Financial Glossary
Clear definitions for complex retirement and tax planning terms. Designed to help you make informed decisions.
A framework for your decision
Retirement plan terms
Start with the type of promise
Defined benefit
A benefit promised by the plan
Defined contribution
Contributions to an account
Plan type
Defined benefit and defined contribution describe different promises.
Plan funding
Pay credits, contributions, and deductions are different measures.
Your next question
Use the definitions below to prepare for an individual plan review.
Cash Balance Plan
A type of defined benefit pension plan that allows for high tax-deductible contributions. It combines features of a traditional pension with a 401(k).
Defined Benefit Plan
A retirement plan that promises a specific monthly benefit at retirement. The employer is responsible for investment risk and funding.
Third-Party Administrator (TPA)
An organization that processes insurance claims or certain aspects of employee benefit plans for a separate entity.
401(k) Profit Sharing
A defined contribution plan where employees can defer salary and employers can make discretionary contributions based on profits.
Actuary
A business professional who deals with the measurement and management of risk and uncertainty, essential for designing defined benefit plans.
Tax Deduction
A reduction of income that is able to be taxed and is commonly a result of expenses, particularly those incurred to produce additional income.
Cross-Testing
A nondiscrimination testing method that allows for different contribution rates for different groups of employees, often favoring older or higher-paid owners.
Safe Harbor 401(k)
A type of 401(k) plan that automatically passes IRS nondiscrimination tests in exchange for mandatory employer contributions.
Interest Crediting Rate (ICR)
The guaranteed annual growth rate a cash balance plan promises on each participant's hypothetical account, named in the plan document: a fixed rate (often 4–5%), a Treasury-linked rate, or in market-rate designs the trust's actual return, subject to a preservation-of-capital floor. When the trust's investments earn more than the credit for several years, the plan overfunds and the required contribution shrinks.
Pay Credit
The annual amount a cash balance plan adds to a participant's hypothetical account, set as a dollar figure or a percentage of pay in the plan document. Pay credits plus interest credits define the promised benefit that the employer must fund.
Nondeductible Contribution Excise Tax (IRC 4972)
A 10% excise tax on employer contributions above the year's deductible limit under IRC 404, charged for each year the excess remains in the plan undeducted. The excess carries forward and can be deducted later; funding inside the actuary's certified range avoids it.