Employee contributions refer to the workers' premiums or payments toward a contributory employee benefit plan. These contributions are often made to plans such as health insurance, retirement funds, and other employer-sponsored benefits.
An Employee Stock Ownership Plan (ESOP) is a program that encourages employees to purchase stock in their company, thus allowing them to participate in the management of the company. Companies with such plans may take tax deductions for ESOP dividends passed on to participating employees and for dividends that go to repay stock acquisition loans.
Excess contributions refer to contributions made to a cash or deferred arrangement for highly compensated employees that exceed the limits set by nondiscrimination rules.
In the context of a pension or a profit-sharing plan, forfeitable benefits are those in which a participant has no ownership rights until specific length-of-service or performance requirements for vesting have been met.
A hardship distribution is a withdrawal from a Section 401(k) plan made due to the distributee's immediate and heavy financial needs, not exceeding the amount necessary to satisfy such needs. Examples include medical expenses, post-secondary education fees, and preventing eviction or foreclosure of a principal residence.
In the context of pension or profit-sharing plans, nonforfeitable benefits are those that are guaranteed and not conditioned upon further length of service or performance requirements.
A plan sponsor is an entity that establishes and maintains a pension or insurance plan, ensuring compliance with government guidelines, financial transparency, and proper benefit allocation.
Portability in the context of employee benefits, such as pension and insurance coverage, refers to the characteristic that allows employees to retain their benefits even when they leave their current job to take up a new one with a different employer.
A profit-sharing plan is an agreement between a corporation and its employees which allows employees to share in the company's profits. Contributions are made annually by the company to an account for each employee, accumulating tax deferred until retirement or departure. Employees may be able to borrow against these funds for major expenditures.
A SIMPLE IRA (Savings Incentive Match Plan for Employees Individual Retirement Account) is a form of salary reduction plan that qualifying small employers may offer to their employees, providing an efficient way to save for retirement.
Ten-year averaging is a method used to calculate income tax on a lump-sum distribution from a qualified benefit plan. This method was designed to reduce the tax liability of the beneficiary on large, one-time distributions. The ten-year averaging rule applies to individuals who were participants in a qualified benefit plan, were at least 50 years of age before January 1, 1986, and had been participants in the plan for at least five years before the year they receive the distribution.
An unfunded pension system, also known as a pay-as-you-go pension system, is a retirement plan where current workers' contributions are used to pay benefits to current retirees.
In financial and legal contexts, 'vest' generally refers to granting an individual full ownership of certain assets or benefits after meeting specific conditions, such as a period of service in a company.
