Glossary

Affiliated Service Group

Consists of two or more related organizations whether or not incorporated, where one organization provides services to another organization or joins together to provide services for a third party. These organizations may also have an ownership relationship. Please consult your tax or legal advisor if you have questions, since this could have an impact of the qualified retirement plan(s) that you sponsor.

Questions to consider:

1. Do any of your highly compensated employees own at least 10% of another company that regularly performs professional services for you?
2. Are any of your 10% or more owners (including ownership by all children, grandchildren, parents, grandparents and spouses) considered highly compensated employees of another company and does that other company provide you with professional services?
3. Does any owner of a professional service corporation or partnership own another professional service corporation or partnership and provide that company with professional services?
4. Professional services are in the fields of Health, Law, Engineering, Architecture, Accounting, Scientists and Performing Artists.

Controlled Group

A group of controlled corporations, or trades, or businesses under common control. The control is based on the percentage of ownership of a corporation or trade or business. There are intricacies involved in determining whether your company is part of a controlled group. Please consult your legal consultant regarding your firm's status, since this could have an impact on the qualified status of the retirement plan(s) that you sponsor.

Questions to consider:

1. Is at least 80% of your company owned by any other company?
2. Does your company or any of its owners (including ownership by their children under age 21, grandchildren, parents, grandparents and spouses) together own more than 50% if any other company?
3. Does a greater than 50% owner of your company (including ownership of all children, grandchildren, parents, grandparents and spouses) own more than 50% of any other company?

Employee

Refers to the employees and owners of the Plan Sponsor and to employees of any Controlled or Affiliated Service Group.

Fidelity Bond

A type of insurance coverage providing protection for acts of fraud or dishonesty by covered individuals obtained through your business insurance carrier. The Department of Labor requires that all qualified plans have a fidelity bond in an amount no less than 10% of trust assets and no more than $500,000. Plans that do have a fidelity bond are subject to audit. Plan only covering owners and their spouses are exempt from this requirement.

IRS Penalties

Required contributions to a Defined Benefit Plan must be deposited no later then 8 1/2 months after the plan year end to avoid IRS penalty.

Deductible contribution must be deposited no later than the due date for your company's returns. This date can be extended if your company's returns are extended.

Leased Employee

An individual who performs services for another person (the Recipient) under an arrangement between the recipient and the third person (the Organization) who is otherwise treated as the individual's employer. The leased employee is treated as the recipient's employee if he or she has performed services for the recipient pursuant to an agreement with the leasing organization on a substantially full time basis for a period of at least 12 months and the individual's services are performed under the primary direction or control of the recipient. Substantially full time basis for a year means 1,500 hours or 75% of the average number of hours worked by regular employees in similar positions. Substantially full time leased employees can impact the required coverage/nondiscrimination testing for the plan.

Non-Resident Alien

An employee who does not reside in the United States and who receives no earned income from sources within the United States is excluded from the required coverage testing for retirement plans. An employee who is a non-resident alien with earned income within the United States may be excluded from coverage testing if all of the employee's earned income is exempt from U.S. income tax.

Pension Benefit Guaranty Corp (PBGC)

The PBGC is a governmental entity within the Department of Labor that guarantees the payment of certain benefits in the event a defined benefit plan terminates without sufficient assets to pay promised benefits. A PBGC covered plan is required to pay an annual premium but must meet certain distress requirements in order to receive benefits form the PBGC. Plans that are exempt from PBGC coverage and premium payments include 1) those that cover only substantial owners (more than 10% ownership) and their spouses, or 2) those sponsored by professional service employers with fewer than 25 active participants. Visit www.pbgc.gov for more information. Note that, in addition to other requirements, your Summary Plan Description must include special language if your plan is covered by the PBGC.

Plan Sponsor/Employer

Refers to the business, partnership or proprietorship sponsoring the plan.

Plan Year

Refers to the 12 month period on which your plan is administered. This is usually the same as the fiscal year of your business.

Prohibited Transaction

Certain transactions are prohibited under the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act of 1974 (ERISA). Prohibited transactions are reported in the Form 5500 filing and trigger taxes and other penalties.

The IRC and ERISA contain outright prohibitions against direct or indirect economic transactions involving plan assets and parties related to the plan (referred to as disqualified persons or parties in interest) unless the transaction is covered by an exemption.

Prohibited transactions include, but are not limited to, the direct or indirect sale, exchange, or lease of property; extension of credit; provision of goods or services; transfer or use of plan assets and certain investments in employer securities or employer real estate in excess of the legal limits. In addition, plan fiduciaries are prohibited from receiving a kickback from any person in connection with a transaction involving plan assets.

The definitions for both party in interest and disqualified person are complex and include plan fiduciaries, service providers, sponsoring employers, as well as individuals who are related to the foregoing by family or business ties.

Please contact your tax or legal advisor if you have questions whether a particular transaction is prohibited and reportable on Form 5500 and 5330.