A GLOSSARY OF TERMS commonly encountered

A service provider hired by an employer to manage the day-to-day administrative work for a defined contribution plan and act as a plan administrator, handling some or all of the administrative work of a plan.

An investment professional hired by an employer to provide investment recommendations to the plan sponsor. The plan sponsor retains ultimate decision-making authority for the investments offered to plan participants and may accept or reject the recommendations. Both share the fiduciary responsibility.

An investment professional hired by an employer to actually make investment decisions on behalf of the plan. The plan sponsor is relieved of all fiduciary responsibilities for the investment decisions made by the investment professional (according to the signed agreements). Under this option, Raymond James will make investment fund decisions and will handle support functions to meet fiduciary requirements, including monitoring and fund changes.

A 401(k) plan is a qualified plan under the IRS that includes a feature allowing an employee to elect to have the employer contribute a portion of the employee’s wages to an individual account under the plan. It is a defined contribution plan that acts as a retirement savings vehicle. These plans provide benefits based on both employer and employee contributions to the plan and investment earnings on those contributions.

Section 403(b) of the Internal Revenue Code allows employees of public school systems and certain charitable and nonprofit organizations to establish tax-deferred retirement plans which can be funded with mutual fund shares. Years ago, nonprofits were not allowed to offer a 401(k) plan – which is why 403(b) plans became popular. While that is no longer the case, many nonprofits continue to maintain these plans.

Optional regulation available to plan sponsors that would limit their liability for participant-made investment decisions if they meet the requirements. These include providing certain information and fund choices so plan participants can make informed decisions about their retirement plan investments, and informing plan participants that they intend to comply with 404(c), among other things.

The practice of enrolling all eligible employees in a plan and beginning participant deferrals without requiring the employees to submit a request to participate. Plan design specifies how these automatic deferrals will be invested. Employees who do not want to make deferrals to the plan must actively file a request to be excluded from the plan. Participants can generally change the amount of pay that is deferred and how it is invested.

When a plan sponsor decides to switch from one plan vendor to another, there is typically a period during which participants are not permitted to make changes in their investment selections. This is known as the blackout period. Once the blackout period commences and until it ends, participants can no longer direct the investments in their accounts. Blackout periods can last up to 60 days.

A plan which includes all investment, administration, education and record-keeping services sold as one unit. This is in contrast to an unbundled plan where the plan sponsor can individually hire each component provider separately. Plans may also have a semi-bundled structure where multiple providers are hired, some fulfilling more than one function.

Pooled investment vehicles created and serviced by a bank or trust company that also serves as the trustee. Like mutual funds, CITs combine assets from individual and institutional investors into a fund to create a diversified portfolio with a specific investment strategy. CITs are increasingly being incorporated in retirement plans, given that they generally have lower fees and are more flexible than mutual funds.

Usually the same company as the record-keeper. The bank or trust company that maintains a retirement plan’s assets, including its portfolio of securities or some record of them. Provides safekeeping of securities but has no role in portfolio management.

An employer-sponsored retirement plan where the income the plan provides is not predetermined or guaranteed, but rather varies according to how much is contributed to the plan, how the contributions are invested and what the return on that investment is. 401(k), 403(b), 457 and profit-sharing plans are examples of defined contribution plans.

The federal agency that governs retirement plans.

Represents direct payments from the plan or plan sponsor to a provider for specific services rendered.

This includes employee welfare benefit plans, employee pension benefit plans, or a plan that is a combination of both. An employee benefit plan exists under ERISA if it is: (i) a plan, fund or program; (ii) maintained or established by an employer or an employee organization, or both; (iii) for the purpose of providing pension or welfare benefits; (iv) to participants or beneficiaries. An employee pension benefit plan can result in a deferral of income by employees for periods extending to the termination of covered employment or beyond, regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits for the plan.

Enacted September 2, 1974, ERISA is a federal law that establishes minimum standards for pension plans in private industry. It provides extensive rules on the federal income tax effects of transactions associated with employee benefit plans. ERISA protects the interests of employee benefit plans.

An expense ratio is the amount you pay annually to a mutual fund or collective trust for operating expenses and management fees, expressed as a percentage of the net asset value of your investment in the fund.

Federal regulators have passed rules requiring service providers to disclose their fees to plan fiduciaries, however the format can vary widely by service provider. The objective is to provide plan sponsors and participants clarity about the fees they are paying. More than ever, it’s critical for plan fiduciaries to understand the various components of their retirement plans’ fees, particularly indirect fees and the concept of revenue sharing. Sometimes a sponsor will also need a statement of plan assets by investment to quantify total plan cost.

An individual or an institution charged with the duty of acting for the benefit of another party as to matters coming within the scope of the relationship between them. For example, any person who exercises any discretionary authority or control over the management of a 401(k) retirement plan or its assets. A fiduciary is to act solely in the interest of plan participants and their beneficiaries.

An annual report of a plan’s information required to satisfy a plan’s annual reporting requirements under ERISA and the Internal Revenue Code.

Commonly known as revenue sharing, indirect compensation refers to fees generally collected from plan investments that are passed through to other service providers. Investment costs, including revenue sharing payments, often represent the majority of a plan’s total fees. Indirect compensation comes from the total expense ratio which is netted from investment performance, making it difficult to identify without additional research. Types of indirect compensation include Sub T/A fees (paid to subcontracted third parties), 12(b)-1 fees (paid to brokers for the sale of a fund or servicing of an account) and shareholder servicing fees (paid in additional to 12(b)-1 and Sub T/A fees.

A written document that outlines the parameters under which investments are chosen for a pool of assets, in this case a qualified retirement plan. Includes sections covering roles and responsibilities of involved parties as well as investment selection, monitoring and firing criteria. The Department of Labor encourages plan sponsors to follow a prudent process. A thoughtfully drafted and followed investment policy statement is a critical step in documenting prudence.

A material conflict of interest exists when a fiduciary has a financial interest that a reasonable person would conclude could affect the exercise of its best judgment as a fiduciary.

A publicly traded investment vehicle that brings together money from many people and invests it in stocks, bonds or other assets. The combined holdings of stocks, bonds or other assets the fund owns are known as its portfolio.

Also known as compliance testing. 401(k) plans may not discriminate in favor of highly compensated employees (HCEs) – employees who own 5% or more of the company or who earn a minimum of $130,000 (as of 2021). Each plan is subject to an annual non-discrimination test, commonly referred to as the actual deferral percentage (ADP) test, which is intended to prevent the plan from benefiting only an HCE group. In essence, the amount that an HCE may defer is controlled by the deferral rate of the non-highly compensated employee (NHCE) group.

401(k) or retirement plans in which the participant, rather than the plan trustee, exercises independent control over the investments in the plan account. To be a participant‐directed plan, several requirements must be met. Participant‐directed plans may have multiple participants, and an advisor may be involved with both the plan fiduciary and all the participants.

The individual, group or corporation named in the plan document as responsible for day-to-day operations. The plan sponsor is generally the plan administrator if no other entity is named. Responsibilities include regulatory functions, such as plan qualification, nondiscrimination testing, reporting to the IRS and disclosure to employees. This may be done in-house by the plan sponsor, fully outsourced to a third party or a combination of the two.

An employer who offers the plan to employees. The sponsor is responsible for choosing the plan, the plan provider and the plan administrator, and for deciding which investments will be offered through the plan.

An employee who is eligible to either make contributions to the retirement plan or to share in employer contributions to the plan.

An investment option a plan sponsor may use for 401(k) plan contributions in the absence of direction from a plan participant.

Party responsible for allocating contributions and earnings among different investment alternatives, calculating vesting amounts, and generating participant statements (usually referred to as participant-level accounting). These functions are critical to keep the plan running smoothly.

A retirement plan designed for businesses that reduces the administrative effort of a traditional 401(k) plan by providing a safe harbor from non‐discrimination testing, if certain requirements are met. These plans offer similar features of traditional 401(k) plans (e.g., contribution types, tax-deferred earnings, etc.), however, contributions vest immediately in these plans.

A company that provides some type of service to a 401(k) plan, including managing assets, recordkeeping, providing plan education and plan administration.

Mutual funds and collective trusts often offer several share classes to investors. Each class invests in the same portfolio of securities and has the same investment objectives and policies. However, their fees and expenses differ, which impact their performance. Part of the fees and expenses may include revenue available to pay service providers to a retirement plan.

These entities track assets and activity in retirement plans, such as contribution amounts, contribution types and investment earnings. TPAs or record-keepers may also provide other services, such as maintaining a website or mailing statements.

A plan that has the administrator, record-keeper/custodian and money manager of the plan as separate entities. Often times this can achieve more transparent pricing.

The period of time an employee must work at a firm before gaining access to employer-contributed pension income. For 401(k) plans, employee contributions are immediately vested, but employer contributions may be vested over a period of several years.

Mutual funds that do not pay marketing/distribution fees to the plan’s record-keeper. This usually means lower investment expense ratios. It also means that recordkeeping fees are charged separately and can be more easily negotiated and monitored by plan fiduciaries. Zero revenue share funds facilitate fee transparency for participants because recordkeeping fees are separate rather than hidden within mutual fund expense ratios.