Highly Compensated Employees

5% owner in current or previous year OR earned $100,000 in the previous year

Ratio-Percentage Test

Non-highly compensated employees (nhce) percentage must be at least 70% of the highly compensated employees (hce) percentage.

Code Sec 401(a)(4)

Mandates that qualified plans cannot discriminate in favor of highly compensated employees.

Top Heavy Plan

A plan in which 60% or more of benefits go to key employees.

Allocation Formula

A profit sharing plan formula that allows the employer to make discretionary contributions, which must contain a definitely determinable allocation formula.  This formula determines how the contribution is allocated among the plan's participants.

Put Option

When an ESOP or stock bonus plan is sponsored by a company whose stock is not publicly traded, the company must offer to buy back any stock distributed to participants.

Cash or Deferred Arrangement

(CODA)

Qualified plan, usually part of a profit sharing or stock bonus plan, that gives an employee the option to contribute some of his or her salary to the plan (ie..401k plan)

Financial Hardship

Financial need that is 'necessary in light of immediate and heavy financial needs of the participant or his or her beneficiary" at a time when no other resources are reasonably available to meet this need.

Summary Plan Description

(SPD)

A brief, easy to read document summarizing the terms of a retirement plan that must be given to participants of any plan covered by ERISA.

Annual Benefit Statement

A statement of the individual's own accrued benefit or account balance under a qualified plan.

Salary Reduction Plan

A NQ retirement plan that allows participants to defer current salary with the objective of deferring taxation until a later date.