GLOSSARY

TERM

/ DEFINITION /
  1. Benefit Formula
/ The provision in the qualified defined benefit plan which describes the annual benefit a participant will receive at retirement (e.g., 2% of the final 3-year average compensation per year of service)
  1. Eligible 457(b) Plan
/ A deferred compensation plan that is maintained by an eligible employer – a state or local government or a nonchurch, nongovernmental tax-exempt organization- and that also meets statutory requirements.
  1. Employer-paid Life Insurance Benefit
/ Insurance policy on the life of the employee with benefits equal to a fixed or variable dollar amount (e.g., a face value of $50,000) or a percent of compensation (e.g., 2 times compensation).
  1. Employer-paid Long-term Disability Insurance Benefit
/ An arrangement paid for by the employer which provides income-replacement benefits to employees who are unable to work because of illness or accident, usually following a short-term disability period (e.g., 90 days, 180 days, etc).. The level of benefits generally is dependent on the employee’s pre-disability income level, not the nature or extent of his or her disability.
  1. 401(a)(17) Limit
/ The maximum amount of annual compensation that can be used in calculating most tax favored retirement plan benefits (e.g., generally, $170,000 for private sector plans).
  1. 401(k) Plan
/ A defined contribution plan established by a taxable or non-taxable organization (or a grandfathered government 401(k) plan) under Section 401(a) of the Internal Revenue Code which provides that the participants may contribute pre-tax salary deferrals to their accounts (e.g., participants may defer up to 10% of their salaries and the employer matches $1 for $1 the first 5%).
  1. 403(b) Plan
/ A defined contribution plan established by a section 501(c)(3) organization or public educational organization under Section 403(b) of the Internal Revenue Code which permits salary reduction contributions and may permit employer matching and/or non-matching contributions (also referred to as a “TSA Plan” or “Tax Sheltered Annuity Plan”).
  1. 415 Limit
/ In the case of a qualified defined contribution plan or 403(b) plan, annual contributions plus any other annual additions are limited to the lesser of $30,000 or 25% of a participant’s compensation.
In the case of a qualified defined benefit plan, benefits are limited to the lesser of $135,000 or 100% of the participant’s average compensation for the participant’s highest three years (but, if a government plan, only limited to $135,000)
  1. Ineligible 457(f) Plan
/ A non-qualified plan offered by tax-exempt organizations and government employers used to provide retirement benefits and compensation-deferral opportunities to certain employees, but requires a substantial risk of forfeiture to avoid current taxation (i.e., generally, the employee must keep working to receive the benefits).
  1. Make-up Plan for the 401(a)(17) Limit
/ An additional retirement plan designed to replace any benefits lost as a result of the prohibition against the qualified defined benefit plan and/or defined contribution plan considering compensation in excess of the 401(a)(17) limit (e.g., participant has compensation of $200,000; since only $170,000 is considered in the qualified plan, the make-up plan replaces benefits she would have earned if total compensation of $200,000 had been used in the qualified plan)
  1. Make-up Plan for the 415 Limit
/ An additional retirement plan designed to replace any benefits lost as a result of the prohibition against the qualified defined benefit plan and/or defined contribution plan providing benefits in excess of the 415 limit (e.g., in a qualified defined benefit plan, a participant is limited to annual benefits of $135,000, but the formula would otherwise produce a benefit of $150,000; the make-up plan would replace the benefit lost as a result of the 415 limit.).
  1. Matching Feature
/ An employer contribution to a qualified defined contribution plan or other tax favored defined contribution retirement plan which matches some portion of contributions made by participants (e.g., the employer matches $1 for $1 of the first 5% of compensation an employee contributes to the 403(b) plan).
  1. Money Purchase Pension Plan
/ A defined contribution plan established under Section 401(a) of the Internal Revenue Code which provides that the employer has a fixed obligation to make certain contributions to the plan each year (e.g., employer agrees to contribute an amount to each participant’s account equal to 5% of the participant’s compensation each year.).
  1. Other Deferred Compensation Plans
/ A plan which is something other than a Tax Favored Defined Contribution Retirement Plan or a Tax Favored Defined Contribution Savings Retirement Plan such as a supplemental executive compensation plan, ineligible 457(f) plan, or some other plan designed to defer an employee’s compensation.
  1. Pension Spiking
/ Significant increases in final years’ compensation which would significantly increase benefits for all years of service under a qualified defined benefit plan.
  1. Portion of W-2 Earnings
/ An amount less than all taxable income (e.g., base salary, excluding bonuses and incentive pay).
  1. Profit Sharing Plan
/ A defined contribution plan established under Section 401(a) of the Internal Revenue Code which provides that the employer will or may make contributions and which has a predetermined formula for allocating contributions among the participants (e.g., employer agrees that it will make discretionary contributions to the plan and if made the contributions will be allocated among all participants based on a percentage of compensation).
  1. Summary Plan Description
/ A booklet provided to plan participants describing benefits, rights and plan provisions.
  1. Supplemental Executive Compensation Plan (SERP)
/ Any non-qualified plan used to provide retirement benefits and compensation-deferral opportunities to certain employees (e.g., make-up plan; 457(f) plan; nonqualified plan with benefits not dependent on qualified retirement plan formula; etc.).
  1. Tax Favored Defined Contribution Retirement Plan
/ A plan established under Section 401(a), 403(b) or 457(b) of the Internal Revenue Code that provides for employer contributions each year to each participant’s account. (e.g., a plan promises that the employer will contribute 3% of compensation each year). Also, this plan may include employee contributions.
  1. Tax Favored Defined Contribution Savings Retirement Plan
/ A 403(b), 401(k), eligible 457(b) plan, or some other defined contribution plan entitling participants to make pre-tax salary deferrals. This plan permits only employee contributions.
  1. Tax Qualified Defined Benefit Retirement Plan
/ A plan established under Section 401(a) of the Internal Revenue Code and designed to pay a certain benefit at retirement (e.g., a plan promises to pay 2% of a participant’s final compensation for each year of service).
  1. W-2 Earnings
/ All earnings reported as taxable income (e.g., would include bonuses and incentive pay).

William M. Mercer, Incorporated 4 University of California Schools of Health Sciences

Physician Retirement Benefits Survey