1. ADA - Americans with Disabilities Act of 1990, Pub. L. No. 101-336 (July 26, 1990), as amended.
2. AD&D - Accidental Death and Dismemberment. A type of insurance policy.
3. ADEA - Age Discrimination in Employment Act of 1967, Pub. L. No. 90-202 (Dec. 15, 1967), as amended.
4. CFR - Code of Federal Regulations.
5. CMS - Centers for Medicare & Medicaid Services. Formerly known as HCFA.
6. COBRA - Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272 (April 7, 1986).
7. Code - Internal Revenue Code of 1986, as amended.
8. DCAP - Dependent Care Assistance Program.
9. DOL - Department of Labor. See also EBSA {see # 25 below}
10. EAP - Employee Assistance Program. Provides counseling and other services to employees.
11. EBSA - Employee Benefits Security Administration (formerly known as PWBA). An agency within the DOL.
12. EDI - Electronic Data Interchange. HIPAA’s rules on electronic transactions.
13. EEOC - Equal Employment Opportunity Commission.
14. EGTRRA - Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107-16 (June 7, 2001).
15. EIC - Earned Income Tax Credit.
16. EOB - Explanation of Benefits. Issued by insurance companies to participants to explain what amount of their medical expenses was covered.
17. EOI - Evidence of Insurability. Sometimes called evidence of good health, often required by insurers before issuing a LTD or GTL policy.
18. ERISA - Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406 (Sept. 2, 1974), as amended Beware èERISA covers all employers except churches, some tribes and governments - "any employer engaged in commerce or in any industry or activity affecting commerce… (unless) such plan is a government plan (for its own employees) (or) such plan is a church plan (for its own employees)." (Section 4 (a) and (b)). It is not confined to large employers and it is not confined to self-insured employers. ERISA says, "…the provisions of this title… shall supercede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan…" (Section 514(a)). That is about as broad a preemption as is possible to write. ERISA supercedes state law and provides that employee welfare benefit plans are not in the insurance business, as per (Section 514 (b)(2)(A and B)). Note: States regulate insurance.
19. FAQs - Frequently Asked Questions.
20. FLEXCASH – see FLEX-Dollars
21. FLEX-Dollars - PLURAL NOUN: Money provided by an employer to be used by an employee to obtain various benefits, such as health insurance and life insurance. Also called flexcash. The American Heritage® Dictionary of the English Language: Fourth Edition.2000.
22. FICA - Federal Insurance Contribution Act. Refers to Social Security and Medicare taxes.
23. FMLA - Family and Medical Leave Act of 1993, Pub. L. No. 103-3 (Feb. 5, 1993).
24. FSA - Flexible Spending Arrangement. An arrangement that provides a mechanism for participants to pay for certain medical and/or dependent care expenses on a pre-tax basis.

25. Fiduciary - Under ERISA section 3(21), a fiduciary is any person or legal entity who:  A) exercises discretionary authority or control in management of the plan or exercises any authority or  B) control over management or disposition of the plan assets or renders investment advice for a compensation (direct or indirect) for any assets of the plan, or has any authority or responsibility to do so or  C) has discretionary authority or discretionary responsibility in the administration of the plan -  ERISA Section 403(c) states that, "the assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purpose of providing benefits to participants in the plan and their beneficiaries, and defraying reasonable expenses of administering the plan" (Exclusive Benefit Rule) - Likewise, "a fiduciary shall discharge their duties with respect to a plan with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims" (Prudent Investor Rule). Click here to read general DOL information about Your Fiduciary Responsibilities (16 page .dpf) and here specifically related to Mutual Funds (2 page .dpf).

26. FULL-Flex - see FLEX-Dollars
27. FUTA - Federal Unemployment Tax Act.
28. GLB - Gramm-Leach-Bliley Act of 1999, Pub. L. No. 106-102 (Nov. 12, 1999).
29. GTL Insurance - Group Term Life Insurance.
30. HCE - Highly Compensated Employee.
31. HCFA - Health Care Financing Administration. This agency has been renamed the Centers for Medicare & Medicaid Services (CMS).
32. HCTC ? Health Coverage Tax Credit.
33. Health FSA - A Flexible Spending Arrangement (FSA) under which participants may obtain reimbursement for medical expenses.
34. HHS - Department of Health and Human Services.
35. HIPAA - Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191 (Aug. 21, 1996).
36. HMO - Health Maintenance Organization.
37. HRA - Health Reimbursement Arrangement.
38. HSA - Health Savings Accounts
39. IPS - Investment Policy Statement (The IPS must be in writing and strictly followed) -- It is estimated that only about 40% of plans in the 20 to 40 million range have proper IPS's and even fewer follow them correctly
40. IRC - Internal Revenue Code of 1986, as amended.
41. IRS - Internal Revenue Service.
42. JGTRRA - Jobs and Growth Tax Relief Reconciliation Act of 2003, Pub. L. No. 108-27 (May 28, 2003).

43. Late trading: Placing a buy order for a mutual fund after 4 p.m. ET and getting it at that day's closing net asset value.

44. LTD Plan - Long-Term Disability Plan. A plan that provides a partial income-replacement benefit to an employee unable to work because of a disability.
45. MEWA - Multiple Employer Welfare Arrangement. A special funding arrangement providing medical or other welfare benefits to employees of two or more employers.
46. MHPA - Mental Health Parity Act of 1996, Pub. L. No. 104-204 (Sept. 27, 1996).

47. Monte Carlo simulation - a mathematical tool to evaluate a retirement portfolio to see if it will last a lifetime. With the help of computer software, a consultant can simulate hundreds or thousands of market-condition scenarios and learn the probability that a portfolio would last for an expected lifetime (was developed during the Manhattan Project). Applied mathematics concerned with experiments using random numbers; Monte Carlo methods go back to at least 1777 when Georges Louis Leclerc, Comte de Buffon, published his Essai d’arithmétique morale.

48. MSA - Medical Savings Account. Also known as an Archer MSA.
49. MSP Rules - Medicare Secondary Payer Rules. Laws that require Medicare to be the secondary payer in most situations where a group health plan or private insurance carrier also provides coverage.
50. Mutual Funds - a Glossary of Mutual Fund Scandal Terms
51. NAIC - National Association of Insurance Commissioners.
52. NHCE - Non-Highly Compensated Employee.
53. NMHPA - Newborns’ and Mothers’ Health Protection Act of 1996, Pub. L.
54. No. 104-204 (Sept. 27, 1996).
55. OCR - Office for Civil Rights. An agency within HHS.
56. OHCA - Organized Health Care Arrangement.
57. OMB - Office of Management and Budget.

58. Participant – Employees and our beneficiaries: the spouse and kids. The greatest responsibility of a defined-contribution plan such as a 401(k) falls to the participant. And while participants are the only link in the chain that is absolutely free from any potential conflict of interest, we still manage to inflict plenty of damage to our retirement plans because of a lack of financial literacy.

59. PCE - Preexisting Condition Exclusion.
60. PDA - Pregnancy Discrimination Act, Pub. L. No. 95-555 (Oct. 31, 1978).
61. PEO - Professional Employer Organization
62. PHI - Protected Health Information.
63. PHSA - Public Health Services Act, codified at 42 U.S.C. Chapter 6A.
64. POP - Premium-Only Plan. A type of cafeteria plan under Code Section 125 that permits employees to pay for their share of insurance premiums with pre-tax dollars.
65. PWBA - Pension and Welfare Benefits Administration. This agency has been renamed the Employee Benefits Security Administration (EBSA).
66. QDRO - Qualified Domestic Relations Order.
67. QMCSO - Qualified Medical Child Support Order.
68. SAR - Summary Annual Report. Furnished to plan participants, it summarizes information from the Form 5500.
69. SBJPA - Small Business Job Protection Act of 1996, Pub. L. No. 104-188 (August 20, 1996).
70. SMM - Summary of Material Modifications. An ERISA-required summary of plan changes that a plan sponsor must distribute to participants and beneficiaries.
71. SPD - Summary Plan Description. An ERISA-required plan summary that must be furnished to participants and beneficiaries.

72. Sponsor - The employer who sets up the plan. Most times, the sponsor constitutes two groups: the company itself, which is usually the "named fiduciary," and the people who work in the human resources or Treasury department who oversee the plan for the company, making them the "functional fiduciary." When the employer's 401(k) committee meets, those functional fiduciaries are the ones who should be looking out for the participants' interests first and foremost. In the best of all conflict-free worlds, the sponsor should pay all the expenses of a plan, rather than let other groups "pick up the costs" -- and pass them back to participants. But in many small plans, it's just not doable.

73. SSA - Social Security Administration.
74. TPA - Third-Party Administrator.
75. USC ? United States Code.
76. USERRA - Uniformed Services Employment and Reemployment Rights Act of 1994, Pub. L. No. 103-354 (Oct. 13, 1994).
77. VEBA - Voluntary Employees’ Beneficiary Association. Often operated as an exempt trust under Code Section 501©(9) as a funding vehicle for health and welfare benefits.
78. WHCRA - Women’s Health and Cancer Rights Act, Pub. L. No. 105-277 (Oct. 21, 1998).

Retirement Plan and Investment Funds Basics for Participants

The Participant – Employees and our beneficiaries: the spouse and kids. The greatest responsibility of a defined-contribution plan such as a 401(k) falls to the participant. And while participants are the only link in the chain that is absolutely free from any potential conflict of interest, we still manage to inflict plenty of damage to our retirement plans because of a lack of financial literacy.

The Sponsor - The employer who sets up the plan. Most times, the sponsor constitutes two groups: the company itself, which is usually the "named fiduciary," and the people who work in the human resources or Treasury department who oversee the plan for the company, making them the "functional fiduciary." When the employer's 401(k) committee meets, those functional fiduciaries are the ones who should be looking out for the participants' interests first and foremost. In the best of all conflict-free worlds, the sponsor should pay all the expenses of a plan, rather than let other groups "pick up the costs" -- and pass them back to participants. But in many small plans, it's just not doable.

The Attorney - A pension plan is a complicated legal document, so it's prudent to have an ERISA attorney -- one who specializes in laws associated with the Employee Retirement Income Security Act of 1974, that governs 401(k) plans. The attorney provides legal advice, documents and other resources. Many times, the attorney is from a mom-and-pop law firm, but all the big white-shoe firms have ERISA attorneys as well. The potential for conflicts of interest here don't run very high -- if anything, the "old boy" network might play a role in a few instances. In other words, a big law firm suggests that the sponsor to hire a big bank -- maybe they even note that they handle the firm's plan. What the attorney may not mention is that said big Wall Street firm also brings in the most legal business for the firm. Rare instances aside, this isn't a major area of concern for individuals, except to be relieved that your firm has a good ERISA attorney.

The Auditor - The auditor typically is hired by the company -- and they are necessary for plans with more than 100 participants. As with the attorneys, sponsors can retain auditors from the local mom-and-pop CPA firm that has a 401(k) business or get one from one of the big accounting firms. The best-case scenario is an auditor who is an independent party working exclusively for 401(k) plan sponsors -- with no business relationships with the mutual fund firms, for instance.

The Consultant/Adviser - About 50% of 401(k) sponsors have hired an outside consultant to help choose the funds and the makeup of their plans. They fill a vital function: to advise sponsors on how to manage their plan. This is a huge area, and the services vary widely from the good, the bad and the ugly. The consultant may be from a big Wall Street brokerage & they may be inclined to sell you the funds that they offer in-house. They may be divisions of insurance companies. There are also other big consultant firms plus a growing niche segment of boutique firms (like us, American Administration Services Co., a consulting TPA) that specialize employee benefit plans. They are paid many different ways: commissions, a combination of fees and commissions and fee-only policies. With commissions, they often get paid through mutual funds – (participants ultimately pay) -- 12b-1 fees and finder's fees. Consultants may also have lucrative business dealings with specific mutual funds (or even be owned by or own a mutual fund advisor company) which raises undeniable potential for conflicts of interest. Participants would be well-served asking their sponsor if their plan has a consultant, and if so, how do they get paid and are they truly independent?  

TPA or Third-Party Administrator - Virtually all 401(k) plan sponsors hire third-party administrators or TPAs (like us, American Administration Services Co.) that to handle compliance, accounting and back-office functions involved with a 401(k) plan. The TPA may be independent or from a big bank or brokerage that is handling other facets of your plan. TPAs often get paid through revenue-sharing arrangements with mutual fund firms -- such as subtransfer agent fees that may be asset-based or flat fees. These fee arrangements, which can range as high as 65 basis points, may not always be clearly disclosed to participants.

The Custodian - Somebody has to handle all the trades the millions of 401(k) investors make. The custodian is a conduit across which thousands of mutual funds are traded. Few employers have ever heard of the custodian who handles their individual trades. But one little-known custodian has received some troubling press recently, Security Trust Company. According to the complaint, Security Trust allowed Canary to late trade hundreds of mutual funds "under the radar," so that neither the mutual funds nor the investors had any idea that a hedge fund was skimming profits off the top by effectively paying yesterday's prices for today's funds. Security Trust has reportedly said it has not done anything wrong, and hasn't been charged. Many custodians, including Security Trust, also serve as the trustee for a 401(k) plan.  

The Trustee - All 401(k) plans, by law, must have a trustee -- the entity that holds participants' money in a trust account that is separate from the employer's assets. The trustee can be a fund company, a broker, a custodian. The trustee's primary function isn't investment advice, but rather to serve as the protector of the participant's money.

 The Investment Manager or Fund Company - Investment firms that offer numerous options, usually stock, bond and money-market funds. Typically, these firms offer a large number of their own funds, but increasingly the fund companies also offer options from other investment concerns. They get paid by the expenses their funds charge -- which average about 1.5% a year for actively managed funds. Many times, the big investment company provides a host of other services for your 401(k) plan. Unfortunately, that doesn't mean all the other costs magically disappear to efficiencies -- instead, it typically means participants are simply paying (the same or perhaps even more) to one entity instead of several different vendors.

Other Group Plan Basics 

Ø       Summary Plan Description (SPD) -An SPD must be prepared and distributed by employers to participants for all employer sponsored group health and welfare plans (health, life, disability and other welfare plans) within 120 days after the Plan is established.  Subsequently eligible individuals must be provided a copy of the SPD no later than 90 days after becoming a participant.   

Ø      Summary of Material Modifications (SMM) If an important change to the plan is to be made in the future, participants must be provided with an SMM to inform them of the change.  This document generally must be supplied no later than seven months after the end of the plan year in which the change was made.  However, in the case of a change which is a material reduction in covered services or benefits under a group health plan, notice must be provided no later than 60 days after the date the change was adopted.  Examples of a material reduction include (but are not limited to) an elimination or reduction in benefits, an increase in deductibles or copays, a reduction in an HMO's service area and the addition of preauthorization requirements.

Ø      Summary Annual Report (SAR) Generally, employers with less than 100 participant employees in any one of their sponsored  health and welfare plans do not have to provide an SAR to participants.  If there are 100 or more participants in the sponsored health and welfare plans at the beginning of the plan year, an SAR must be provided to each participant within nine months after the close of the plan year.  The SAR is a summary document outlining the financial condition of the Plan.

Ø      #  Qualified Medical Child Support Order (QMCSO) - Qualified Medical Child Support Orders (QMCSO’s) are frequently issued by courts and state agencies where a child is born out of wedlock and the father does not voluntarily seek to add the child to his employer-provided group health coverage.  Generally, all group health plans are required to enroll a child for whom an employee is required to provide coverage pursuant to a QMCSO. Employers are required to maintain QMCSO procedures to determine whether a submitted order constitutes a QMCSO.  A copy of the procedures must be made available to requesting participants without charge.

Ø      Women’s Health and Cancer Rights Act (WHCRA) - The Women’s Health and Cancer Rights Act (WHCRA) is a federal law that provides protections to patients who choose to have breast reconstruction in connection with a mastectomy.  Most employers will be required to comply with WHCRA as all group health plans that offer coverage with respect to a mastectomy are required to provide benefits for certain expenses relating to a mastectomy.  Employers must provide a notice summarizing the coverage upon enrollment of the participant and on an annual basis thereafter.

Ø      Consolidated Omnibus Budget Reconciliation Act (COBRA) - Generally, if the employer has at least 20 employees it is subject to the federal law known as COBRA and must provide continuation coverage to qualified beneficiaries who experience a qualifying event.  The Plan must provide a COBRA notice to all employees and dependents when they initially become eligible to participate.  The employer should either develop procedures to comply with COBRA or alternatively, should retain the services of a third party to assist in COBRA administration.

Ø      Certificates of Creditable Coverage - Certificates of Creditable Coverage do not have to be issued for plans covering only one employee.  For all other employers offering health insurance plan coverage, the plan must issue a Certificate of Creditable Coverage to individuals upon ceasing to be eligible for employer group health insurance coverage.  Additional copies of the Certificate must also be provided upon the request of or on the behalf of the individual at any time within 24 months after the date the individual loses coverage under the plan. 

Ø      Conversion Privileges - State law may  require that individuals be offered a conversion policy upon termination of coverage.  This coverage would follow COBRA continuation coverage in the case of a group health insurance benefit terminating.  Participants should be notified of any conversion opportunities.  

Ø      Section 125 - If employees are required to pay all or part of the premium for any of the fully-insured benefits and the payments are made on a pre-tax basis, a Section 125 Plan must be maintained.  If such a plan is not maintained, it will create adverse tax consequences for employees.  A Section 125 Plan must also be maintained if the employer pays additional compensation to employees for waiving group health benefits.

Ø      Family and Medical Leave Act ("FMLA") - During any calendar year when the employer employs 50 or more employees (including part-time employees) each working day during 20 or more calendar weeks in the current or preceding calendar year, the employer is subject to the FMLA.  In order to comply with FMLA the employer must adopt a policy in which it articulates its rules concerning the granting of leaves of absence for family or medical reasons, within the parameters of FMLA.  One of FMLA's requirements is to continue an employee's health coverage during the leave.  However, the employee may be required to continue to pay the same cost for the coverage as actively working employees.  If the employee drops coverage during the leave, the employee must be reinstated upon his or her return with no pre-existing condition exclusion or limitation imposed against the individual.  

Ø      Mental Health Parity Act (MHPA) - The MHPA restricts a group health plan from imposing annual or lifetime limits that are more restrictive for mental health benefits than other medical benefits.  The MHPA applies to most group health plans with more than 50 employees.  The MHPA does not apply to group health plans sponsored by employers with fewer than 51 employees.  The MHPA expired and has been temporarily reinstated.  Permanent legislation is expected to be enacted which will impose the same or more restrictive requirements. 

Ø      Form 5500 - The Form 5500 Annual Return/Report is used to report information concerning employee benefit plans to the Internal Revenue Service (IRS) and Department of Labor (DOL).  Generally, employers with less than 100 participant employees in any one of their sponsored  health and welfare plans do not have to file a Form 5500.  If there are 100 or more participant employees enrolled in any one of the plans  (for any health and welfare plan) at the beginning of the plan year, a Form 5500 must be filed for each plan within seven months after the close of the plan year.  The IRS and the DOL have authority to assess penalties for late filing.  However, it should be noted that a group insurance plan sponsored by a church employer or a governmental employer is exempt from the Form 5500 filing requirement.

Ø      Health Insurance Portability & Accountability Act (HIPAA) - HIPAA imposes a variety of requirements on employer group health plans including but not limited to the following examples:

• Restricting a group health plan's ability to exclude or limit coverage for pre-existing conditions.

• Requiring any pre-existing condition exclusion or limitation period to be offset by a participant's coverage under a prior plan.

• Requiring special enrollment periods to allow immediate entry into a group health plan where there has been a loss of other coverage or the addition of a new dependent.

• Prohibiting discrimination in eligibility due to any health status-related factor.

• Requiring claims, enrollment, premium payment, precertification, coordination of benefits and other transactions to be conducted in a standardized format when performed electronically.  These requirements are known as the EDI (Electronic Data Interchange) rules and are generally effective in the fall of 2003. 

• Requiring health plans to ensure, as much as possible, that personal health information regarding participants is not used by employers for employment-related decisions.  These requirements are known as the HIPAA privacy rules and are generally effective in April 2003 (April 2004 for smaller group health plans defined as plans with annual premiums of $ 5 million or less).

Information on this web site may apply to benefit plans and it is provided for informational purposes only and is not legal advice. We are not issuing any legal advice by providing this information and we are not liable for any penalties, damages or other amounts relating your interpretation and/or use of this information, please always consult with your own legal counsel before you say or do anything.

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