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Glossary of Terms

The following is a list of terms in alphabetical order, intended as an additional guide in understanding some often-used terms.

A B C D E F G H I J K L M N O P Q R S T U V W-Z

ACP

"ACP" (see actual contribution percentage, in this document)

active participant

As defined under IRC Sec. 219(g)(5), an active participant is an individual who is a participant in one of the following employer-sponsored plans at any point during a year:
1. a qualified pension, profit sharing or stock bonus plan (IRC Sec. 401(a));
2. a qualified annuity plan (IRC Sec. 403(a));
3. a simplified employee pension (SEP) plan (IRC Sec. 408(k));
4. a savings incentive match plan for employees (SIMPLE) plan (IRC Sec.408(p));
5. a plan established for its employees by the United States, by a state or political subdivision or by an agency or instrumentality of the United States or a state or political subdivision (other than a plan under IRC Sec. 457);
6. a plan described in IRC Sec. 501(c)(18); or
7. a tax-sheltered annuity (IRC Sec. 403(b)).

actual contribution percentage

The actual contribution percentage (ACP) test is a nondiscrimination test that appears in IRC Sec. 401(m) and only applies to plans that have matching and/or after-tax employee contributions. To perform the test, one first determines the actual contribution percentage for each plan participant. To do this, the plan administrator determines the matching and after-tax employee contributions made by or on behalf of each employee, and divides this amount by the employee’s compensation to arrive at a ratio. The ACP test then compares the ratios of the highly compensated employees against the ratios of the nonhighly compensated employees. If the ratios for the highly compensated employees exceed the ratios of the nonhighly compensated employees by more than a certain amount, the plan fails the ACP test.

actual deferral percentage

The actual deferral percentage (ADP) test is a nondiscrimination test that applies to salary deferral contributions in 401(k) plans (IRC Sec. 401(k)) and SAR-SEP plans (IRC Sec. 408(k)). For SAR-SEP plans, the ADP test compares the deferral percentage of each highly compensated employee to the average deferral percentage of all nonhighly compensated employees. The deferral percentage equals the deferrals for a participant divided by that participant’s compensation. The deferral percentage of each highly compensated employee may not exceed 125 percent of the average deferral percentage of the nonhighly compensated employees. For 401(k) plans, the ADP test does not compare the ADP of each highly compensated employee against the ADP of the nonhighly compensated employees, but rather compares the ADP of all the highly compensated employees to the ADP of all nonhighly compensated employees. The plan satisfies the ADP test if it passes either the “1.25 Test” (i.e., the ADP of the highly compensated employee group does not exceed 125 percent of the ADP of the nonhighly compensated employee group); or the “2 Times/2 Percent Test” (i.e., the ADP of the highly compensated employee group does not exceed the lesser of 1) 200 percent of the ADP of the nonhighly compensated employee group, or 2) the nonhighly compensated employee group’s ADP plus two percentage points).

additional 10 percent tax

Generally, an additional 10 percent tax applies to the taxable portion of a nonqualified distribution from a Coverdell Education Savings Account. This 10 percent tax is in addition to federal income tax that may be due. The additional 10 percent tax does not apply if the distribution is made to the designated beneficiary’s estate,death beneficiary upon death of the designated beneficiary, beneficiary on account of disability, beneficiary, and the designated beneficiary attends a U.S. military academy, but only to the extent the distribution does not exceed the costs of advanced education at the academy, or designated beneficiary on account of a scholarship or fellowship, Veteran’s or employer-sponsored educational assistance allowance or any other nontaxable educational assistance allowance received by the designated beneficiary to the extent the distribution amount does not exceed the scholarship, fellowship or educational assistance allowance.

adjusted gross income

Adjusted gross income (AGI) is determined when a taxpayer calculates income tax liability on his or her federal income tax return. AGI is determined by adding all sources of income and subtracting certain deductions and expenses.

adjusted net business income

The net business income from a self-employed individual’s Schedule C, Schedule K-1 or Schedule F must be “adjusted” using a formula to determine the compensation upon which to base a contribution to a SEP, SIMPLE or qualified retirement plan. There may be slight variations on the adjustments that must be made based on the type of plan being funded.

adoption agreement

This portion of a prototype qualified retirement plan, SEP or SIMPLE plan contains the options that an employer may select based on the provisions allowed in the basic plan document. The adoption agreement must be completed and signed by the employer to establish a qualified plan, SEP or SIMPLE plan.

ACP Testing Safe Harbor

The ACP safe harbor requirements are prescribed in Notice 98-52 and Notice 2000-3. An employer with a 401(k) or 403(b) plan that meets the ACP safe harbor requirements is deemed to pass the ACP test.

ADP

"ADP" (see actual deferral percentage, in this document)

ADP Testing Safe Harbors

The ADP safe harbor requirements are prescribed in Notice 98-52 and Notice 2000-3. An employer that meets the ADP safe harbor requirements is deemed to pass the ADP test.

ADP/ACP Testing Safe Harbors

The ADP/ACP safe harbor requirements are prescribed in Notice 98-52 and Notice 2000-3. An employer that meets the ADP/ACP safe harbor requirements is deemed to pass the ADP/ACP tests.

aggregate limit test

This test combines the ADP and ACP tests into one calculation. The test is only used for a plan that has contributions subject to both the ADP and ACP tests. The Economic Growth and Tax Relief Reconciliation Act of 2001 repealed this test, effective January 1, 2002.

AGI

"AGI" (see adjusted gross income, in this document)

amendment

Congress and the IRS occasionally change the rules for operating and administering retirement plans. When this happens, affected plans must be amended. If an amendment to a plan is required, the IRS provides guidance as to when and how the amendment should occur. However, not all plan amendments are the result of legal or regulatory changes. Two other common situations that require a plan amendment include employers that voluntarily change plan provisions, and financial organizations acting as trustee, custodian, or issuer of a retirement plan that are involved in a merger or acquisition. ESAs, MSAs, QRPs, 403(b) plans, SEP, SIMPLE, Traditional IRAs, and Roth IRAs are all subject to possible amendment.

ANBI

"ANBI" (see adjusted net business income, in this document)

annual additions test

The annual additions limit is found in IRC Sec. 415. All defined contribution plans must limit the allocations made by or on behalf of a plan participant to 100 percent of the participant’s compensation or $40,000 ($41,000 for 2004), whichever is less.

annuitant

An annuitant is the person over whose life expectancy an annuity is payable. In addition, an annuitant is generally the person who receives annuity payouts.

annuity

An annuity is a contract between an investor and an insurance company that provides the purchaser with the ability to receive a stream of income for a specified period. Annuity payouts may be taken over life expectancy, or over a fixed period of time, and will generally be based on a fixed rate of return, or will fluctuate based on a pre-specified index. Once an annuity holder begins taking annuity payouts irrevocably, the contract is said to have been “annuitized.” Joint and survivor annuity. – A payment arrangement pays out at one level for the duration of the participant’s life and then at another level, between 50% and 100% of the original, for the duration of the participant’s spouse's life. Single life annuity. – The annuitant receives payments as long as he or she lives. Term certain annuity. – Payments are made for a specified time period. When the term ends, payments are discontinued. If the annuitant dies, payments continue to a beneficiary through the end of the term.

average benefits test

When a plan fails the ratio test for minimum coverage under IRC Sec. 410(b), the average benefits test gives employers an alternative test to use to pass coverage testing.

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beneficiary

A beneficiary is a person or entity entitled to receive assets when the owner of the assets dies.

bonding requirement

ERISA generally requires that persons having direct or indirect control or authority over qualified retirement plan assets be bonded by a corporate surety company to insure against fraudulent acts involving plan assets and/or operations. Certain exceptions apply.

break in service rules

Break in service rules are an elaborate collection of rules that affect how a plan handles eligibility, vesting and forfeitures when a participant terminates employment or fails to work enough hours during a plan year. An employer may specify in the plan document the number hours a participant must work during a 12-month computation period to avoid a break in service. However, the number of hours required to avoid a break in service may not be less than 500 hours.

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capital gains

The capital gains election is a special tax treatment that may be used with lump sum distributions of a plan participant who was born prior to 1936, and who participated in a qualified retirement plan prior to 1974. Individuals who elect capital gains treatment pay a flat 20 percent capital gains tax on the portion of their distribution that is attributable to pre-1974 plan participation, rather than paying regular income taxes on the amount. The capital gains portion of a lump sum distribution is determined based on a participant’s plan participation prior to 1974 versus his or her total years of participation in the plan. The election may be made only once.

carryback contribution

A contribution made to a Roth or Traditional IRA or an Education Savings Account between January 1 and April 15 of the current year for the prior tax year is called a carryback contribution. For qualified retirement plans, contributions made for the preceding taxable year, but prior to an employer’s tax return due date, will be deemed made on the last day of that preceding tax year and are, therefore, deductible for the preceding tax year.

cash-out

A cash-out is a total distribution of a qualified retirement or 403(b) plan participant’s vested plan balance. A plan may require a cash-out if a participant separates from service with a vested plan balance of $5,000 or less (increased from $3,500 effective for plan years beginning after August 5, 1997).

catch-all amendment

A catch-all amendment is a full and up-to-date IRA plan agreement and disclosure statement that is sent to all existing IRA holders to make up for past failures to make required amendments. Although a catch-all amendment shows a good faith effort on behalf of the trustee, custodian or issuer, it does not guarantee the IRS will waive penalties for past failures.

catch-up contribution

Beginning for taxable year 2002, this is a type of contribution with maximum limits for individuals age 50 and older, which are made to Traditional IRAs, Roth IRAs, SAR-SEP and SIMPLE plans, and 401(k), 403(b) and governmental 457(b) plans.

code

See “Internal Revenue Code”

collectibles

Collectibles includeartwork, rugs, antiques, metals (with some exceptions), gems, stamps, coins (with some exceptions) alcoholic beverages, and certain other tangible personal property. IRAs may not invest in collectibles. If IRA assets are invested in collectibles, the investment is treated as a distribution of an amount equal to the cost of the investment, and may be subject to an early distribution penalty.

commingling

There are two definitions of commingling for IRA purposes. The first definition involves IRA assets being combined with assets from a different type of savings plan. Commingling of IRA assets with non-IRA assets is prohibited. The second definition involves IRA assets being combined with assets from another type of plan that is eligible to be rolled over to an IRA. This type of commingling is not prohibited, however, it may affect the tax options available for the qualified retirement plan assets that were commingled with the IRA assets.

compensation

Compensation may be defined in many ways. For employees, compensation generally includes, but is not limited to, base salary, commissions, bonuses, overtime and vacation pay. For self-employed individuals, the definition of compensation is based on net earnings from self-employment. Furthermore, the definition of compensation may differ depending on whether a plan administrator is performing nondiscrimination testing, calculating a contribution, determining who should receive a top heavy contribution, or calculating a deduction. Some plan operations require a specific definition of compensation to be used. However, when statute does not prescribe the definition of compensation that must be used, a plan administrator may specify (in the plan document) the definition of compensation they wish to use.

compensation cap

The compensation cap is the maximum amount of compensation that may be considered for SEP, SIMPLE, qualified retirement plan and 403(b) plan purposes. The compensation cap, beginning in the 1994 plan year, was $150,000, indexed for cost-of-living adjustments. EGTRRA increased the compensation cap to $200,000 for 2002, with COLA increases thereafter in increments of $5,000.

conduit IRA

A conduit IRA is an IRA that contains only assets that have been rolled over from a specific employer-sponsored plan. In the past, assets from a qualified plan that were rolled to an IRA could not be commingled with regular IRA contributions or assets from other plans if a person wanted to roll the assets back to a qualified plan in the future. Commingling rollover assets with other assets no longer automatically disqualifies rollover assets from being rolled back to a qualified retirement plan. However, there may still be some employer-sponsored plans that will only allow rollovers from conduit IRAs. In addition, some individuals may need to maintain a conduit IRA to retain the right to use certain tax treatments on assets that are rolled back to a qualified retirement plan.

contributor

A contributor is an individual who contributes to an Education Savings Account on behalf of a designated beneficiary. The maximum amount a contributor may contribute on behalf of a designated beneficiary is based on the contributor’s modified adjusted gross income and filing status. A contributor who has modified adjusted gross income that falls within the phase-out range for his or her filing status may only make a reduced contribution on behalf of a designated beneficiary. A contributor who has modified adjusted income above the phase-out range, will be ineligible to contribute on behalf of a designated beneficiary. An eligible contributor may contribute to Education Savings Accounts on behalf of an unlimited number of designated beneficiaries.

controlled group

A controlled group is one or more business entities that are related through common ownership interests. When a controlled group of businesses exists, it must be treated as a single employer for SEP, SIMPLE, qualified retirement plan and 403(b) plan testing and coverage purposes.

conversion

A conversion is a taxable movement of cash or other assets from a Traditional IRA to a Roth IRA. A conversion is a reportable transaction.

custodian

The custodian is a bank or savings and loan association, as defined in IRC Section 408(n), or any other entity that has the approval of the IRS to act as custodian. Any entity that may serve as a custodian of a Traditional IRA may serve as a custodian of an Education Savings Account.

Coverdell Education Savings Account (ESA)

The Coverdell Education Savings Account (ESA), created by the enactment of TRA-97, is a type of savings arrangement that is established for the benefit of a designated beneficiary (potential student) to pay for qualified higher education expenses, in 2001, and for taxable year 2002 and beyond to also pay for qualified elementary and secondary education expenses. A distribution from an ESA may be taken tax free if the distribution is taken to pay for qualified expenses at an eligible educational institution.

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death benefits

Death benefits are payments to a beneficiary of a deceased IRA holder, qualified retirement plan or 403(b) plan participant.

death benefit exclusion

Beneficiaries of qualified retirement plan and 403(b) plan participants receiving a distribution from a plan could have been eligible to exclude up to $5,000 from taxable income under IRC Sec. 101(b). (This provision expired under a provision of the Small Business Job Protection Act of 1996, with the exception of ongoing payouts for deaths that occurred on or before August 20, 1996.)

designated death beneficiary

A death beneficiary is the individual(s) or entity(ies) who will receive the assets in an Education Savings Account if the designated beneficiary dies before it is depleted. Generally, ESA assets must be distributed within 30 days after the date of death of the designated beneficiary. However, if a qualified family member under the age of 30 is the death designated beneficiary he or she shall be treated as the ESA account holder. In the event that a death designated beneficiary has not yet met the age of majority under state law when he or she becomes the designated beneficiary of the Education Savings Account, the designated beneficiary’s parent or legal guardian shall be the new responsible individual.

DEC

"DEC" (see deductible employee contributions in this document)

declining years

The declining years method of calculating required minimum distributions (also known as nonrecalculation) is only used by beneficiaries. The method uses either the life expectancy of the deceased original owner or the life expectancy of the oldest beneficiary based on the rules set forth in Treas. Reg. 1.401(a)(9). With the declining years method, life expectancy is determined in the year of death (if the deceased owner’s life expectancy is used) or in the year following the year of death (if the beneficiary’s life expectancy is used). For each year that passes, one year is subtracted from the life expectancy factor that was initially determined.

deductible employee contributions

NOTE: The Tax Reform Act of 1986 eliminates the deduction for DEC contributions for tax years beginning after 1986. Previously, employees could deduct qualified voluntary contributions to their employer’s plan under certain conditions. These contributions were deductible only if (1) the plan provided for voluntary employee contributions, (2) the employee did not designate his contribution as nondeductible, and (3) the employer agreed to treat such contributions as deductible. Employee contributions required as a condition of plan participation or as a condition of obtaining additional employer-provided benefits did not qualify as deductible employee contributions. Deductible employee contributions were permitted up to the lesser of $2,000 or 100 percent of the employee’s compensation. The limit on deductible employee contributions and the limit on IRA contributions were combined so the total annual deductions for both could not exceed the lesser of $2,000 or the employee’s compensation.

deduction

Some Traditional IRA holders who are eligible to make IRA contributions may also be eligible to deduct all or a portion of the amount of the contributions on their income tax returns. Employers that contribute to qualified retirement plans generally may take a tax deduction for the amount contributed.

deemed IRA

Under the rules of EGTRRA, beginning for taxable year 2003, an employee may make a voluntary contribution to a qualified employer plan that is treated (deemed) as being made to an IRA (either Roth or Traditional), if certain requirements are met, and the plan allows it.

deferral election

A voluntary, written election made by an employee to reduce their compensation for income tax purposes by contributing a specified percentage or dollar amount to a 401(k) plan, SIMPLE plan or 403(b) plan rather than receiving that amount as cash. Taxation on these contributions is deferred until they are distributed from the plan.

defined benefit plan

A defined benefit plan is an employer-sponsored retirement plan that promises a predetermined benefit for plan participants at retirement. Funding for a defined benefit plan is, generally, provided by the employer, and is based on actuarial assumptions and calculations, which determine the amount of contribution required to provide the promised future benefit.

defined contribution plan

A defined contribution plan is an employer-sponsored retirement that defines the level of contributions that may be made for plan participants, and can be funded by both the employer and the participants. The benefit a participant will receive from the plan is not guaranteed, and is largely dependent on contribution levels and investment performance.

depositor

The depositor is the person who establishes an Education Savings Account on behalf of the designated beneficiary.

designated beneficiary

For an IRA or qualified retirement plan, the designated beneficiary is the beneficiary whose life expectancy is considered when calculating required minimum distributions. For an Education Savings Account (ESA), the designated beneficiary is the person on whose behalf the ESA has been established.

designated financial institution

Under IRC Sec. 408(p)(7), a SIMPLE IRA plan may require that all contributions made on behalf of eligible employees of the plan be deposited at the same financial organization. The financial organization in such a case is known as the “designated financial institution” (DFI). To establish a DFI relationship with a financial organization, an employer must establish their SIMPLE IRA plan using either IRS Form 5305-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE), or establish a SIMPLE IRA plan prototype that contains DFI provisions.

determination letter

A determination letter is a written statement issued by the IRS that addresses a plan’s qualified status. An employer may apply for a determination letter for a variety of reasons, but one of the more common reasons is to ensure that the specific provisions of the employer’s plan document meet the requirements necessary to be treated as a qualified plan. While employers are not required to have a determination letter to establish or maintain a qualified retirement plan, an affirmative determination letter often provides employers with certain relief with respect to amending their plan documents.

DFI

"DFI" (see designated financial institution in this document)

direct conversion

A direct conversion is a way of changing (i.e., converting) Traditional IRA assets into Roth IRA assets. A direct conversion is accomplished by moving Traditional IRA assets, “trustee-to-trustee”, to a Roth IRA. Even though an IRA holder never has receipt of the plan assets during a direct conversion, a direct conversion is both a reportable and taxable event.

direct rollover

A direct rollover is a means of moving an eligible rollover distribution directly from one trustee, custodian or issuer of an eligible employer-sponsored plan to another eligible employer-sponsored plan or to an IRA. Since the participant does not have constructive receipt of the assets, federal income tax withholding is avoided.

district submission

A district submission is the process by which an employer applies to the IRS for a determination on the qualified status of nonstandardized, individually designed and certain standardized qualified retirement plans. Successful applicants receive a determination letter from the IRS affirming the qualified status of a plan, thereby guaranteeing the employer has reliance that the document, as submitted, meets IRS requirements.

disclaimer

A Traditional, Roth or SIMPLE IRA beneficiary, or qualified retirement plan or 403(b) plan beneficiary may disclaim an interest in an IRA, qualified retirement plan or 403(b) plan as allowed under IRC Sec. 2518 and illustrated in Treas. Reg. 25.2518. A valid disclaimer is a permanent action that would allow an individual to give up rights to property to which he or she is currently entitled. Certain rules must be met for the disclaimer to be valid.

disclosure statement

The disclosure statement must explain in simple, nontechnical language the rules that govern an IRA. All persons who open an IRA are to receive a copy of a current disclosure statement.

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early distribution

Distributions taken from a Traditional, Roth or SIMPLE IRAs, or from a qualified retirement plan or 403(b) plan before the IRA holder or plan participant reaches age 59½ are called early distributions. Early distributions are generally subject to a 10 percent IRS penalty unless an exception to the penalty applies as defined in IRC Sec. 72(t). Under a SIMPLE IRA, a 25 percent early distribution penalty applies to distributions taken within the two-year period beginning on the date an employee first participates in the SIMPLE IRA plan, unless the employee meets one of the exceptions to the penalty. If a SIMPLE IRA holder under age 59½ satisfies the two-year requirement, a 10 percent early distribution penalty applies. Under a Roth IRA, a 10 percent early distribution penalty applies to the nonqualified distribution of earnings, unless the IRA holder meets one of the exceptions to the penalty. A 10 percent early distribution penalty also applies to the portion of a nonqualified distribution of conversion basis if it is distributed within five years of the conversion. This penalty may also be avoided if the Roth IRA holder meets one of the exceptions.

early withdrawal penalty

The early withdrawal penalty is a penalty for redeeming a certificate of deposit (CD) before the term of the investment is completed. This penalty is assessed as a loss of interest.

earned income

If an account holder has earned income from working (services rendered), and is under age 70 ½, he or she may make a Traditional or a Roth IRA contribution. An Education Savings Account contributor is not required to have earned income. For retirement plan purposes, earned income may also be defined as the compensation paid to a self-employed individual.

Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)

With many of its provisions effective in 2002, EGTRRA brings about some of the most substantial changes to IRAs, IRA-related plans and employee-sponsored retirement plans in over 15 years. Increased contribution limits and asset portability between various plan types are two of the most beneficial changes.

Economic Recovery Tax Act of 1981

ERTA allowed any working person to establish a Traditional IRA, increased deductible Traditional IRA contributions to the lesser of $2,000 or 100 percent of an employee’s compensation, and raised Keogh and SEP contribution limits to $15,000 a year.

Education Savings Account

The Coverdell Education Savings Account, created by the enactment of TRA-97, is a savings vehicle that is established for the benefit of a designated beneficiary (potential student) to pay for qualified higher education expenses. A distribution from an Education Savings Account may be taken tax free if the distribution is taken to pay for qualified expenses at an eligible educational institution.

EFTPS

"EFTPS" (see Electronic Federal Tax Payment System in this document)

election

The term election has numerous meanings. An election is a choice that Traditional, Roth or SIMPLE IRA holders, or qualified retirement plan or 403(b) plan participants must make when they receive assets from an IRA or plan. IRA holders and plan participants must generally elect, or choose, whether they want federal income tax withheld upon a distribution, must sometimes make elections regarding beneficiary options, and must sometimes make elections regarding rollovers. IRA holders must also make an irrevocable election in writing at the time of a carryback contribution, a conversion or recharacterization.

Electronic Federal Tax Payment System

Under the EFTPS program, certain payors of withholding, including payors of IRA and qualified retirement plan withholding, must remit withheld amounts by electronic funds transfer directly to the Treasury in lieu of using Form 8109, Federal Tax Deposit Coupon. Generally, only those payors that deposit $200,000 or more in federal withholding in a year are, or will be, required to participate.

elementary and secondary educational expense

Expenses for tuition, fees, academic tutoring, special needs services, books, supplies, equipment, room and board, uniforms, transportation. Also, expenses for educational computer technology or equipment, and Internet access if used by the designated beneficiary’s family during any of the years the designated beneficiary is in school. Computer software primarily involving sports, games or hobbies is not a qualified expense unless it is education in nature.

eligibility

The plan document will specify minimum standards that employees must meet to participate in the plan. Employees must generally meet minimum age and/or service requirements to attain eligibility for plan participation. To be eligible to contribute to a Traditional IRA, a person must be under age 70 ½ and have earned income. To be eligible to contribute to a Roth IRA, a person needs earned income within certain limits, no age restriction applies. There is no earned income requirement to be eligible to contribute to an Education Savings Account; however, limits apply based on the contributor’s modified adjusted gross income.

eligible educational institution

An eligible educational institution is any college, university, vocational school, or other post-secondary educational institution eligible to participate in student aid programs administered by the Department of Education. For 2002, eligible educational institution also is a public, private or religious school that provided elementary and/or secondary education as determined under state law.

eligible rollover distribution

A distribution from a qualified retirement plan or 403(b) plan which is eligible to be rolled over (either directly or indirectly) to a Traditional IRA or another eligible retirement plan. Beginning for taxable year 2002, eligible rollover distributions will include distributions of pre-tax and after-tax assets held in qualifying employer-sponsored retirement plans and assets held in governmental 457(b) plans. In addition, all pre-tax assets held in Traditional IRAs may be rolled to qualified retirement plans, eligible government plans under 457(b), and plans that fall under IRC Sec. 403(a) and 403(b).

Employee Retirement Income Security Act of 1974

The Employee Retirement Income Security Act of 1974 (ERISA) is the basic source of the law covering qualified retirement plans, and incorporates both the pertinent Internal Revenue Code provisions and labor law provisions. ERISA also created IRAs, effective for 1975.

employer

An employer may be defined as any corporation, partnership, sole-proprietorship or other such entity. In the case of a partnership or sole-proprietorship, the employer is typically also an employee.

employer reversion

When a qualified retirement plan is terminated and there are excess assets remaining in the plan after all the plan participants have received their payouts, the excess funds in the plan may revert to the employer. Congress imposes excise taxes on most employer reversions.

employer-sponsored IRA

This is an IRA sponsored by an employer for his or her employees. The employer, employee, or both may contribute up to $3,000 or 100 percent of the employee’s income to an employer-sponsored IRA. These contributions are considered compensation to the employee and are reported on the employees’ Forms W-2.

employer-sponsored plan

Employer-sponsored plans are retirement plans that are provided through an employer, and are eligible for special tax consideration. For purposes of eligible rollovers under EGTRRA, employer-sponsored plans include qualified retirement plans under IRC Sec. 401(a), state and local governmental plans under IRC Sec. 457(b), and plans under IRC Sec. 403(a), IRC Sec. 403(b) and IRC Sec. 408(p).

ERISA

"ERISA" (see Employee Retirement Income Security Act of 1974 in this document)

ERTA

"ERTA" (see Economic Recovery Tax Act of 1981 in this document)

excess accumulation

Under IRC Sec. 4974, if the amount distributed to an individual during a taxable year is less than the required minimum distribution for the year, the individual will be subject to an excess accumulation penalty of 50 percent of the amount of the distribution that should have been taken but was not. This penalty applies to IRA holders and plan participants, and their beneficiaries.

excess accumulation estate tax

Prior to 1997, at the time of death, if the value of all of an individual’s IRAs, qualified retirement plans and tax-sheltered annuities exceeded the value of a hypothetical single life annuity , an excess retirement accumulation would result. Consequently, the individual’s estate would have been responsible for an additional penalty tax of 15 percent of the excess retirement accumulation (IRC Sec. 4980A). The Taxpayer Relief Act of 1997 repealed the excess accumulation estate tax, effective for the estates of decedents dying after December 31, 1996.

excess aggregate contribution

Contributions that cause a plan to fail the actual contribution percentage test under IRC Sec. 401(m) are excess aggregate contributions.

excess contribution

The amount of an IRA contribution exceeding the allowable limits is an excess contribution. If an excess contribution is not properly corrected, a six percent IRS penalty applies. For 401(k) plans, contributions which cause a plan to fail the actual deferral percentage test under IRC Sec. 401(k) are excess contributions, and subject to penalty if not timely corrected. An excess contribution to an Education Savings Account (ESA) is the amount which exceeds the allowable limit for a designated beneficiary for a given tax year. An excess contribution may also occur if the amount contributed exceeds the eligible amount based on the contributor’s MAGI or any time a contribution is made to the account on or after the designated beneficiary’s 18th birthday. If an excess contribution is not properly corrected, a six percent IRS penalty applies. For 403(b) plans, an excess contribution is either an excess deferral, or an annual additions excess.

excess deferrals

Excess deferrals are employee salary deferral contributions made during an employee’s taxable year that exceed the limits prescribed under IRC Sec. 402(g).

excess distribution

Prior to 1997, an excess distribution occurred when the amount of a distribution exceeded the allowable limits. Generally, amounts distributed from an IRA and qualified retirement plan in excess of the greater of $112,500 (indexed for cost-of-living) or $150,000 were subject to a 15 percent IRS penalty. The excess distribution penalty was permanently repealed with the enactment of TRA-97. The penalty no longer applies effective January 1, 1997.

excess nondeductible employer contribution

Excess nondeductible contributions exist when an employer contributes more than the allowable deductible amount. The Internal Revenue Code (IRC) mandates a 10 percent penalty on the amount of the nondeductible contribution.

excess SEP contributions

Two types of employer SEP excesses exist.
1.Excess nondeductible SEP contributions occur when an employer contributes more to an employee’s IRA than the business can deduct in a year.
2.SEP allocation excesses occur when contributions are not allocated in accordance with the formula specified in the adoption agreement.

exclusion allowance

The exclusion allowance is one of three contribution limits that apply to 403(b) plans. The exclusion allowance considers compensation, years of service and amounts previously contributed. The Economic Growth and Tax Relief Reconciliation Act of 2001 repealed the exclusion allowance for 2002 and beyond.

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fair market value

The fair market value is the value of a Traditional, Roth or SIMPLE IRA as of a certain date. The December 31 fair market value must be provided to each IRA holder and to the IRS each year.

family member aggregation

Prior to 1997, the family member aggregation rules required certain family members to be combined and treated as one employee for certain qualified retirement, 403(b), SIMPLE and SEP plan purposes. The rules prevented an employer from circumventing the nondiscrimination by benefiting the family members of a higher paid employee or owner. The family aggregation rules were repealed effective January 1, 1997.

FDIC

"FDIC" (see Federal Deposit Insurance Corporation in this document)

Federal Deposit Insurance Corporation

The Federal Deposit Insurance Corporation (FDIC) insures accounts of all banks chartered by the federal government, most banks chartered by state governments and savings associations.

fiduciary

Someone with discretionary authority or control regarding the plan assets or who provides investment advice to the plan for a fee or other compensation is a fiduciary.

financial disclosure

The IRS requires that certain financial disclosures be made to all persons who establish a Traditional IRA, Roth IRA or SIMPLE IRA. The financial disclosure is intended to be a consumer protection device, requiring IRA trustees, custodians or issuers to disclose early withdrawal penalties, trustee fees, and other service fees such as transfer or rollover fees. Financial disclosures are not required to be given to persons who establish Education Savings Accounts.

Financial Institutions Reform, Recovery and Enforcement Act of 1989

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) abolished the Federal Home Loan Bank Board (FHCBB) and the Federal Savings and Loan Insurance Corporation (FSLIC). FIRREA mandated that the FDIC draft uniform regulations to guide depository institutions in many areas such as insurance on various types of deposits.

FIRREA

FIRREA (see Financial Institutions Reform, Recovery and Enforcement Act of 1989 in this document)

first-time homebuyer

A first time homebuyer is an individual (and, if married, the individual’s spouse) who had no present ownership interest in a principal residence during the two-year period ending on the date of acquisition of the principal residence.

fiscal year

A fiscal year is the 12-month accounting period that constitutes the employer’s tax year.

five-year averaging

Five-year averaging is a method used to determine income tax liability on a lump sum distribution made from a qualified retirement plan. This method often reduces the amount of income tax due to the IRS. TRA-86 generally replaced 10-year averaging with five-year averaging. As a result of the Small Business Job Protection Act of 1996, five-year averaging was repealed effective January 1, 2000.

forfeitures

Nonvested portions of a plan participant’s employer contributions, which may be allocated to other plan participants after a nonvested employee separates from service, are forfeitures.

401(k) plan

An IRC Sec. 401(k) plan is a plan that allows participants to defer receipt of a portion of their wages under a qualified cash or deferred arrangement, which is part of a profit-sharing, stock bonus plan or pre-ERISA money purchase pension plan.

403(b) plan

An IRC Sec. 403(b) plan is a plan that allows employees of IRC Sec. 501(c)(3) organizations and public schools to set aside a portion of their compensation for retirement income. Eligible employers may also contribute amounts on behalf of their employees.

frozen plan

A frozen plan is one in which contributions will no longer be made to participants but the distribution of assets will not be made until a later date. An employer must continue to maintain a frozen plan until all of the assets are distributed.

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grantor

The grantor is the person who establishes the Coverdell Education Savings Account trust.

governmental 457(b) plan

A governmental 457(b) plan is an eligible nonqualified deferred compensation plan maintained by a governmental entity.

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HCE

"HCE" (see highly compensated employee in this document)

Health Insurance Portability And Accountability Act of 1996

Enacted on August 21, 1996, the health care reform legislation created new IRA-like savings vehicles called medical savings accounts. Also, the legislation created additional reasons for being able to take penalty-free early IRA distributions. The provisions are effective January 1, 1997.

highly compensated employee

An employee defined in IRC Sec. 414(q) is a highly compensated employee (HCE). Benefits provided to HCEs are measured when performing the ADP and/or ACP tests for 401(k), 403(b) and SAR-SEP plans. Any employee who is not included in this category is a nonHCE.

higher educational expense

Qualified higher educational expenses include expenses for tuition, fees, books, supplies and equipment at an eligible educational institution. Room and board is also considered a qualified higher educational expense for students enrolled at least half-time.

HIPAA

"HIPAA" (see Health Insurance Portability And Accountability Act of 1996 in this document)

Hope Credit

A Hope Credit is a tax credit that may be claimed by an eligible student who is enrolled at least half-time (or if the student is claimed as a dependent, the credit is available to his or her parents) for qualified tuition and related expenses paid during his or her first two years of postsecondary education. The credit that may be claimed for each eligible family member is generally equal to 100 percent of the first $1,000 of the student’s expenses, plus 50 percent of the next $1,000. The amount of the credit may be reduced or eliminated based on the taxpayer’s modified adjusted gross income (MAGI).

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income averaging

An individual who receives a lump-sum distribution from a qualified plan and includes those assets in taxable income may be eligible to determine the tax liability as if the distribution had been received over a five or 10-year period. Only plan participants who attained age 50 prior to January 1, 1986 (and their beneficiaries) may be eligible for 10-year income averaging. Five-year income averaging was repealed as of January 1, 2000.

indirect conversion

An indirect conversion occurs when a Traditional IRA holder requests and constructively receives a distribution from his or her Traditional IRA and deposits the amount in a Roth IRA within 60 days.

indirect rollover

An indirect rollover occurs when an individual receives an eligible rollover distribution and within 60 days recontributes the amount to an eligible plan.

individually designed plan

An individually designed plan is a qualified plan designed to meet the particular needs and desires of a specific employer. An individually designed plan must be submitted to an IRS District Office for approval.

individually designed SEP plans

An individually designed plan is a qualified plan designed to meet the particular needs and desires of a specific employer. An individually designed plan must be submitted to an IRS District Office for approval.

individual retirement account

An IR account is established with a bank, savings and loan association, credit union, brokerage firm or other organization that can demonstrate to the Internal Revenue Service (IRS) the ability to lawfully administer the trust.

individual retirement annuity

An individual retirement annuity (IR annuity) is a contract issued by an insurance company that must qualify under IRC Sec. 408(b).

individual retirement arrangement

An individual retirement arrangement (IRA) is an individual retirement account or an individual retirement annuity. An IR account may be a Traditional, Roth, SIMPLE, or Education Savings Account. An IR annuity may also be a Traditional, Roth or SIMPLE IRA.

in-service distribution

Profit sharing plans may allow a plan participant to take a distribution from the plan prior to the time the participant incurs a traditional triggering event.

integrated plan

Integration, also known as Social Security integration or permitted disparity, is a method of allocating contributions under a qualified retirement, 403(b) or SEP plan based on the premise that employees with salaries above the taxable wage base receive a smaller percentage of retirement benefits from Social Security. Therefore, under an integrated plan, additional contributions may be made to a plan for employees earning more than the taxable wage base (or other integration level) to make up for this deficiency.

Internal Revenue Code

Internal Revenue Code of 1986, as amended, is the basic federal tax law.

Internal Revenue Service

The Internal Revenue Service is an agency of the Department of Treasury, which is headed by the Commissioner of Internal Revenue. The IRS interprets and enforces the tax laws.

IR annuity

"IR annuity" (see individual retirement annuity in this document)

IRA

"IRA" (see individual retirement arrangement in this document)

IRC

"IRC" (see Internal Revenue Code in this document)

IRS

"IRS" (see Internal Revenue Service in this document)

issuer

An issuer is an insurance company that offers IR annuity contracts.

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Job Creation and Workers Assistance Act

Enacted in 2002, this law contains technical corrections to provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001.

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Keogh plan

A retirement plan established for a self-employed person and his or her employees is a Keogh plan. A Keogh is a qualified retirement plan, either a defined contribution plan or a defined benefit plan.

key employee

An individual who meets any of the criteria listed in IRC Sec. 416, and for 2002 and beyond, meets the revised criteria under EGTRRA, is a key employee. If the benefits allocated to the key employees of a qualified retirement or SEP plan exceed the allowable limits, the plan is deemed to be top-heavy. An individual who is not a key employee is a nonkey employee.

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leased employee

An individual who provides services to an employer pursuant to an agreement between the employer and a leasing organization is a leased employee if the individual performs services on a full-time basis for a period of at least one year. The services provided are performed under the primary direction or control of the employer.

life expectancy

Generally, life expectancy is the number of years an individual is expected to live based on his or her current age. Life expectancy can be expressed in terms of either a single or joint life expectancy. Life expectancy is most commonly used to determine the amount an individual must take as a required minimum distribution from an IRA, qualified retirement plan or 403(b) plan.

Lifetime Learning Credit

A Lifetime Learning Credit is a tax credit that may be claimed by an eligible student (or if the student is claimed as a dependent, the credit is available to his or her parents) for qualified tuition and related expenses paid on or after July 1, 1998, for academic periods beginning on or after July 1, 1998. The credit that may be claimed is generally equal to 20 percent of the taxpayer’s first $5,000 of qualified tuition and related expenses for all students in the family. The amount of the credit that a taxpayer is eligible to claim may be reduced or eliminated based on the taxpayer’s modified adjusted gross income (MAGI). Beginning in year 2003, the maximum amount of the credit increased to 20 percent of the taxpayer’s first $10,000 in qualified tuition and expenses.

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MAGI

"MAGI" (see modified adjusted gross income in this document)

mass submitter

A mass submitter is generally a forms provider that drafts prototype qualified retirement plans and/or SEP plans. A prototype plan submitted by a mass submitter and approved by the IRS is likely to be approved very quickly by the IRS when the plan is submitted on behalf of a financial organization that wishes to sponsor the plan.

master plan

A master plan is a qualified plan in which all employers using the plan documents place their contributions in the same trust.

matching contributions

Matching contributions are employer contributions made to a 401(k), SIMPLE IRA, SIMPLE 401(k) plan or 403(b) plan, based upon the terms of the plan, and which are generally made in relation to employee salary deferrals or employee after-tax contributions.

MDIB

"MDIB" (see minimum distribution incidental benefit in this document)

minimum coverage test

A qualified retirement plan and certain 403(b) plans must meet certain standards imposed under IRC Sec. 410(b), which governs the percentage of nonhighly compensated employees who must be covered under an employer-sponsored plan in relation to the percentage of highly compensated employee participants covered under the same plan.

minimum distribution incidental benefit

For distributions for years prior to 2001, required minimum distributions taken by individuals who had named nonspouse beneficiaries more than 10 years younger than the Traditional or SIMPLE IRA holder, or the qualified retirement plan or 403(b) plan participant had to satisfy the minimum distribution incidental benefit (MDIB) rule. In essence, the MDIB rule requires that the traditional life expectancy figure must be compared to the life expectancy of the Traditional or SIMPLE IRA holder, or the plan participant and an individual who is exactly 10 years younger than the Traditional or SIMPLE IRA holder, or plan participant to determine which factor will produce a larger distribution. New distribution rules that are optional for 2001 and 2002, and mandatory for 2003 and beyond, provide for a uniform distribution period for all individuals of the same age, based on an updated MDIB divisor table.

minimum participation test

A qualified retirement plan must meet certain standards imposed under IRC Sec. 401(a)(26) which governs the number or percentage of employees who must participate in an employer-sponsored qualified plan. This test no longer applies to defined contribution plans and 403(b) plans for 1997 and later plan years.

modified adjusted gross income

This figure represents adjusted gross income before certain deductions or adjustments to income are taken. MAGI is used to determine eligibility to contribute to a Roth and Education Savings Account, and to determine deductibility of Traditional IRA contributions made by an active participant.

money purchase pension plan

A money purchase plan is a defined contribution plan with mandatory annual contributions at a set percentage that may range from zero percent to 25 percent of compensation as chosen by the employer in the plan agreement.

mutual funds

Mutual funds are groups or “pools” of stock in different companies or different industries.

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NBI

"NBI" (see net business income in this document)

net business income

Gross sales or income minus taxes, interest, depreciation and other expenses equal net business income. A self-employed person can base an IRA or plan contribution on his or her net business income taken from the Schedule C.

net income attributable

The amount of income earned by an excess contribution to an IRA is the net income attributable (NIA). To determine the NIA, the amount of the excess contribution is multiplied by the amount of the total earnings on the IRA and then the product is divided by the total account balance.

NIA

"NIA" (see net income attributable in this document)

nondeductible contribution

For an IRA holder, a nondeductible contribution is a contribution made to an IRA and designated by an IRA holder as nondeductible either by choice or because of ineligibility to make a deductible contribution. A Traditional IRA holder does not take a deduction for this contribution. A nondeductible contribution may be made to the extent that a deductible contribution is not made. The Traditional IRA holder must file a Form 8606, Nondeductible IRAs (Contributions, Distributions, and Basis), if a nondeductible contribution is made. Only nondeductible contributions may be made to Roth and Education Savings Accounts.

nondeductible employee contribution

Some 401(k) plans and 403(b) plans allow participants to make additional contributions to the plan on an after-tax or nondeductible basis. The contributions are called nondeductible employee contributions. The contributions are subject to the actual contribution percentage test.

nondiscrimination test

According to Prop. Treas. Reg. 1.401(a)(4), a qualified retirement plan and 403(b) plan must test for nondiscrimination in three areas: 1) amount of contributions or benefits, 2) benefits, rights and features, and 3) special circumstances.

nonperiodic payment

Distributions from a Traditional, Roth or SIMPLE IRA that are payable on demand are treated as nonperiodic payments. The amount and frequency of distributions are arbitrary. Distributions from a qualified retirement plan or 403(b) plan that are not eligible rollover distributions, and that are payable on demand are treated as nonperiodic payments.

nonqualified distribution

If a distribution from a Roth IRA is not a qualified distribution (see qualified distribution), any earnings distributed from the Roth IRA will be subject to taxes and, unless the Roth IRA holder meets an exception, subject to the 10 percent early distribution penalty. In addition, any conversion basis distributed within five years of the year of the conversion will be subject to the 10 percent early distribution penalty unless the IRA holder meets an exception. A distribution from an Education Savings Account is a nonqualified distribution if the distribution amount exceeds the qualified educational expenses in a given year. The portion of the nonqualified distribution that represents earnings is taxed and generally subject to an additional 10 percent tax.

nonrecalculation

Prior to 2002, nonrecalculation was a method used to calculate life expectancy for required minimum distributions taken from Traditional and SIMPLE IRAs, and from qualified retirement plans and 403(b) plans. Under nonrecalculation, the IRA holder, participant or beneficiary determines a life expectancy factor and subtracts one from the factor in each succeeding year to establish a new life expectancy factor. Effective January 1, 2002, nonrecalculation is only used to calculate life expectancy payments for beneficiaries of Traditional, Roth and SIMPLE IRAs.

nonstandardized plan

A prototype qualified plan that allows an adopting employer increased latitude in plan eligibility criteria, vesting, etc. is a nonstandardized plan. An employer adopting a nonstandardized plan should seek a favorable determination letter from an IRS Key District Office.

notification letter

This letter, furnished by the IRS Key District Office, states whether the form of a regional prototype plan meets the IRS qualification requirements. Revenue Procedure (Rev. Proc.) 2000-20 combined the national and regional prototype plan programs, and approval letters for all prototype plans under Rev. Proc. 2000-20 are called opinion letters.

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OBRA-93

"OBRA-93" (see Omnibus Budget Reconciliation Act of 1993 in this document)

Omnibus Budget Reconciliation Act of 1993

The Omnibus Budget Reconciliation Act of 1993 (OBRA-93) reduced the amount of compensation that may be considered for SEP, SIMPLE 401(k) and qualified retirement plan and 403(b) plan purposes to $150,000 (indexed). OBRA-93 also affects certain SIMPLE IRA plan operations. The compensation cap became effective beginning for 1994 plan years.

opinion letter

This letter is issued by the IRS National Office to a master or prototype plan sponsor stating that a master or prototype plan meets the Internal Revenue Code tax qualification requirements as to the form of the plan.

ordering rules

The prescribed order in which Roth IRA assets (contributory basis, conversion basis or Roth IRA earnings) are deemed to be withdrawn.

outplacement

Outplacement of deposits may occur when an IRA holder exceeds the federal deposit insurance limits with a depository institution. In this instance, the IRA holder may direct the depository institution to take the excess dollars and purchase an investment at another insured depository institution. Unless prohibited by plan documents, a prototype qualified retirement plan trustee may purchase investments not offered by the financial organization sponsoring the plan in an outplacement arrangement. Outplacement allows the employer to obtain added insurance protection for its investments, if that is a concern, and permits the employer to diversify investments.

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paired plans

A standardized profit sharing and a standardized money purchase plan that are designed to operate together using the same basic plan document are called “paired plans.” Employers will generally establish paired plans to maximize their qualified plan contributions in profitable years while retaining a certain degree of flexibility in contributions. Effective January 1, 2002, EGTRRA increased the employer contribution/deduction limit to 25 percent for qualified plans, thereby allowing employers to maximize contributions and flexibility using only a profit sharing plan.

partial termination

A partial termination of a qualified retirement plan occurs when a significant percentage of employees participating in a plan no longer are allowed to participate because of a plan amendment or separation from service initiated by the employer. The portion of the plan covering those employees no longer eligible to participate is deemed “terminated” and such employees become 100 percent vested in their plan balances.

participant

For qualified plans, SEP, SIMPLE or 403(b) plans, a participant means an employee who has met the eligibility requirements and has entered the plan.

payor

The payor, also sometimes called the payer, is the bank, savings and loan association, credit union, brokerage firm, insurance company or other IRA trustee, custodian or issuer responsible for withholding and paying in income taxes withheld from IRA distributions. For qualified retirement plans and Title I 403(b) plans, the plan administrator is generally responsible for federal income tax withholding on distributions. However, quite often the plan administrator transfers responsibility for withholding to the payor, generally the trustee or custodian for the plan. In a nonTitle I 403(b) plan, the payor is generally the trustee, custodian or issuer.

periodic payment

Distributions made in regular installment intervals, such as annuity payments, over a period of more than one full year are periodic. The intervals may be monthly, quarterly or annually.

permitted disparity

The difference between the excess contribution percentage and the base contribution percentage when integrating a qualified retirement, 403(b) or SEP plan with Social Security may not exceed certain established limits called the “permitted disparity.” Permitted disparity is also another term for the Social Security integration method of allocating employer contributions.

plan administrator

The plan administrator is the person or organization responsible for the day-to-day administration of the plan, and is typically the employer.

plan agreement

The plan agreement sets forth the terms and conditions of the IRA and is the controlling contact. The plan agreement along with other required documents creates the IRA. A Traditional IRA plan agreement can be either the IRS Model Form 5305, Individual Retirement Trust Account, or 5305-A, Individual Retirement Custodial Account, or a prototype plan. A Roth IRA plan agreement can be either the IRS Model Form 5305-R, Roth Individual Retirement Trust Account, or 5305-RA, Roth Individual Retirement Custodial Account, or 5305-RB, Roth Individual Retirement Annuity Endorsement, or a prototype plan. A SIMPLE IRA plan agreement can be either the IRS Form 5305-S SIMPLE Individual Retirement Trust Account, or 5305-SA, SIMPLE Individual Retirement Custodial Account, or a prototype plan. An Education Savings Account plan agreement can be either the IRS model Form 5305-E Education Individual Retirement Trust Account, or 5305-EA, Education Individual Retirement Custodial Account.

plan year

The plan year is any consecutive 12-month period specified in the plan for keeping records.

PLR

"PLR" (see private letter ruling in this document)

premium

A premium is an annuitant’s contribution to an annuity. For qualified retirement plans, a premium is the amount required to be paid to purchase life insurance as a plan investment.

private letter ruling

A private letter ruling is a ruling issued by the IRS addressing a particular tax situation of a taxpayer. Only the taxpayer requesting the ruling can rely on it. However, private letter rulings do give an indication of the IRS’s current position toward a particular type of transaction.

prior year-end balance

The prior year-end balance is the value of the individual’s qualified retirement plan or 403(b) plan account balance as of the most recent valuation date in the preceding calendar year. This balance is increased by the amount of any contributions or forfeitures allocated to the account after the valuation date but during such valuation year, and decreased by any distributions made in the calendar year after the valuation date.

profit sharing plan

A profit sharing plan is a defined contribution plan typically allowing discretionary employer contributions from zero percent to 25 percent as determined by the employer on an annual basis.

prohibited transaction

A prohibited transaction is a transaction between a Traditional, Roth, Education or SIMPLE IRA, or qualified retirement plan or 403(b) plan and a party in interest (referred to as a disqualified person), which is prohibited under IRC Sec. 4975. For IRAs, these actions include taking a loan from the IRA, Roth IRA, Education Savings Account or SIMPLE IRA, pledging or assigning the IRA, Roth IRA, Education Savings Account or SIMPLE IRA as security for a debt, investing IRA, Roth IRA, Education Savings Account or SIMPLE IRA funds in collectibles, etc. For a qualified retirement plan or 403(b) plan, prohibited transactions include use of plan assets for the benefit of a disqualified person.

prohibited transaction class exemption

A prohibited transaction class exemption is granted by the Department of Labor (DOL) to allow an individual(s) or entity(ies) to perform a certain action, which would usually be considered a prohibited transaction, without incurring any prohibited transaction penalties.

pro rata allocation

A pro rata allocation formula is a qualified retirement or SEP plan contribution formula that allocates to each eligible participant the same percentage, based on the individual’s compensation (e.g., each participant receives a contribution that represents five percent of annual W-2 wages).

prototype

A prototype is a specially designed IRA, SEP, SIMPLE or qualified retirement plan document, sponsored by an entity authorized by the IRS to offer prototype plan documents. The prototype plan document sponsor submits the plan to the IRS, which only approves plans that contain certain required provisions. There are no current provisions to allow for a prototype to be used as an Education Savings Account plan agreement.

prototype plan

A prototype plan is a qualified plan sponsored by an entity authorized by the IRS to offer prototype plans. The prototype plan sponsor must submit the plan for approval to the IRS National Office. Once the plan has been approved, an adopting employer completes and signs an agreement adopting the prototype as its qualified retirement plan.

prototype SEP plan

Prototype SEP plans are drafted by or for a financial organization to offer to employers. Many employers who cannot use Form 5305-SEP or 5305A-SEP plans choose to establish prototype SEP plans. Prototype SEP plans are generally submitted to the IRS by the financial organization for approval with Form 5306-SEP.

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QDRO

"QDRO" (see qualified domestic relations order in this document)

QJSA

"QJSA" (see qualified joint and survivor annuity in this document)

QMAC

"QMAC" (see qualified matching contribution in this document)

QNEC

"QNEC" (see qualified nonelective contribution in this document)

QPSA

"QPSA" (see qualified preretirement survivor annuity in this document)

QRP

"QRP" (see qualified retirement plan in this document)

qualified distribution

A Roth IRA distribution is a qualified distribution if the distribution represents assets that satisfy the five-year waiting period (beginning with the first taxable year for which the Roth IRA holder made a contribution) and one of the following events occurs: attainment of age 59½, disability, the purchase of a first home or death. An Education Savings Account distribution is a qualified distribution if the distribution is taken to pay for qualified higher educational expenses at an eligible educational institution.

qualified domestic relations order

A qualified domestic relations order (QDRO), created by the Retirement Equity Act of 1984, is an order entered by a court pursuant to state domestic relations law, which relates to the payment of child support and/or alimony or the division of marital property from qualified retirement plan or 403(b) plan assets. A QDRO has the effect of allowing payment of a participant’s benefit to an alternate payee, including the participant’s spouse, former spouse or dependent.

qualified intermediary

A qualified intermediary is any eligible foreign person or foreign financial institution that establishes a withholding agreement with the IRS to collect and submit withholding information to the IRS regarding its foreign account holders (Treas. Reg. 1.1441-1(e)(5)(ii)(A)(B)).

qualified joint and survivor annuity

A QJSA provides a lifetime annuity payment to a qualified retirement plan or 403(b) plan participant who separates from service. When the participant dies, periodic payments will continue to a surviving spouse in a percentage determined in the plan agreement. A plan participant may often waive the QJSA form of distribution and elect an alternative form of distribution. (See also REA annuity requirements in this document)

qualified matching contribution

Qualified matching contributions or QMACs are employer contributions used to cover deficiencies in the 401(k) and 401(m) nondiscrimination tests. These contributions are nonforfeitable when made and are subject to stringent withdrawal restrictions.

qualified nonelective contribution

Qualified nonelective contributions or QMACs are employer contributions used to correct deficiencies in the 401(k) and 401(m) nondiscrimination tests. These contributions are nonforfeitable when made and are subject to stringent withdrawal restrictions.

qualified preretirement survivor annuity

A qualified preretirement survivor annuity or QPSA is a life annuity paid to a surviving spouse if the qualified retirement plan or 403(b) plan participant dies before plan distributions commence. The participant with the consent of his or her spouse may often waive the QPSA. (See also qualified joint and survivor annuity in this document)

qualified retirement plan

A qualified retirement plan is an employee benefit plan that meets the requirements ofIRC Sec. 401(a), and is eligible for special tax consideration. For example, an employer can deduct plan contributions made on behalf of eligible employees on the business’s tax return.

qualified state tuition program

Qualified state tuition programs, which are established and maintained by states and agencies, allow individuals to purchase credits or certificates or to make contributions to an account that are to be used to pay for future qualified higher education expenses of a designated beneficiary.

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ratio percentage test

The ratio percentage test is one of the methods of testing for minimum coverage under IRC Sec. 410(b) in a qualified retirement plan.

RBD

"RBD" (see required beginning date in this document)

REA

"REA" (see Retirement Equity Act in this document)

REA annuity requirements

The Retirement Equity Act of 1984 (REA) generally requires that distributions to certain qualified retirement plan and 403(b) plan participants and beneficiaries be made in the form of a commercial annuity. However, the participant and his or her spouse (if applicable) may often sign elections waiving this form of distribution. (See also qualified preretirement survivor annuity in this document and qualified joint and survivor annuity in this document)

REA safe harbor plans

Certain types of defined contribution plans ( e.g., profit sharing plans and 401(k) plans) or 403(b) plans may be drafted to be exempt from the REA annuity requirements. These plans must meet specified conditions to qualify for this exemption.

recalculation

Recalculation is a method used to determine the life expectancy when calculating required minimum distributions.

recharacterization

A recharacterization occurs when an individual makes a contribution to a Roth or Traditional IRA, and later transfers either all or a portion of the original contribution or conversion amount, plus net income attributable (NIA), to another IRA on or before the individual’s tax return due date, plus extensions, for the year for which the contribution/conversion was made (Treas. Reg. 1.408A-5).

reconversion

A reconversion is a conversion of an amount from a Traditional IRA to a Roth IRA, where such amount had previously been converted and recharacterized (Treas. Reg. 1.408A-5, Q&A 9).

redesignation

An individual who makes an excess contribution to a Traditional or Education Savings Account for a given tax year may apply the contribution to the next tax year by means of redesignation. Redesignation does not dismiss the six percent excess penalty, but allows an individual to leave funds in the IRA. A redesignation may also occur if a Traditional IRA holder converts his or her Traditional IRA to a Roth IRA by simply redesignating the arrangement as a Roth IRA.

regular Education Savings Account contribution

Regular Education Savings Account contributions for the benefit of a designated beneficiary are limited to an aggregate of $2,000 in cash for a given tax year. This total does not include rollover contributions (see rollover)

regular IRA contribution

Regular IRA contributions are limited to the lesser of $3,000 or 100 percent of earned income. IRA holders must be under age 70½ (unless the IRA is a Roth IRA) and have earned income to make a regular contribution to a Traditional IRA. Although there are no age restrictions, IRA holders must have earned income, as well as MAGI within the income limits, to make a regular contribution to a Roth IRA. Regular contributions must be made in cash.

Regulation D/Regulation Q

See early withdrawal penalty.

required beginning date

The required beginning date is generally April 1 following the year a Traditional IRA or SIMPLE IRA holder, or a qualified retirement plan or 403(b) plan participant reaches age 70½. Some exceptions apply for certain qualified retirement plan and 403(b) plan participants.

required minimum distribution

Each year, Traditional or SIMPLE IRA holders, and qualified retirement plan and 403(b) plan participants must take required minimum distributions from their Traditional or SIMPLE IRAs, or qualified retirement plans or 403(b) plans beginning April 1 of the year after the year in which they reach age 70½. Some exceptions apply for certain qualified retirement plan and 403(b) plan participants.

responsible individual

The responsible individual is generally a parent or guardian of a designated beneficiary of an Education Savings Account (ESA). However, under certain circumstances, the designated beneficiary may be the responsible individual. A responsible individual of an ESA has the power to redirect the initial investment and direct the investment of all additional contributions. In addition, the responsible individual generally has the power to direct the financial organization regarding administration, management and distribution of the account. However, if the document permits, the financial organization may establish a policy that permits someone other than the designated beneficiary’s parent or legal guardian to serve as the responsible individual. This individual may serve as the responsible individual as long as he or she is not prohibited by law and is able to fulfill the obligations under the agreement.

Retirement Equity Act

The Retirement Equity Act of 1984 contains provisions protecting the rights of spouse beneficiaries when qualified plan distributions are made.

revenue procedure

The IRS issues a revenue procedure. Revenue procedures explain procedural matters or list the requirements to be followed in various IRS dealings. Revenue procedures also provide guidelines that the IRS uses in handling certain tax matters.

revenue ruling

A revenue ruling is a public IRS ruling that expresses the IRS’s views in specific situations. Individuals with the same facts or in identical situations can rely upon these rulings.

revoked IRA

A revoked IRA is a new IRA from which an individual has removed the total initial contribution within seven days of opening the IRA, thereby, closing the plan. There are no current provisions to allow for an Education Savings Account to be revoked.

RMD

"RMD" (see required minimum distribution in this document)

rollover

A tax-free, reportable movement of cash or other assets from one retirement plan to another, or between IRAs and eligible employer-sponsored plans, is a rollover.

Roth IRA

The Roth IRA, created by the enactment of the Tax Reform Act of 1997, and available January 1, 1998, is a type of IRA that can only receive nondeductible contributions. A Roth IRA holder may be entitled to tax and penalty free distributions, provided certain rules are met.

Roth conversion IRA

A Roth conversion IRA is a Roth IRA designated as a conversion IRA. The only permissible contributions to a Roth conversion IRA are amounts converted from a Traditional IRA during the same tax year.

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salary deferral

Certain types of plans (e.g., 401(k), and 403(b), SIMPLE and SAR-SEP plans) will allow employees to elect to contribute pre-tax dollars to the plan by deferring a percentage or dollar amount of their salaries.

salary reduction SEP excesses

Three types of employee salary reduction SEP (SAR-SEP) excesses exist.
1.A SAR-SEP excess contribution occurs when a highly compensated employee defers more as a percentage of income than is permitted by the actual deferral percentage rules.
2.An excess deferral occurs when an employee defers more than the maximum dollar amount allowed by law under a SAR-SEP.
3. A disallowed deferral occurs when the employer determines that less than 50 percent of eligible employees have chosen to defer into the SAR-SEP plan.

salary reduction SEP

A salary reduction SEP (SAR-SEP) plan is a SEP plan that allows an eligible employee to defer part of his or her pretax salary into an IRA rather than receiving the salary in cash. Effective January 1, 1997, new SAR-SEP plans may no longer be established. SAR-SEP plans established prior to January 1, 1997, however, may continue to operate.

SAR-SEP

"SAR-SEP" (see salary reduction SEP in this document)

saver’s tax credit

The saver’s credit is a nonrefundable income tax credit for certain taxpayers with adjusted gross income that does not exceed $50,000. The credit is equal to a specific percentage of certain employee contributions made to employer-sponsored retirement plans and to IRAs for taxable years 2002 through 2006. Created by EGTRRA, the saver’s credit is governed by IRC Sec. 25B.

savings incentive match plan for employees

Savings incentive match plans for employees of small employers (SIMPLE) plans are simplified retirement plans for small employers, funded by employee deferrals and employer matching or nonelective contributions. A SIMPLE plan may be a SIMPLE 401(k) or SIMPLE IRA plan.

SBA

"SBA-96" (see Small Business Job Protection Act of 1996 in this document)

SDA

"SDA" (see self-directed IRA in this document)

self-directed ESA

A self-directed Education Savings Account (ESA) is established at a financial organization with trust powers, a state FDIC-insured institution, a federal credit union or a federally-chartered savings and loan or savings bank where a wider choice of investments are allowed within the ESA. Stocks, bonds, money-market funds and mutual funds may all be found in a self-directed ESA at the choice of the contributor and/or the responsible individual.

self-directed IRA

A self-directed IRA (SDA) is a Traditional, Roth or SIMPLE IRA opened at a financial organization with trust powers, a state FDIC-insured institution, a federal credit union or a federally-chartered savings and loan or savings bank where the IRA holder is allowed a wider choice of investments within the IRA. Stocks, bonds, money-market funds and mutual funds may all be found in a self-directed IRA at the choice of the Traditional IRA, Roth IRA or SIMPLE IRA holder. A self-directed Education Savings Account is established at a financial organization with trust powers, a state FDIC-insured institution, a federal credit union or a federally-chartered savings and loan or savings bank where a wider choice of investments are allowed within the Education Savings Account. Stocks, bonds, money-market funds and mutual funds may all be found in a self-directed Education Savings Account at the choice of the contributor and/or the responsible individual.

SEP

"SEP" (see simplified employee pension in this document)

SEP plan excesses

Two types of employer SEP plan excesses exist.
1.Excess nondeductible SEP plan contributions occur when an employer contributes more to participants’ IRAs than the business can deduct in a year.
2.SEP allocation excesses occur when contributions are not allocated in accordance with the formula specified in the adoption agreement.

separate line of business

These rules provide the criteria an employer must meet to be eligible to treat various lines of business as qualified separate lines of business for various plan testing purposes.

SIMPLE 401(k) plan

A SIMPLE 401(k) is a plan with many of the characteristics of a 401(k) plan, that operates under many of the governing rules of IRC Sec. 401(a), but which incorporates the contribution, notice, vesting and exclusive-plan rules of SIMPLE IRA plans.

SIMPLE IRA

A SIMPLE IRA is a special type of IRA to which only SIMPLE IRA plan contributions are made.

SIMPLE IRA plan

Created by the Small Business Job Protection Act of 1996 (SBA-96), effective January 1, 1997, SIMPLE IRA plans are funded through SIMPLE IRAs. SIMPLE IRA plans involve employee deferrals and employer matching contributions, but do not require nondiscrimination testing or extensive reporting.

SIMPLE IRA plan excess

Two types of SIMPLE IRA plan excesses exist.
1.An excess deferral occurs when an employee defers more than the maximum dollar amount allowed by law under a SIMPLE IRA plan.
2.An excess nondeductible contribution occurs when an employer contributes more to the participants’ SIMPLE IRAs than the business can deduct in a year.

SIMPLE IRA plan summary description

Each year, a SIMPLE IRA trustee must provide employers sponsoring a SIMPLE IRA plan a summary description. The summary description must generally include the name and address of the employer and trustee; the plan’s eligibility requirements; plan benefits; timing requirements for elections; and the procedures and effects of withdrawals. According to IRS Notice 98-4, a trustee must provide a summary description to the employer early enough for the employer to meet its notification obligation to the employees. Thus, the trustee should provide a summary description to an employer at least 62 days before the beginning of each plan year (i.e., by October 31).

SIMPLEs

"SIMPLEs" (see savings incentive match plan for employees in this document)

simplified employee pension

A simplified employee pension (SEP) plan is a pension plan established by a business where contributions are deposited into participants’ IRAs and are tax deductible by the employer. Any employer, including a sole proprietor with no employees, can establish a SEP for the benefit of all eligible employees.

SLOB

"SLOB" (see separate line of business in this document)

Small Business Job Protection Act of 1996

Enacted August 20, 1996, this law changed the IRA spousal contribution rules, created savings incentive match plan for employees (SIMPLE) IRA plans, eliminated the establishment of new SAR-SEP plans beginning January 1, 1997, and affected a number of other IRA and qualified retirement and 403(b) plan provisions.

SMM

"SMM" (see summary of material modifications in this document)

Social Security integration

Social Security integration is a method of allocating contributions under a qualified plan, 403(b) plan or SEP plan based on the premise that employees with salaries above the taxable wage base (TWB) receive a smaller percentage of retirement benefits from Social Security. Therefore, additional contributions may be made to a qualified retirement plan for these employees to make up for this deficiency.

SPD

"SPD" (see summary plan description in this document)

spousal consent

A married qualified retirement plan or 403(b) plan participant must generally have the consent of his or her spouse to waive the REA annuity requirements, to name someone other than his or her spouse as a primary beneficiary or to take a distribution in a form other than a QJSA if the vested accrued benefit of the participant is $5,000 or more. When an IRA holder wishes to name someone other than or in addition to his or her spouse as primary beneficiary of the IRA, spousal consent is generally required in states maintaining community or marital property laws.

spousal IRA contribution

Spousal contributions are limited to the lesser of the annual maximum amount ($3,000 for 2002-2004) or the couple’s combined earned income less the amount contributed for the compensated spouse. For 2002-2004, potentially $6,000 could be contributed between the two IRAs, as long as no more than $3,000, plus a catch-up contribution, if eligible, is contributed to either IRA. To make a spousal contribution to a Traditional IRA, the IRA holder must be under age 70½, file a joint tax return with spouse and between the IRA holder and spouse have earned income. To make a spousal contribution to a Roth IRA , the IRA holder must file a joint tax return with spouse, have earned income between the IRA holder and spouse, and together with spouse have MAGI within the income limits.

standardized plan

A standardized plan is a qualified prototype plan written to satisfy various tax qualification requirements under the Internal Revenue Code and applicable revenue procedures.

substantially equal periodic payment

Substantially equal periodic payments are an series of IRA or qualified retirement plan distributions that are established according to the requirements of IRC Sec. 72(t), Notice 89-25 and Revenue Ruling 2002-62. If all requirements are satisfied, an IRA holder or plan participant who receives substantially equal periodic payments from his or her plan before reaching age 59 ½ will not be subject to the usual early distribution penalty tax, which is equal to 10 percent of the value of the amount distributed.

summary of material modifications

A summary of material modifications (SMM) is a comprehensive, easily understood summary of any material changes made to qualified retirement plan provisions, features or operations subsequent to adoption of the initial plan. SMMs must be distributed to all participants and beneficiaries within the time frame established by ERISA. SMMs must also be filed with the Department of Labor when requested.

Summary plan description

A summary plan description (SPD) is a comprehensive, easily understood explanation of a qualified plan’s provisions, features and operations. SPDs must be provided to all participants and beneficiaries within the time frame established by ERISA. SPDs must also be filed with the Department of Labor if requested.

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target benefit plan

A target benefit plan is a defined contribution plan with several characteristics of a defined benefit plan. Contributions are generally based on such factors as the employee’s age, years of service and a projected benefit at retirement.

tax-deferred

Generally, an IRA holder or plan participant is not taxed on earnings that accumulate on their retirement plan assets until such earnings are distributed from the plan. In this case, earning are considered tax-deferred.

taxable wage base

The taxable wage base or TWB is the base salary amount, as indexed annually by the Social Security Administration, upon which the employer’s Social Security obligation is determined.

taxable year

The 12-month period used by an employer or an employee to report income for income tax purposes is a taxable year.

Tax Reform Act of 1986

This law made numerous changes to IRAs, SEP and qualified retirement plans. Notable changes include putting limits on the deductibility of IRA contributions for certain individuals, creating SAR-SEP plans and requiring new approval letters for qualified retirement plans.

tax sheltered annuity

A TSA is an employer-sponsored retirement plan established under IRC Sec. 403(b). TSAs are available to certain public educational organizations and tax-exempt organizations. Deferrals and contributions to a TSA are tax-deferred.

Tax Technical Corrections Act of 1998

This law contains many technical corrections to the Taxpayer Relief Act of 1997. The most notable changes affect distributions from Roth IRAs.

Taxpayer Relief Act of 1997

Enacted August 5, 1997, the Taxpayer Relief Act of 1997 (TRA-97) created the Roth IRA. Also included in TRA-97 are provisions increasing the phase-out range for active participants in employer-sponsored retirement plans wanting to make deductible IRA contributions, adding two new exceptions to the 10 percent early distribution penalty and adding a number of other IRA and qualified retirement plan provisions.

ten-year averaging

Ten-year averaging is a method to determine income tax liability on a lump sum distribution made from a qualified retirement plan (not IRAs) which often reduces the amount of income tax due to the IRS. TRA-86 generally repeals 10-year averaging, effective for tax years beginning after December 31, 1986. However, IRA holders who reached age 50 before January 1, 1986, may still qualify for 10-year averaging.

terminated plan

A terminated plan is a plan that ceases to accrue benefits, and pays out all plan assets.

Thrift Savings Plan

A thrift savings plan (TSP) is a type of retirement plan sponsored by the federal government. A distribution from a TSP may be eligible to be rolled over into an IRA.

top-heavy

IRC Sec. 416 defines a top-heavy plan as a plan where the aggregate assets of the key employees exceed 60 percent of the aggregate assets in the accounts of all employees. Special testing may be required to determine if a qualified retirement or SEP plan is top-heavy. Top-heavy plans are subject to special minimum contribution and vesting rules.

transfer

A transfer is a tax-free, movement of assets between Traditional IRAs, SIMPLE IRAs, Roth IRAs and Education Savings Accounts from one trustee, custodian or issuer to another trustee, custodian or issuer. Transfers, except those that occur with Education Savings Accounts, are nonreportable transactions. The IRA holder does not have actual receipt of the funds. For qualified retirement plans, a transfer is a tax-free movement of assets, generally initiated by the employer, from one qualified retirement plan to another. For 403(b) plans, Revenue Ruling 90-24 allows for tax-free transfers between 403(b) plans.

transmittal form

A transmittal form is a report summarizing how many forms are being submitted to the IRS. For example, IRS Transmittal Form 1096, Annual Summary and Transmittal of U. S. Information Returns, summarizes how many 1099-Rs, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., are being transmitted.

TRA-86

"TRA-86" (see Tax Reform Act of 1986 in this document)

TRA-97

"TRA-97" (see Taxpayer Relief Act of 1997 in this document)

TSA

"TSA" (see tax sheltered annuity in this document)

triggering event

A triggering event is an event described within the qualified retirement plan or 403(b) plan documents that must occur before a distribution of benefits to participants and/or beneficiaries may be made from the plan. The generally include attainment of normal retirement age, death, disability, plan termination or severance from employment.

trustee

A trustee is a bank or savings and loan association, as defined in IRC Section 408(n), or any person who has the approval of the IRS to act as trustee. Any person who may serve as a trustee of a Traditional IRA may serve as the trustee of an Education Savings Account.

TSP

"TSP" (see Thrift Savings Plan in this document)

TTCA-98

"TTCA-98" (see Tax Technical Corrections Act of 1998 in this document)

TWB

"TWB" (see taxable wage base in this document)

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UBI

"UBI" (see unrelated business income in this document)

UCA-92

"UCA-92" (see Unemployment Compensation Amendments of 1992 in this document)

Unemployment Compensation Amendments of 1992

This bill changed the qualified retirement and 403(b) plan to IRA rollover requirements effective January 1, 1993.

unrelated business income

Generally, the income on an IRA or qualified retirement plan investment is tax-deferred. However, taxable unrelated business income (UBI) generally occurs when a plan receives income from 1) a plan-operated business, 2) property acquired or improved by the plan through debt financing, or 3) certain partnerships in which the plan owns an interest.

user fee

The IRS mandates that a set fee referred to as a user fee accompany certain submissions and ruling requests.

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vesting

Vesting is the process by which benefits contributed on behalf of certain employer-sponsored retirement plan participants become nonforfeitable. The vesting percentage determines the amount available for distribution to participants upon termination of employment or any other triggering event.

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withholding

Withholding generally means federal income tax withholding on distributions. All distributions from Traditional and SIMPLE IRAs, and nonqualified Roth IRA distributions, that are payable on demand are deemed nonperiodic distributions and are subject to a withholding rate of 10 percent (unless the individual taking the distribution elects to have more than 10 percent withheld or elects to have nothing withheld). The nature of payable on demand requires that an individual have the ability to request a partial or a total distribution from the IRA at any time. Annuitized distributions from IR annuities or from annuity contracts under IR accounts are not considered payable on demand and, therefore, are considered periodic payments. These periodic payments are treated as wages, and withholding is determined by using the income tax withholding tables with the assumption that the recipient is married and has three exemptions (unless the recipient chooses a different withholding rate). The flat rate of 10 percent would not apply. Withholding does not apply to distributions from Education Savings Accounts. For qualified plans, the plan administrator or payer is responsible for federal income tax withholding on most qualified retirement plan and 403(b) plan distributions. The amount of withholding depends on the type of distribution; that is, whether it is an eligible rollover distribution, a periodic or nonperiodic payment. Eligible rollover distributions that are not directly rolled to another eligible plan are subject to a mandatory withholding rate of 20 percent. Periodic and nonperiodic payments are subject to the withholding rates explained above.

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year of service

Plan documents will specify what constitutes a year of service. Generally, a year of service for purposes of eligibility and vesting will consist of a 12-month period during which the participant performs a minimum of 1,000 hours of service.

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