Amount payable to a participant, upon attainment of Normal Retirement Date, usually defined as payable monthly in the normal form. Includes only benefits accrued-to-date.
A benefit of equal value computed at a specified interest rate and mortality assumption.
The overall worsening of an insurance risk profile caused by allowing certain preferred risks to be excluded from coverage.
A person on whose life an annuity contract is written.
A series of periodic payments made either for life or for a specified period of time.
A legal document issued to members of a group the terms of which are governed by a group annuity contract that provides for payments to the group members either for life or for a specified period of time.
A fractional measurement of interest yield equal to 1/100 of 1%; e.g. “20 basis points” equals “0.20%”, or “two tenths of one percent”.
Recipient of the proceeds of a life insurance policy or annuity contract who has an insurable interest in the insured.
The price offered by an annuity provider to assume a particular liability.
A single premium group annuity contract that transfers all or part of a DB plan’s benefit risk to an insurer. A Buy-in contract generally provides the contract holder a rescission option, which may involve a market value adjustment or a risk charge. The contract is purchased and held as a plan investment or asset. Buy-in contracts can be converted to a permanent annuity contract [see “Buy-out”, “Carve-out”] at the discretion of the contract holder.
A single premium group annuity contract that permanently transfers all or part of the defined benefit obligations from a plan sponsor to an insurer, sometimes done in conjunction with the termination of the plan. Certificates are typically issued to plan participants. The insurer typically assumes responsibility for administration.
Ability of a life insurer to issue new business based on its available resources.
A single premium group annuity contract that permanently transfers defined benefit obligations from a plan sponsor to an insurer for a segment or group of participants for whom no further benefit accruals apply. The annuity provider typically issues certificates to the participants.
CASH BALANCE PLAN
A hybrid form of defined benefit plan that provides for specified accumulations to a hypothetical participant account which is converted to an annuity benefit at retirement. The employer bears all investment risk. Benefits are always made available as an annuity at retirement and a lump sum is often (but not necessarily) offered at retirement.
CASH FLOW (Pension)
A series of payments over time. It may refer to a plan liability such as benefit payments to participants, or to a plan asset such as income receivable from investments.
CERTAIN AND CONTINUOUS (C&C)
A form of annuity whereby payments are guaranteed for the life of the annuitant or a specified period, whichever is longer. If the annuitant dies before the period specified, then payments continue to a beneficiary for the remainder of the period.
(see Annuity Certificate)
COMMENCEMENT DATE (Annuity)
The date on which annuity payments are to begin.
The survivor of either the annuitant or a joint annuitant to whom benefit payments are due after the death of the primary annuitant.
Payments made to a pension trust to provide for future benefits to plan participants. The plan sponsor typically makes all contributions but in some cases employees contribute.
COST OF LIVING ADJUSTMENT (COLA)
Adjustment in wage or income designed to offset changes in the cost of living. In an annuity, it is sometimes a fixed percentage increase and sometimes indexed, e.g. to the Consumer Price Index (CPI).
An assessment of the soundness of a company as determined by a rating agency or service through analysis of the company’s financial information and business practices.
Amount payable upon death as a single sum or an annuity.
An arrangement in which income in the form of annuity payments is due to start at some later date.
DEFINED BENEFIT PLAN (DB)
An employer-sponsored plan that guarantees participants lifetime annuity benefits payable at retirement. The specified amount of benefit payments is often based upon salary and/or years of service.
The single rate or series of rates used to calculate the present value of a future amount or cash flow.
Also referred to as involuntary termination. Cessation of a plan that terminates without sufficient assets to pay its obligations to participants, typically due to bankruptcy of the plan sponsor.
The average timing of specified cash flows; the sensitivity of the value of an asset or a liability to changes in interest rates.
The commencement of benefits prior to reaching Normal Retirement Date. Generally, the participant must meet minimum age and service requirements to be eligible for this benefit. The accrued benefit is usually, but not necessarily, reduced.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (ERISA)
The basis for most modern pension regulation, ERISA governs many aspects of the administration, supervision, funding and management of pension plans.
EXPECTED RETURN (Pension)
An assumed rate of return on invested assets.
EXPERIENCE LOSSES or GAINS (Pension)
The difference between assumed and actual financial results relating to actuarial (demographic), investment or expense assumptions.
Financial Accounting Standards Board.
A person who exercises any discretionary authority or control over the management of a plan or the disposition of its assets.
FINAL-AVERAGE PAY PLAN
A pension that is based upon the participant’s average compensation during a period of final years of service.
FROZEN PLAN (Pension)
A plan that has ceased accruing benefits for participants.
The cessation of all future benefit accruals.
Exclusion of new hires from plan participation
The extent to which a plan’s assets are sufficient to meet the plan’s liabilities, often expressed as a percentage (e.g. “fully funded” means at least 100%). The funded status depends on how the liabilities are measured, e.g. GAAP accounting basis, PPA basis, buy-out basis.
FUTURE SERVICE COSTS
Value of DB pension obligations that is expected to accrue from participants’ future service.
The main ledger of an insurance company which holds all assets and liabilities other than those specifically designated as belonging to separate accounts.
GROUP ANNUITY CONTRACT (GAC) (a.k.a. Single Premium Group Annuity (SPGA)
A contract issued by an insurer which provides benefits to participants for which the insurer assumes mortality, interest and expense risks; issued to fund benefits from a pension or profit sharing plans; may be non-participating or participating:
A contract that does not provide for dividends from actual experience.
A contract which provides for refunds based on favorable policy-specific experience related to mortality, investments, and or expenses.
An annuity that provides for periodic income payments that commence within one year from the date of purchase.
A composite standard against which other specific examples can be measured; a benchmark or reference tool for evaluating performance.
An insurance contract that transfers investment risk and asset liability management risk from a DB plan to the insurer. It can be used to remove the primary sources of funding volatility. The contract is held by an ongoing plan as a plan investment.
INTEREST RATE RISK
The susceptibility of assets and or liabilities to changes in value resulting from the movement of interest rates.
INTERNAL RATE OF RETURN (IRR, aka ROI)
Discount rate at which the value of returns paid to an investor equals the initial investment.
An adviser that is registered with the Securities & Exchange Commission under The Investment Adviser Act of 1940.
JOINT & SURVIVOR (J&S)
A form of annuity based on two lives. If the specified primary annuitant dies first, then the “joint” annuitant will continue to receive annuity payments for life in an amount equal to a specified percentage of the payment amounts received during the primary annuitant’s life. Commonly allowed survivorship percentages are 100%, 75%, 66 2/3%, and or 50%.
LIABILITY DRIVEN INVESTING (LDI) (Pension)
An investment management approach designed to deliver returns or cash flows to meet a specified liability. LDI often involves matching the duration of the asset portfolio to the duration of the liability.
The mean [average] number of years that an individual is expected to survive.
LIFE ONLY ANNUITY (LO)
A form of annuity in which an income is payable for a person’s lifetime, with no payments made after death.
LIFE WITH PERIOD CERTAIN ANNUITY C&C
[see Certain and Continuous]
LUMP SUM DISTRIBUTION (LSD) (Pension)
A single payment made to a plan participant in lieu of an annuity.
MARKET VALUE ADJUSTMENT (MVA) (Insurance)
Amount by which the redemption value reflects changes in financial market conditions upon termination or discontinuance of an insurance contract.
MASTER TERMINAL FUNDING ANNUITY (MTFA)
A group annuity contract that permits periodic purchases of immediate annuities.
The one-year probability of death for a given individual of for a group of similar individuals of the same age.
A complete set of mortality rates covering all relevant ages, it may be intended to apply to a certain group or population or for a specific purpose. Mortality tables often provide distinct rates by type of individual based on, e.g. gender, health status or employment status.
MUTUAL INSURANCE COMPANY
An insurance company owned by its policyholders, who typically receive dividends based on the company’s experience gains.
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC)
A non-profit association consisting of the insurance commissioners of all 50 states who collaborate and share best practices for the regulation of insurance.
A benefit or welfare plan that is not eligible for favorable tax treatment.
A reference to the Supreme Court decision (Arizona v. Norris, 1983) which prohibits pension benefits from being calculated differently based on gender.
NORMAL RETIREMENT DATE
The point in time when a plan participant reaches the normal retirement age as defined by the plan, and becomes eligible to receive income benefits.
The form of annuity, as defined by the plan, in which a participant receives the accrued benefit without adjustment. It is the default form if the participant does not elect any optional form that may be available under the plan.
OPTIONAL FORM (Pension)
An alternative form of annuity to the normal form. The benefit amount is adjusted to account for the difference in value of the optional form.
Someone entitled to benefits under a pension plan, usually based on employment.
PENSION BENEFIT GUARANTY CORPORATION (PBGC)
Federal agency established under ERISA to guarantee basic pension benefits in covered defined benefit plans. Plans are required to pay insurance premiums to the PBGC. In turn, the PBGC guarantees benefits to participants to the extent required by law, and pays those benefits in the event of bankruptcy of the plan sponsor.
A type of deferred compensation plan that provides income to retired workers.
PENSION RISK TRANSFER (PRT)
The process of contractually removing defined benefit plan risk from a plan sponsor. Such risk may include balance sheet risk, contribution risk, longevity risk, interest rate risk.
PERIOD CERTAIN ANNUITY
A form of annuity that provides payments for a specified period, usually 5, 10, 15, or 20 years. If the annuitant dies during the payment period, payments continue to beneficiaries until the end of the defined period.
The corporation, employer, union, or other entity that establishes, funds and maintains a plan in accordance with its terms and conditions.
PLAN TERMINATION (Pension)
The process of discontinuing a pension plan. All benefit liabilities must be settled with distributions to participants or through the purchase of irrevocable annuities from an annuity provider.
The Pension Protection Act of 2006. PPA made many changes to existing pension law, especially with regard to funding adequacy.
The cost of an insurance contract. The amount a contract holder must pay to keep an insurance contract in force.
Discounted value of future cash flows.
QUALIFIED DOMESTIC RELATIONS ORDER (QDRO)
Court-ordered stipulation in conjunction with a divorce that provides for the QDRO beneficiary (ex-spouse) to receive a portion of a plan participant’s benefit.
QUALIFIED JOINT & SURVIVOR ANNUITY (QJSA) (Pension)
An annuity form that meets the IRS requirements that such a form be made available to married plan participants. The QJSA is a Joint & Survivor Annuity with a survivorship percentage of at least 50%. The consent of the participant’s spouse is required to allow the participant to choose a form other than a QJSA.
A plan established by an entity [plan sponsor] for the benefit of employees that meets IRS criteria permitting tax deductible contributions by the plan sponsor and tax deferred growth of invested assets. Benefits are generally not taxable to the participants until received, in spite of their vested rights.
QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY (QPSA) (Pension)
An annuity form that meets the IRS requirements that such a form be paid to the surviving spouse of married participants who die before their Normal Retirement Date. The QPSA is essentially the survivor portion of a QJSA.
A form of lifetime annuity that pays a beneficiary upon the annuitant’s death the difference, if any, between the premium paid for the annuity and the sum total of lifetime annuity payments made to the annuitant. Cash Refund annuity: the refund is paid to the beneficiary in a single lump sum. Installment Refund annuity: annuity payments continue to the beneficiary in the same amount until the refund is fully paid.
Contract provision allowing the policyholder the right to annul the contract before it matures. The right may be conditioned upon certain criteria and a market value adjustment may be made to the contract value.
SAFEST AVAILABLE ANNUITY
(See FAQs regarding DOL 95-1)
(Pension) A group of three PPA-prescribed discount rates typically used to determine the value of a plan’s liability for funding purposes. The three segment rates are applied to the plan’s projected benefit cash flows in future years 0 to 5; 5+ to 20; and 20+ to 60 respectively. Various different sets of 3-segment rates are published monthly by the IRS.
An insurance company ledger holding certain specified assets and liabilities apart from the rest of its assets and liabilities. Separate account assets are not chargeable with liabilities other than those for which it was specifically designated. [see also “General Account”]
SINGLE PREMIUM GROUP ANNUITY CONTRACT (SPGA)
(See Group Annuity Contract)
SOCIAL SECURITY LEVELING OPTION
A form of annuity designed to pay higher benefits for a period of time until Social Security benefits become payable, resulting in substantially level income from both sources combined over the lifetime of the annuitant.
SPOT RATE (PPA)
A series of 200 semi-annual discount rates published monthly by the IRS and used to discount plan liabilities for measuring funding status in accordance with PPA.
STOCK INSURANCE COMPANY
A form of insurance company whereby the policyholders do not have an ownership stake in the company. Policy holders are separate from stock holders.
TEMPORARY LIFE ANNUITY
An annuity that pays periodic benefits during the life of the annuitant but not longer than a specified time frame.
A fiduciary according to ERISA; one who is charged with the responsibility of administering a plan in accordance with its terms within the law.
Rights that cannot be lost or forfeited, e.g. the rights that certain plan participants have to receive future benefits.