemed from a mutual fund or retirement plan on a regular basis, while keeping their remaining assets in the fund or plan.
Target Date Fund: A fund designed to provide varying degrees of long-term appreciation and capital preservation based on an investor’s age or target retirement date through a mix of asset classes. The mix changes over time to become less focused on growth and more focused on income. Also, known as a “lifecycle fund.”
Target Risk Fund: A fund that maintains a predetermined asset mix and generally uses words such as “conservative,” “moderate,” or “aggressive” in its name to indicate the fund’s risk level. Often used interchangeably with “lifestyle fund.”
Tax-Deferral: Pre-tax money invested now to grow tax-free until money is withdrawn, at which point taxes (typically income taxes and capital gains taxes) will be assessed. Used to help people save for retirement in both the public and private sector.
Term Life Insurance: Policy with a set coverage period or duration. There is no cash value and no underlying investment.
Ticker Symbol: An abbreviation using letters and numbers assigned to securities and indexes to identify them. Also, see Stock Symbol.
Time Horizon: The amount of time that an investor expects to hold an investment before taking money out.
Total Annual Operating Expenses: A measure of what it costs to operate an investment, expressed as a percentage of its assets, as a dollar amount, or in basis points. These are costs the investor pays through a reduction in the investment's rate of return. See Expense Ratio and Operating Expenses.
Total Return: Return on an investment, taking into account capital appreciation, dividends or interest, and individual tax considerations adjusted for present value and expressed on an annual basis.
Transaction-based expenses: expenses that are based on the execution of a particular plan service or transaction.
Transaction Types: investment-related transactions that can be processed on your account. Following are some examples of transaction types which may be processed in your account: contributions, exchanges, distributions, fees, and loan repayments.
Trust: Legal arrangement through which title to assets is given to one party to manage for the benefit of others. Under Internal Revenue Code regulations, defined contribution retirement plan assets must be held in a trust or an annuity established for the benefit of participants or their beneficiaries.
Trustee: A person or entity (e.g., bank, trust company, or other organization) that is responsible for the holding and safekeeping of trust assets. A trustee may also have other duties such as investment management. A trustee that is a “directed trustee” is responsible for the safekeeping of trust assets but has no discretionary investment management duties or authority over the assets.
Underlying Funds: The investments in a mutual fund, a variable annuity's separate account fund or other fund.
Unearned Income: Income from sources other than salary or wages from employment. They include interest income and capital gains, among other forms income.
Unforeseeable Emergency: A severe financial hardship, as defined by a governmental 457(b) deferred compensation plan. While the plan document may add further criteria, an unforeseeable emergency must be defined in the plan as (1) a severe financial hardship of the participant that results from illnesses or accidents of the participant, their spouse or a dependent, (2) unreimbursable loss of the participant’s property due to casualty, or (3) other similar extraordinary and unforeseeable circumstances that arise as a result of events beyond the participant’s control.
Unit: A representation of ownership in an investment that does not issue shares. Most collective investment funds are divided into units instead of shares. See Share.
Unitholder: An owner of units in an investment. See Shareholder.
Unit Class: Investment funds that are divided into units (e.g., collective investment funds) instead of shares may offer more than one type or group of units, each of which is considered a class (e.g., “Class A”). For most investment funds, each class has different fees and expenses but all of the classes invest in the same pool of securities and share the same investment objectives.
Unit Value: The dollar value of each unit on a given date.
Universal Life Insurance: Flexible permanent life insurance combining the low-cost protection of term life insurance and a savings element (like whole life insurance) invested to provide a cash value buildup. Allows the policyholder to use the interest from his or her accumulated savings to help pay premiums.
U.S. Treasury Securities: Debt securities issued by the United States government and secured by its full faith and credit. Treasury securities are the debt financing instruments of the United States Federal government, and they are often referred to simply as Treasuries.
Value Fund: A fund that invests primarily in stocks that are believed to be priced below what they are really worth.
Variable Annuity: An annuity contract under which the insurance company promises to make payments beginning immediately or at some future date. The value of the annuity and amount of the benefits paid by the insurance company will vary depending on the performance of the investment options.
Variable annuity charges: Charges for investments offered by insurance companies which include investment management and administrative fees; insurance-related charges such sales expenses; and surrender and transfer charges when an employee terminates or withdraws for the plan’s investment.
Variable Return Investment: Investments for which the return is not fixed. This term includes stock and bond funds as well as investments that seek to preserve principal but do not guarantee a particular return, e.g., money market funds and stable value funds.
Variable Universal Life Insurance (VUL): Life insurance policy that builds a cash benefit and guarantees a minimum death benefit to be paid to the policy's state beneficiaries, as long as there is sufficient cash value. The cash value or benefit of a VUL may be invested in separate accounts as determined by the contract owner.
Voice Response System (VRS or VRU): Automated phone system that allows you to access your account information, perform account transactions, and request materials. Account access requires a personal identification number (PIN).
Volatility: The amount and frequency of fluctuations in the price of a security, commodity, or a market within a specified time period. Generally, an investment with high volatility is said to have higher risk since there is an increased chance that the price of the security will have fallen when an investor wants to sell.
Withholding Tax: A tax assessed by the relevant tax authority on distributions, including dividends and capital gains. Tax rates of withholding amounts vary by transaction.
Whole Life Insurance: A life insurance contract with both an insurance and an investment component. The insurance component may pay a stated amount upon death of the insured; the investment component accumulates a cash value that the policyholder can withdraw or borrow against.
Withdrawal: see Distributions
Wrap Fee: A fee or expense that is added to or “wrapped around” an investment to pay for one or more product features or services.
Yield: The value of interest or dividend payments from an investment, usually stated as a percentage of the investment price.