Under the Internal Revenue Code federal statutes, allows employees to set up a retirement plan (trust) within the employer’s defined benefit pension plan from which the employees’ life insurance and medical expense costs are paid. Contributions are tax deductible and earnings accumulated are not taxable until the funds are withdrawn.

Under the Internal Revenue Code federal statutes, employer-sponsored retirement savings program. Employees contribute and employers may match contributions that are not taxable until the funds are withdrawn. Referred to as a cash or deferred arrangement (CODA) . See salary reduction plan .

Under the Internal Revenue Code federal statutes, allows an employee in an employee stock ownership plan (ESOP) trust to reinvest dividends into their Section 401(k) plans (a switchback approach). Participants may reinvest their dividends into this “KSOP” on a tax-deferred basis or obtain the dividends in cash and pay income tax. If reinvested, the contribution is reduced by the amount of the dividend. Also referred to by the acronym KSOP or 401k.

Federal legislation allows establishment of a secular trust that is a nonqualified plan of deferred compensation and is irrevocable. It compensates key employees but does not give similar benefits to rank and file employees. The company may take an income tax deduction for the contributed funds even though they have not been given to the employee during the current taxable income period. When the funds are paid out, the employee is taxed only to the extent that these funds are from earnings of the trust or from current trust income. This allows the employee to pay taxes owed as the result of the company’s contributions to the trust. The employer is not taxed on the trust income and the employee pays all taxes on this income. Also called a nonexempt trust .

Federal statute allows retirement plans to be offered by public employers and tax-exempt organizations (e.g., charities, churches, hospitals, public school systems). The employer pays into the retirement annuity policy for employees, and payments may be excluded from the employees’ gross income for tax reasons. Also called tax-deferred annuity (TDA) plan or tax-sheltered annuity (TSA) plan .

Federal act that requires employers to offer employees at least three investment choices and each with different risk and return features. Individuals who participate must be able to switch quarterly from one fund to another. The Act requires that sufficient information must be provided so that employees can make wise financial investment decisions.

Federal regulation for establishing an individual retirement account or a simplified employee pension (SEP); also known as a SEP-IRA . Funds are vested immediately, and the employee owns the IRA and has control of the investments. The maximum annual contribution is limited. If funds are withdrawn, then income taxes must be paid. SEPs may also be established by self-employed individuals.

Federal regulation that limits the amount of annual contributions made to a defined contribution plan on behalf of a participant or benefits paid to a participant.

Federal statute that allows a deferred retirement savings plan sponsored by a public employer (e.g., university, state, county, municipality). By mutual agreement, it lets the employer reduce the employee’s salary by a certain amount and invest this, with pretax dollars, in various financial instruments. At the end of employment, the principal amount invested and any earnings are given to the employee or to the employee’s estate.

Federal statute imposes a penalty excise tax on an excess benefit transaction of 25% of the excess benefit on the individual from inside the organization (disqualified person) receiving the benefit. Also imposes a penalty excise tax of 10% of the excess benefit on the manager in the organization awarding the excess benefit. If the excess benefit is not repaid to the tax-exempt organization in a reasonable time, the disqualified individual is assessed an additional tax penalty of 200% of the excess benefit received.