Usually part of a defined benefit plan, it is the retirement benefit which a plan participant has accumulated as of a specified point in time.
Refers to a benefit of equivalent value that is determined by using a specified mortality table and interest rate.
The individual upon whose life an annuity is based.
ANNUITY COMMENCEMENT DATE:
The date on which income from an immediate annuity begins.
An individual, corporation, estate or trust that retains all policy rights and tax reporting obligations.
The division of assets among different categories of investment funds which affects both risk and return.
A bond is a fixed interest financial asset issued by governments, companies, banks, public utilities and other large entities. Bonds pay the bearer a specified amount of interest on a specified end date. A discount bond pays the bearer only at the ending date, while a coupon bond pays the bearer a fixed amount over a specified interval (month, year, etc.) as well as paying a fixed amount at the end date.
A grade given to bonds that indicates the quality of the investment. The more A’s the better, ranging from AAA (very unlikely to default) to D (in default). Moody’s Investment Services and Standard & Poor’s are the two major bond rating companies.
A form of settlement payable by way of an immediate annuity. Under this option, if the annuitant dies before receiving the amount they invested in the contract, then balance they did not receive is paid to a beneficiary in a single lump sum.
CERTAIN AND CONTINUOUS:
A form of settlement payable by way of an immediate annuity. It provides income for life, but also guarantees that payments will be made for a certain number of years. If the annuitant dies during before the guaranteed period ends, payments will continue to a beneficiary until the end of that period. If the annuitant lives beyond the guaranteed period, payments will continue until their death.
A document that is issued by an insurance company to an individual, specifically outlining benefits they are eligible to receive under an annuity contract. It is typically issued in accordance with a single premium group or terminal funding annuity.
COST OF LIVING ADJUSTMENT:
Also known as a COLA, it is an adjustment of income payments, usually performed on an annual basis, that is intended to offset a change (usually a loss) in the purchasing power of the income. Adjustments can be based on a fixed percentage or on changes in the Consumer Price Index.
An annuity in which the benefits are not payable immediately, but are deferred, or scheduled to begin at a stated point in the future.
DEFERRED COMPENSATION PLAN:
A plan established by an employer to provide income benefits to an employee at a later date for services being performed prior to such date. The primary benefit of most deferred compensation plan is tax deferral.
DEFINED BENEFIT PLAN:
A pension plan in which retiring participants receive a specific benefit amount based on salary and years of service, and in which the employer bears the all risk. Contributions may be made by the employer, the participants, or both.
DEFINED CONTRIBUTION PLAN:
A pension plan, such as a 401k or 403(b), in which the participant bears the investment risk, and defers a portion of salary into an individual account. The value of the account determines the benefit payable when the participant retires. Contributions made by the participant may or may not be matched by the employer.
Cessation of a pension plan that arises when it lacks the funds needed to meet its obligations to participants who have earned benefits.
Allocating assets among different types of investments to reduce volatility and exposure to risk.
DOLLAR COST AVERAGING:
Investing the same amount of money in the same investments at fixed intervals, often monthly. As prices rise, fewer shares are purchased; if prices drop, more shares are acquired. As a long-term strategy, this technique can result in, but does not guarantee, a lower average cost per share.
The election by an eligible participant in a pension plan, to begin receiving plan benefits before the normal retirement age, subject to minimum age and service requirements and subject to a reduced pension income benefit.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (ERISA):
A U.S. federal law that regulates both employee welfare benefit plans, including group life and health insurance plans established by employers and employer-sponsored retirement plans. ERISA requires that such plans be established and maintained in accordance with a written plan document, follow a variety of disclosure and reporting requirements, and include certain minimum plan requirements.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP):
A type of compensation plan under which a company rewards individual or group performance by either allowing employees to purchase company stock or distributing company stock to employees.
A type of annuity that offers the same type of minimum interest rate guarantees as a traditional fixed annuity, but also may credit additional interest depending upon the performance of an external index, typically the stock market.
ERRORS & OMISSIONS (E&O) INSURANCE:
Insurance that protects a sales agent against financial liability for any negligent acts or mistakes.
Expressed as a percentage, the portion of an annuity payment that is excluded from gross income.
A person, corporation or legal entity that holds a special position of trust or confidence and which must put the interests of others above his or her own interests, since they must often make decisions regarding financial matters on behalf of the other party(ies).
FINANCIAL ACCOUNTING STANDARDS BOARD (FASB):
A private organization that establishes and promotes the use of Generally Accepted Accounting Principles (GAAP) in the United States.
FIXED INCOME INVESTMENT:
A security that provides a fixed rate of return over a stated period of time, and provides a relatively low rate of interest consistent with a lower risk to the principal. These investments generally include preferred stocks, money market investments, bonds and GICs.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP):
Widely accepted set of rules and standards designed for reporting financial information to investors and the public at large.
An undivided investment account in which insurance companies maintain funds that support contractual obligations for guaranteed insurance products such as whole life insurance or fixed-rate annuities.
A retirement plan funding arrangement that provides periodic income payments at retirement to a group of people under a single group contract.
GUARANTEED INVESTMENT CONTRACT (GIC):
A retirement plan funding vehicle under which an insurer accepts a single deposit from the group plan sponsor for a specified period. The insurer invests the funds, and guarantees the plan sponsor at least a specified investment return. Also known as guaranteed interest contract and guaranteed income contract.
An organization comprised of all the life insurance companies operating in a state and that is responsible for covering the financial obligations of member companies that become insolvent.
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An annuity from which income payments begin no later than one payment mode (within 13 months) after the policy is issued.
A mutual fund, conservative in nature, whose goal is incomeas opposed to growth. The income is generally produced through either dividends or payments from preferred stock.
The chance that the value of assets or income will be eroded as inflation shrinks the value of currency.
INTEREST RATE RISK:
The chance that a fixed rate debt instrument will decline in value as a result of a rise in interest rates of similar quality investments.
Bond quality of moderate to low risk, usually with a BBB rating or above.
JOINT & SURVIVOR ANNUITY:
An immediate annuity option under which the insurer agrees to make a series of benefit payments to two individuals until both die.
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An immediate annuity option that guarantees income for the life of an annuitant. If a life annuity provides no further benefits after the death of the annuitant, the annuity is known as a straight life annuity.
The number of years a person is expected to survive at any given age.
The chance there will be fluctuations in prices for the market as a whole or in specific sectors, brought on by outside forces.
A group contract that facilitates ongoing, periodic purchases of immediate annuities from various plans.
MONEY PURCHASE PENSION PLAN:
A pension plan in which employer contributions are determined as a percentage of an employee’s pay, and mandatory every year, regardless of whether the company was profitable or not.
Actuarial tables that are used to predict the life expectancy and death rates for various types of people.
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC):
A private, nonprofit association of insurance commissioners from all 50 states and the District of Columbia that promotes uniformity of state insurance regulation within the United States.
NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD):
In the United States, a nonprofit organization of securities brokers and dealers that promotes fair and ethical practices in the securities business.
NATIONAL ORGANIZATION OF LIFE AND HEALTH GUARANTY ASSOCIATION (NOLHGA):
In the US, an organization to which most state guaranty associations belong; its primary function is to facilitate communications among the various state guaranty associations.
For a business organization, funds that remain from the company’s sales revenues after deductions have been made for sales costs, operating expenses, and taxes. Also considered to be profit.
One that does not meet the requirements for preferential tax treatment under the Internal Revenue Code. This type of arrangement allows an employer more flexibility and freedom with coverage requirements, benefit structures, and financing methods but may be subject to other restrictions.
NORMAL RETIREMENT AGE:
In pension plans, the earliest age at which an eligible participant can retire with full benefits.
OPTIONAL FORM OF SETTLEMENT:
In a pension, an alternative form of benefit distribution beyond that which the plan normally provides.
An individual who receives the immediate annuity income payments.
PENSION BENEFIT GUARANTY CORPORATION (PBGC):
A federal corporation responsible for guaranteeing the payment of retirement benefits for participants in defined benefit retirement plans when those plans become financially unable to pay benefits.
Assets used to pay the pensions of retirees.
An agreement under which an employer or employee organization establishes a plan to provide covered employees with a lifetime benefit that begins at their retirement.
PENSION PLAN BENEFICIARY:
The individual who receives benefits under a pension plan, including current or former plan participants, as well as dependents, spouses, and survivors of plan participants, can all be pension plan beneficiaries.
A very detailed, official document that outlines the rights and obligations of various parties to the plan, and describes the type of plan, eligibility features, vesting schedules, and retirement provisions.
The entity that establishes and maintains a plan and enforces its terms and conditions.
PROFIT SHARING PLAN:
A defined contribution plan where contributions, whether cash or stock, are determined at the employer’s discretion and can be paid immediately or deferred until retirement.
One that is exempt from current income taxation during the accumulation period, and is purchased to either fund or distribute funds from a tax-qualified employee benefit retirement plan.
A retirement plan that meets Internal Revenue Code rules and regulations that allows employers to receive certain deductions and other tax benefits. These plans allow employees to defer income tax on employer’s contributions and all earnings until distributed.
QUALIFIED DOMESTIC RELATIONS ORDER (QDRO):
A judgment or order that assigns either all or a portion of a participant’s qualified plan benefit to a spouse, child or other dependent payee.
QUALIFIED PRERETIREMENT SURVIVOR ANNUITY (QPSA):
Pursuant to the Retirement Equity Act of 1984, the automatic benefit payable to the surviving spouse when a vested participant dies before reaching their retirement date.
RETIREMENT EQUITY ACT (REA):
Enacted in 1984, REA protects the rights of the spouse or ex-spouse of a plan participant by assuring that retirement plans pay benefits as a 50% Qualified Joint & Survivor Annuity if a participant is married at commencement date unless the spouse provides written consent waiving this form of annuity. This regulation also provides automatic pre-retirement survivor benefits for a spouse should the participant predecease their spouse prior to commencing benefits.
RETURN ON EQUITY:
Generally, the measure of how well a company uses reinvested earnings to generate additional earnings.
In the insurance industry, an independent organization that analyzes the financial condition of insurance companies and provides information to potential customers and investors.
SECTION 1035 EXCHANGE:
The tax-free replacement, performed in accordance with Section 1035 of the IRC, of an insurance policy for another insurance contract covering the same person. Section 1035 Exchanges also allow policyholders to exchange annuity policies.
An investment account maintained separately from an insurance company’s general account to help manage the funds placed in variable products, like variable annuities. Separate account funds cannot be used to pay claims associated with any other business of the insurance company.
SEX DISTINCE MORTALITY:
A table that illustrates a set of different mortality rates for males and females at each age.
STATUTORY ACCOUNTING PRACTICES:
Accounting standards that all U.S. insurance companies must follow when preparing the Annual Statement and certain other financial reports that are submitted to regulators.
A form of immediate annuity that provides income for a specified period of time, and then stops. If the annuitant dies before the end of the specified period, payments stop at that time.
UNISEX MORTALITY TABLE:
A table that illustrates one set of mortality rates that for both males and females at each age.
The tendency of an investment to experience price swings (ups and downs) over short periods of time. High volatility investments usually include individual stocks and stock mutual funds. Low volatility investments usually include bonds and other fixed-income investments.
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