Retirement Glossary

A 3(16) fiduciary is appointed by the plan sponsor to manage the day-to-day administrative work for a 401(k) plan and assumes responsibilities for specific functions that would otherwise be the responsibility of the plan sponsor or administrator. For example, a 3(16) fiduciary keeps a plan in compliance with ERISA guidelines.

A 3(21) co-fiduciary is appointed by the plan sponsor to provide an investment advisor for the retirement plan and its assets. While a 3(21) fiduciary provides recommendations, they share fiduciary responsibility. For example, selecting Human Interest as a 3(21) fiduciary allows the plan sponsor to select specific funds.

As the designated investment manager, a 3(38) fiduciary selects investment options and has control over a 401(k) plan’s investment lineup. If selected to serve as a 3(38) investment manager, Human Interest has the authority to select and monitor the investment manager.

A type of retirement plan that's sponsored by an employer. While 401(k) plan details differ between employers, they often include tax advantages and employee contributions that are deducted from your paycheck.

A fee charged to companies or plan participants based on a specific action or event. For example, 401(k) transaction fees are often unexpected and triggered by life events (e.g. a divorce, a job loss, etc).

Note: Human Interest does not charge 401(k) distribution fees.

According to the IRS, IRC Section 402(g) limits the number of elective deferrals you may exclude from taxable income in 401(k) and 403(b) plans. Synonymous with annual contribution limits, the 402(g) limit for 2022 is $20,500 ($19,500 in 2020 and 2021).

A type of retirement plan that's sponsored by an employer. While 401(k) plans are offered by private, for-profit companies, 403(b) plans are available to specific tax-exempt organizations and government employers such as public schools, hospitals, ministers, or other nonprofit institutions.

Note: A nonprofit can also offer a 401(k).

Human Interest’s program to encourage positive retirement savings behavior. The program is available to anyone in an employer-sponsored 401(k) or 403(b) provided by Human Interest Inc. The program is designed especially for first-time savers, and includes educational tools like (k)ickstart webinars and a 10-part series of financial wellness tips and tools, the (k)ickstart curriculum. In addition to education, the program includes a financial incentive: a gift card worth 3% of contributions* (up to $250), terms apply, made by eligible participants during a 12-month saving stint. See more.

A process or set of rules followed in calculations or other problem-solving operations, especially by a computer. For example, Human Interest uses a proprietary algorithm that, along with a personalized risk questionnaire, helps determine investment allocations for plan participants who choose to invest in one of Human Interest’s model portfolios.

The percentage of your portfolio that's invested in a certain fund, strategy, or security. Asset allocation refers to a method of investing that includes a range of different investment classes—such as stocks, bonds, and cash alternatives, or equivalents—in your retirement plan portfolio.

An employer must provide the previous year’s census data to their plan’s recordkeeper every year. The plan recordkeeper keeps track of the money in an employee’s 401(k) plan account. Census data must include the name, date of birth, date of hire, termination date (if applicable), hours worked, compensation, and amount of money contributed to each employee's 401(k).

Also called a summary annual report, your annual report provides an overview of important details including plan participation, funding, and administration. Plan administrators must file an annual report with the IRS using Form 5500.

Assets under management (AUM) refers to the total value of investments managed by a registered investment advisor. Investment fees are often charged as a percentage of assets under management.

Also known as auto-enrollment, this feature defaults employees to participating in a retirement plan. Unless you choose to opt-out of plan participation, contributions will be automatically deducted from your paycheck—which can make it easier to build a habit of saving or to start saving in the first place.

Refer to your Summary Plan Description to find out if your company uses automatic enrollment.

A feature that shifts the allocation in your recommended model portfolio, based on asset or risk allocation. All Human Interest plans include quarterly rebalancing. For example, if your model portfolio recommends 60% stocks, Human Interest automatically updates your investments each quarter so you maintain 60% holdings in stocks (it can shift as the markets change).

Note: If you opt to self-direct, instead of using a model portfolio, you will not benefit from automatic rebalancing.

An automatic Roth IRA automatically transfers money from your paycheck into your IRA. You can choose to make bi-weekly or monthly transfers. Roth IRAs allow you to avoid paying taxes when you withdraw money from the account during retirement, if certain requirements are met. However, the money put into a Roth IRA account is already taxed. 

Roth IRAs are subject to adjusted gross limitations (AGIs), which means that an individual or a married couple cannot contribute to a Roth IRA if their income exceeds a certain limit. For 2023, individuals or heads of households can make a full contribution to their Roth IRA if their income does not exceed $138,000.

Fees incurred as part of a specific investment and paid directly to the fund, which may include administrative charges, exchange fees, account fees, and purchase fees. Average fund expense ratios in Human Interest’s core fund lineup are 0.07%¹ (compared to an average 0.39% for 401(k) plans).

A person or entity you name the recipient of your 401(k) plan if you die. Beneficiaries must meet requirements that make them eligible for a specified distribution.

A blackout occurs when 401(k) plan participants are unable to access their accounts. While plan participants cannot change their retirement plans during this time, the money in the account remains invested (except for a short period of time when investments are liquidated in order to transfer the plan to a new recordkeeper). Employers are required to notify all plan participants before a blackout period. Typically, this notice must be sent 30 days before the blackout period begins.

Blue chip stocks are issues of well-established, leading companies in their respective sectors. Due to the large company size and track record of success, they are generally considered less volatile than issues of smaller companies, though like all investments, blue chip stocks are also subject to risk, including loss.

A debt security which represents the borrowing of money by a corporation, government, or other entity. The borrowing institution repays the amount of the loan plus a percentage as interest. Income funds generally invest in bonds.

A fund that invests primarily in bonds and other debt instruments.

Bundled service plans provide two or more services—including recordkeeping, compliance, and administration of plans—paid for by your plan sponsor. This can include setting up plans, investment management services, and 3(16) fiduciary services.

Created by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), a catch-up contribution is an IRS rule that enables people aged 50 or older to make supplementary contributions above the annual contribution limit to 401(k) retirement accounts, in addition to the standard contribution limits for that year.

In 2022, the catch-up contribution limit is $6,500 (the same it was in 2021 and 2020).

Under a cliff vesting schedule, employer contributions become fully vested on a specific date. For example, if a retirement plan contains a three-year cliff vesting schedule, after three years of employment, you are 100% vested, meaning that any company contributions now belong to you. Note: You can confirm if your plan has a vesting schedule in your summary plan description.

See also: Graded vesting schedule.

Compound interest is interest that is earned on principal and accumulated interest. Through reinvestment of income and earnings over time, investments can compound, helping to grow the money in your 401(k). Compound interest may be detrimental in some cases, such as when it pertains to debt. In the case of debt, the more compounding that occurs, the greater debt you will owe.

A 401(k) plan is a defined-contribution plan, meaning you contribute a portion of your wages—either a specified dollar amount or percentage of a paycheck—to your account. You can update your contribution rate as often as you like. Depending on your company's payroll provider and schedule, it may take time to update.

Each year, the IRS issues a contribution limit for 401(k) plans, which is the maximum amount of money that you can deposit in a given year. In 2022, the contribution limit is $20,500 (up from $19,500 in 2021 and 2020).

See also: 402(g)

An increase in Social Security benefits to counteract inflation, which is calculated based on the Consumer Price Index (a measure the federal government uses to measure variation in the price of goods and services).

The custodian for a 401(k) plan is responsible for safekeeping assets in a plan. Human Interest works with custodial banks.

A plan sponsor, employer, or client.

A deferral rate refers to the portion of wages automatically deducted from a paycheck. In tax-deferred accounts like 401(k) plans, salary deferrals refer to pre-tax contributions.

A retirement plan in which an employee or employer (or both) contributes to an employee's retirement account. In a tax-deferred plan like a 401(k), employees contribute a fixed amount or percentage of a paycheck to an account. Contributions are generally invested on your behalf. Your account value may fluctuate due to changes in the value of investments.

A 401(k) distribution occurs when you withdraw money from your retirement plan. The IRS considers most distributions as taxable income (excluding circumstances such as rollover distributions) and taxes based on applicable tax brackets. Early distributions are ill-advised from retirement accounts because they're highly taxed. At retirement age, individuals are required to take required minimum distributions (RMDs).

See also: Qualified Distributions, Required Minimum Distributions, and Rollovers.

A risk management strategy that mixes asset types in an investment portfolio. Diversification helps you benefit from a mixture of investments while protecting against the risk of a downturn in one specific asset class. At Human Interest, our diversified portfolios help you invest in asset types that favor growth over the long term.

A payment made by a corporation to its shareholders is known as a dividend. Dividends are typically generated through company profits. Some 401(k) plans allow you to use your dividends to make reinvestments in additional shares or elect to take a cash payment.

Eligibility outlines which employees can participate in a retirement plan, when they can participate, and when they can receive employer contributions. The most common criteria to determine eligibility are your age and how long you've worked for your employer.

While similar to a basic automatic enrollment plan, an EACA requires employers to send a notice to all employees first before applying the plan’s default automatic contribution percentage. EACAs may allow employees to withdraw automatic enrollment contributions (with earnings).

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that establishes standards for retirement and health plans to protect individuals in private industries. ERISA requires that participants are provided plan information, fiduciary responsibilities for plan management, legal protection, and more.

Occurs when employers offer contributions on top of what an employee puts into their account. E.g. For every dollar you save, your employer fully or partially matches this contribution, up to a certain percentage of your salary (or dollar limit). A common match formula is where an employer matches $0.50 per dollar on the first 6% of your pay.

Note: Refer to your summary plan description to see which formula your employer uses (if any).

A benefit plan provided by employers that helps their employees save for retirement. For example, traditional 401(k) and Roth 401(k) plans enable employers to save for retirement and benefit from tax breaks.

The percentage of a given fund that’s charged for administrative, management, and operational costs.

The fee disclosure is a document shared annually that provides employees an overview of any fees they could face in the retirement plan.

A person or organization bound by law to put the financial interests of their clients before their own. A fiduciary must disclose their qualifications and services, how they are paid, and any potential conflicts of interest. There are three types of fiduciaries of 401(k) plans:

• 3(16)

• 3(21)

• 3(38)

See also: 3(16) Fiduciary, 3(21) Fiduciary, 3(38) Fiduciary

A foreign payee is a nonresident alien who is named as a retirement plan’s beneficiary.

401(k) forfeitures refer to plan assets that are removed from participant accounts after a participant fails to fully vest in employer contributions made to their account. Forfeitures can be used to pay plan expenses or fund existing or additional employer contributions. They must be used by the end of the year following the year of the forfeiture. 

An informational form that must be sent by January 31st to participants who received a distribution from their retirement plan during the prior calendar year. The participant must include information from the 1099-R in their income tax return for the year of distribution

The age you’re eligible for your full Social Security benefit. For anyone born in 1960 or later, that’s age 67, though you can get a reduced amount if you claim earlier. See more in the Social Security age table or in our list of milestones.

A fund lineup, also known as a menu, is the group of funds offered by a plan to its participants. Human Interest usually offers a lineup of between 25 and 30 funds, though your employer may opt to add or swap additional funds from our default lineup. Additionally, plan participants that opt-out of robo-advice may construct their own portfolios from the funds in the lineup.

In the context of an employer-sponsored retirement plan, funds are the mutual funds available for participants to invest in. The fund (or mutual fund) lineup will typically be made up of low-cost, professionally managed funds.

Under a graded vesting schedule, ownership of employer contributions is based on their length of employment. According to the U.S. Department of Labor, a six-year graded vesting period, as seen below, is a common graded vesting schedule:

• Year 1: 0%

• Year 2: 20%

• Year 3: 40%

• Year 4: 60%

• Year 5: 80%

• Year 6: 100%

Note: Plan participants can check their vesting schedule in their summary plan description.

See also: Cliff vesting schedule

Except in specific situations, it's difficult (and costly) to withdraw money from a retirement savings account. However, retirement plans generally distribute benefits when certain events occur. For example, a hardship withdrawal is prompted by proof of an immediate, heavy financial need. In these scenarios, money is taxed to the plan participant and not paid back to the borrower’s account.

According to the IRS, a highly-compensated employee (HCE) is an individual who has received compensation of more than $150,000 if the preceding year is 2023 ($135,000 in 2022), or has owned more than 5% of the interest in a business at any time in the preceding year.

Under an immediate vesting schedule, an employee is granted full ownership of their retirement plan from the contribution date. Immediate vesting is required in specific types of retirement plans, e.g. a safe harbor 401(k).

Investment management and custodial fee fees include investment education provided by Human Interest, as well as custody services provided by Matrix Trust Company. Human Interest charges a 0.50% fee for these services, compared to the average 1.89% for small 401(k) plans (although some employers opt to cover these fees).

An online investment platform provides advisory services to manage 401(k) accounts and more. You can utilize Human Interest’s online investment platform to manage your investment account and benefit from automated model investment portfolios. However, you can also opt out of our model portfolios if you wish to make your own investment selections from your plan’s lineup.

A joint life annuity is a method of payment that provides a monthly payment to the participant during their life and to the participant's spouse for the remainder of their life.

The IRS states that a key employee is any employee who meets any of the following conditions during the plan year:

• An officer who makes more than $185,000 in 2021 or 2020

• A 5%+ owner of a business

• An employee owning more than 1% of the business and making more than $150,000

An illustration showing what the amount you have saved in your retirement account will mean in terms of your monthly income in retirement. The disclosure is intended to help employees determine their readiness to retire.

The cure period is a period of time given to a participant who has missed a 401(k) loan payment. If the loan payments are not caught up before the end of the cure period, the loan will go into default. A standard cure period is the period between the date the payment was due and the last day of the quarter following the quarter the payment was due.The plan document or loan policy will state what the cure period is. 

When you have a distributable event, such as when you terminate employment, your outstanding plan loan will be in default if not immediately repaid. When the loan is defaulted, your loan balance will be offset from your account balance to repay the loan.

The Human Interest models use a proprietary algorithm to construct portfolios from six core mutual funds. Twenty model portfolios are available and correspond to different risk settings. Portfolios use different equity-to-debt allocations, ranging from 30% stocks/70% bonds (most risk-averse) to 95% stocks/5% bonds (least risk-averse). With Human Interest, your model portfolio will automatically become more conservative as you near retirement.

A professionally-managed set of investments that are chosen by an investment company registered with the U.S. Securities and Exchange Commission (SEC). With Human Interest, you'll have the opportunity to invest in funds from every major asset class and risk category.

Net Asset Value (NAV) represents the per-share or per-unit price of a mutual fund on a certain date. NAV is the value of an asset, minus its liabilities, divided by outstanding shares. Generally, this calculation determines the per-unit price of mutual funds and exchange-traded funds (ETFs).

Annual testing required by the IRS that assesses if all employees have equal access to a retirement plan. Non-discrimination testing requires that employees of a certain status (highly compensated employees and key employees) stay within a specific contribution rate, as determined by the contribution rate of non-highly compensated employees.

A non-highly compensated employee (NHCE) is a term used in nondiscrimination testing to refer to employees who are not highly compensated employees (HCEs). To be an HCE, the employee must meet the ownership test or the compensation test. The ownership test looks to see if the employee or a relative owned more than 5% of the company sponsoring the plan at any time during the current plan year or the previous plan year. The compensation test looks to see if the employee was paid more than a set dollar limit in the prior year. The dollar limit is adjusted for inflation each year. For 2021 it was $135,000.

A plan administrator manages a retirement plan for a company and its employees. Their main responsibility is to make sure a retirement plan complies with the IRS requirements for a plan sponsor, including communications, plan maintenance, and disclosures.

An employee that contributes to an employer-provided retirement plan (that's you!). Participant accounts are managed by plan participants, who can invest in funds in their plan's lineup.

The company (e.g. Human Interest) that creates and sells your employer-provided retirement plan.

An IRS-required process that occurs every six years requiring 401(k)s and other retirement plans to update their plan documents to reflect recent legislative changes.

Note: Human Interest does not charge a fee for plan restatements.

A plan sponsor is the entity that establishes and oversees the retirement plan for a company and its employees. This can be the employer itself, a union, or a selected employee of the firm.

An investment portfolio includes all your investments—including stocks, bonds, mutual funds, and ETFs—in your account. Human Interest uses a proprietary algorithm to model twenty different participant portfolios based on risk settings.

Profit-sharing plans are a type of 401(k) plan that provides employees a specific percentage of a company’s profits, either in cash or company stock, based on quarterly or annual earnings.

A qualified distribution refers to a tax- and penalty-free withdrawal from an eligible retirement plan such as a 401(k) and 403(b) plan. The IRS sets specific conditions for qualified distributions and imposes taxes on penalties that do not meet the criteria.

Read more about qualified distributions here.

A QDRO is a domestic relations order that allows a former spouse to receive a predefined amount of their spouse’s retirement plan assets. This could be in the form of child support, alimony, or marital property rights.

If a plan fails the actual deferral percentage (ADP) test or actual contribution percentage (ACP) test, the sponsor may choose to correct the failure by making a contribution to an employee’s account, which is known as a qualified nonelective contribution (QNEC). QNECs are calculated as a percentage of an employee’s pay. ADP and ACP tests are nondiscrimination tests that help ensure a company’s 401(k) plan doesn’t unfairly benefit highly-compensated employees. QNECs may also be used to correct other operational errors made by the plan.

A rate of return is the total gain or loss of an investment over a specific time period. Your personal rate of return is calculated using a time-weighted formula, which shows the growth of your portfolio while smoothing out distortions due to inflows and outflows of funds.

The process of moving money from one type of investment to another to maintain a desired asset allocation.

Note: Human Interest provides an automatic rebalancing service quarterly.

According to the IRS, required minimum distributions (RMDs) are the minimum amounts an account owner is required to withdraw from a retirement plan annually—either starting the year they reach 72, or the year in which they retire.

Financial risk is a broad term used to describe any type of uncertainty associated with financing. In other words, it's the potential for investors to lose some or all of the amounts invested—or to fail to achieve their investment objectives.

A risk profile is an evaluation of an individual's willingness and ability to take risks. Risk profiles are determined based on a participant's age, their years remaining until retirement, and their aversion to risk (if provided in the form of answers to an online questionnaire).

As part of the onboarding experience, you'll be able to complete a risk questionnaire when you set up your 401(k) account. These responses are designed to determine your risk tolerance (see more: risk tolerance). You may adjust your risk settings at any time, which may generate adjustments to modeled portfolios.

An individual's ability and willingness to tolerate the ups and downs of the market in exchange for greater potential returns.

Note: It's important to avoid performance chasing. 401(k)s are a long-term investment, not a short-term bet. Human Interest helps you stay the course so you can weather the market with an eye on your long-term financial security.

Also known as an automated financial advisor, a robo-advisor is a registered investment management service that uses algorithms to build your portfolio and manage your assets. Because robo-advisors rely on software to manage your portfolio, they can be cost-effective and lead to higher long-term returns. The Securities and Exchange Commission (SEC) regulates robo-advisers and has specific guidelines to ensure fairness and investor protection.

A 401(k) rollover occurs when a plan participant transfers the funds in an existing retirement account to a new retirement plan or IRA.

One of two basic types of employer-provided, tax-advantaged 401(k) savings accounts. In a Roth 401(k) plan, you pay taxes now but benefit from tax-free withdrawals in retirement. If you're early in your career and expect to earn more in the future, you’re typically in a lower tax bracket now, and a Roth 401(k) may be a wise decision.

See also: Traditional 401(k).

The Standard and Poor's 500 Index, often referred to as the S&P 500, is a commonly used stock market index. It tracks the performance of stocks of 500 large companies listed on stock exchanges in the United States. Note: Indices are unmanaged, and their returns assume the reinvestment of dividends. Indices do not reflect any fees or expenses; it is not possible to invest in an index.

A safe harbor 401(k) plan is a tax-advantaged retirement plan that ensures employees have minimum contributions made to their individual 401(k) plans, regardless of their title, compensation, or length of service. Employers must make contributions on behalf of their employees without a vesting period. In exchange, safe harbor plans bypass key IRS discrimination tests.

Securities refer to a host of investments that you can purchase or sell. These investments include stocks, bonds, mutual funds, ETFs, and more.

A single life annuity is a method of payment that provides a monthly payment to the participant during their lie.

A federal insurance program that provides benefits to retired people and those who are unemployed or disabled. Your Social Security income is determined by lifetime earnings and the age you start taking benefits and does not change based on other retirement funds such as a 401(k).

A security that represents an ownership interest in a corporation.

Every year, a 401(k) plan will send a one-page summary annual report (SAR), which summarizes the plan’s Form 5500, including information about your plan’s finances, such as its assets, expenses, and contributions. 

401(k) plan administrators are required by the Employee Retirement Income Security Act (ERISA) to provide participants and beneficiaries a summary plan description (SPD), which outlines and defines the plan design for employees including the name and type of plan, a description of eligibility, match and vesting schedule details, and plan benefits.

Tax deferral refers to instances where individuals delay paying taxes. Because traditional 401(k) plans are tax-deferred, participants aren’t required to pay income tax on contributions until funds are withdrawn. While tax-deferred accounts enable employees to benefit from tax deductions today, future withdrawals will be taxed at normal income rates.

Third-party administrators specialize in qualified plan administration. Third-party administrators are responsible for ensuring an employer’s retirement plan is compliant according to IRS and DOL regulations. Some responsibilities include document preparation, nondiscrimination testing preparation, and benefit statement generation.

One of two basic types of employer-provided, tax-advantaged tax-advantaged 401(k) savings accounts. In a traditional 401(k) plan, your contributions and investments are not taxed until you withdraw funds from the plan. If you’re established in your career, or in your peak earning years, a traditional 401(k) may be a wise decision.

See also: Roth 401(k).

A trustee is the person or entity entrusted to make investment decisions in the best interests of participants in a retirement plan. 

Vesting refers to the ownership of employer contributions in an employee's retirement plan. While your individual contributions are always yours, employer contributions may not be. While many employers transfer their contributions to employees immediately, others use a schedule or other guidelines to transition ownership more gradually.

See also: Cliff vesting schedule and graded vesting schedule.

Volatility measures the degree of variation for a specific security or market index. Volatility is typically measured as the standard deviation between returns from that same security or market index and can be associated with market fluctuations in either direction.