Dru Horenstein attorney at law

Glossary

Accrued Benefit This is a benefit that an employee acquires by participating in a retirement plan. If you have a defined benefit plan, the accrued benefit is determined by reference to the benefit that will be provided to a participant when he/she reaches normal retirement age as specified by the plan. The defined benefit is usually based in part on time of service with your employer and compensation earned. The account is in most cases not an individually funded account with a balance.

Alternate Payee A spouse, former spouse, child or other dependent of a participant who, according to a domestic relations order, is entitled to receive all or a portion of the benefits payable under a plan with respect to the participant.

Annuity Periodic payments that continue based on the lifetime of the retirement plan participate or the alternate payee over a defined period of time.

Beneficiary A person designated by a participant or an alternate payee who may be eligible for benefits under the plain if the participant or the alternate payee dies with some or all of the account or benefit remaining.

Cost of Living Adjustments (COLAs) COLAs are increases to the amount of a pension benefit to sustain the purchasing power of the benefit as inflation occurs over time. These adjustments, however, are not guaranteeed and are only implemented in accordance with the specific terms and conditions of the defined benefit plan. Usually manager of the plan has discretion whether to make COLAs.

Defined Benefit Plan This type of plan provides participants with a specific benefit, usually for a certain number of years after retirement. A formula is used to calculate the total benefit, usually based on factors such as time of service and compensation earned. With this type of plan, the employer bears the entire investment risk and is obligated to cover any shortfall.

Defined Contribution Plan This type of plan provides an individual account for each participant. The most common type of account in this plan is a 401(k). The participant and employer make contributions depending on the exact terms of the plan. This plan account value is at risk and any loss reduces the participant's overall account value.

Domestic Relations Order (DRO) This term refers to a judgment, order or decree, including a court approved property settlement agreement that relates to the provision of child support, spousal support or marital property rights for the benefit of a spouse, former spouse, child or other dependent of a plan participant. A DRO becomes a "Qualifed Domestic Relations Order" or QDRO when it is determined by the Plan Administrator to have met qualification requirements in according with the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986.

Early Retirement Subsidy When a participant retires before normal retirement age with a benefit in a defined benefit plan, the amount of the retirement benefit is actuarially reduced to account for the fact that it will be paid over a longer period of time. If a participant retires prior to normal retirement age and the plan does not apply a full actuarial reduction in the amount of benefit that is paid to the participant, the amount by which the benefit has not been actuarially reduced is called an early retirement subsidy. A participant who receives an early retirement subsidy receives a greater total benefit than the participant would have received if the benefit were paid with a full actuarial reduction.

Earnings This refers to the result of any investment in a defined contribution account. This amount may include dividends, interest, gains and/or losses, as calculated in accordance with the plan’s procedures. Earnings impact the net value of the account and are distinct from any contributions.

Employee Retirement Income Security Act of 1974 (ERISA) ERISA is the federal statute that governs employee benefit plans. ERISA incorporates certain Internal Revenue Code provisions and labor law provisions. It was enacted with the purpose to protect the interests of participants and beneficiaries of employee benefit plans. ERISA imposes a series of qualification requirements and fiduciary responsibilities on welfare benefit and retirement plans. It also outlines enforcement procedures.

Joint and Survivor Annuity An annuity paid for the life of the plan participant with a survivor annuity for the participant's spouse. The survivor annuity must be at least 50% but not more than 100% of the annuity received by the participant during his or her lifetime.

Jurisdiction A court's power to decide a case or issue a decree over the subject matter, the rights of the parties, and the type of relief sought.

Marital Property Fraction A marital property fraction can be used to signify the portion of a participant’s total accrued vested benefit which was acquired during the marriage. This concept is primarily applicable to defined benefit plans, and is most useful when the years of participation in a given retirement plan do not coincide closely with the years of the marriage. A marital property fraction generally has a numerator reflecting the participant’s months of credited service earned during the marriage, and a denominator reflecting the participant’s total months of credited service.

Participant An employee or former employee of the plan sponsor for whom a benefit under a qualified plan is maintained. QDROs divide the participant's benefit.

Plan Administrator The individual or entity responsible for the control and management of contributions to the qualified plan.

Plan Sponsor The entity that establishes and maintains the qualified retirement plan.

Qualified Domestic Relations Order (QDRO) Any judgment, decree or order, including a court approved property settlement agreement issued under state domestic domestic relations law, and that relates tot he payment of child support, spousal maintenance, or marital property rights. A QDRO recognizes an alternate payee's right to receive plan benefits otherwise payable to a participant.

Qualified Joint and Survivor Annuity (QJSA) A benefit that provides regular periodic payments to the participant, and on the participant's death, provides payments to the surviving spouse int he form of a survivor annuity for the remainder of the survivor's lifetime.

Qualified Pre-retirement Survivor Annuity (QPSA) A payment made to the surviving spouse of a vested participant who was married and died before commencing his or her own benefit under the plan. If applicable, a QPSA must be provided whether or not the participant separated from service before death.

Rollover A federal income tax deferred transfer of cash or other assets from a qualified retirement plan or an eligible IRA to another eligible retirement plan.

Segregated Funds Amounts that would be payable to an alternate payee under the terms of the domestic relations order, following qualification of the order.

Separate Interest Approach Orders that seek to divide a pension as part of the marital property upon divorce or legal separation often take a separate interest approach in the qualified domestic relations order to dividing the retirement benefit. These orders usually divide the participant's retirement benefit (rather than just the payments) into two separate portions with the intent of giving the alternate payee a separate right to receive a portion of the retirement benefit to be paid at a time and in a form different from that chosen by the participant. This approach to dividing a retirement benefit is often called the separate interest approach.

An order that provides for a separate interest for the alternate payee must specify the amount or percentage of the participant's retirement benefit to be assigned to the alternate payee (or the manner in which such amount or percentage is to be determined). The order must also specify the number of payments or period to which it applies, and such orders often satisfy this requirement simply by giving the alternate payee the right that the participant would have had under the plan to elect the form of benefit payment and the time at which the separate interest will be paid.

Shared Interest Approach A method of defining the division of the participant's retirement benefit into two separate portions, giving the alternate payee a portion of each payment as it is otherwise made to the participant. Under this approach, the alternate payee will not receive any payments unless the participant receives a payment.

Summary Plan Description (SPD) A document that the plan administrator is required to furnish to each participant and beneficiary receiving benefits that summarizes their rights and benefits along with the obligations of the plan.

Unitized Shares When a stock fund is unitized, a participant’s balance in the fund is expressed in “unitized shares” or “units” instead of shares per se. Unitized funds operate similarly to a mutual fund, in that they are composed of stock, and a small percentage of cash or another short-term interest-bearing vehicle. The inclusion of cash provides liquid assets to allow for the daily processing of transfers, loans and withdrawals. The value of a unit in a unitized stock fund is based on the Net Asset Value (NAV), which is the value of the underlying common stock and the cash piece held by the fund, divided by the number of units outstanding. Therefore, the NAV of the fund (the “unit price”) will, as a rule, be different from the closing price of the underlying stock on the applicable exchange.

Valuation Date The date as of which benefits are measured or calculated, in order to calculate an alternate payee’s award amount pursuant to a Qualified Domestic Relations Order. In certain defined contribution plan scenarios, the valuation date is also the start date for calculating earnings on an award. Normally, contributions, loans, withdrawals, compensation and service increases in the Participant’s account or benefit after the valuation date will not be included in the calculation of the alternate payee’s award.

Vested Benefits A participant's accrued benefits that have become non-forfeitable under the vesting schedule adopted by the plan.