You are here

RIC Glossary

Review easy-to-understand definitions of terminology used in this website.

# - A - B - C - D - E - F - G - H - I - J - K - L - M - N - O - P - Q - R - S - T - U - V - W - X - Y - Z


1099-R tax form used to report to the IRS and the State of Iowa your distributions from the Retirement Investors' Club.

401(a) Plan employer-sponsored, qualified retirement plan established for your employer match dollars and rollovers; contributions and earnings grow tax deferred until withdrawn

401(k) Plan employer-sponsored, qualified retirement plan that permits you to make pretax contributions from your salary, and also permits employer contributions; contributions and earnings grow tax deferred until withdrawn

403(b) Plan is a retirement plan similar to a 401(k) plan, but one which is offered to employees of non-profit organizations such as schools and universities, Department of Education and the Board of Regents administration staff, and some charitable organizations, rather than corporations. Contributions lower taxable income, earnings can grow tax-deferred, and some plans allow loans. Contributions grow tax-deferred until withdrawn at which time the money is taxed as ordinary income. employer-sponsored, non-qualified retirement plan for employees of the Department of Education. Employees make pretax contributions through payroll deduction.

457 Plan employer-sponsored, non-qualified retirement plan maintained by state and local governments that permits you to make pretax contributions from your salary; contributions and earnings grow tax deferred until withdrawn

Account your fixed annuity contract, variable annuity contract, life insurance contract, mutual funds, variable or guarantee investments, or combination thereof provided in the Retirement Investors' Club

Annuity there are two types, both offering lifetime payment options:

Variable contract offered by providers that is designed to be both an investment vehicle and a source of retirement income; allows you to deposit money into a variety of portfolios (similar to mutual funds) called subaccounts, each of which pursue different investment objectives designed to accommodate goals of income, growth or total return. These funds will fluctuate in value over time, reflecting the value of the underlying portfolio selected; typically there is no guaranteed return of principal on subaccounts. Many also offer fixed account choices, with principal and rates of return guaranteed by the provider. Although the names of the investment portfolios may be similar to those of mutual funds available generally to the public, they are not the same fund.

Fixed contract offered by providers that guarantees a stated rate of interest prior to retirement.

Annuitization a distribution option with an annuity contract that entitles you to payments that are an even distribution of your account’s principal and interest. Your payment amount will depend on the annuity option selected, your age, and the value of your account; frequency of payments and other provisions are outlined in the annuity contract

Single life annuity provides income benefits for your life only

Joint life annuity provides income benefits for your life and your designated survivor’s life

Asset total value of contributions and earnings at a single point in time

Asset allocation investment strategy used to enhance total return and/or reduce risk by diversifying assets among different types of stock funds, bond funds, and fixed rate accounts; a key concept in financial planning and money management

Beneficiary a person, entity, or estate you designated to receive benefits following your death

Benchmark a standard used for comparison of investment returns (ex: S&P 500 index)

Bond a debt instrument issued by entities (such as the federal government, states, cities, corporations, and many other types of institutions) for the purpose of raising capital with a promise to repay the principal along with interest on a specified date (maturity)

Capitalization the sum of a corporation’s long-term debt, stock, and surpluses

Cash-out provision if you are currently employed by the State, you may apply for a cash-out distribution of your 457 account if you meet ALL of the following:

1. you have not made contributions to the Retirement Investors' club for at least 2 years (24 months);

2. your 457 account value is $5,000 or less; and

3. you have not previously received monies from the account, other than for a hardship withdrawal.

Catch-up provision a benefit that allows you to contribute funds to the 457 plan above the regular maximum allowed by the Internal Revenue Code. The 457 plan has two catch-up options: the 3-Year Catch-Up and the 50+ Catch-Up. To be eligible for the 3-Year Catch-Up, you must have missed contributions in previous years; there is no such requirement for the 50+ Catch-Up. See 3-year Catch-Up for more information. (403(b) accounts have lower catch-up limits).

Class action suit lawsuit brought by one party on behalf of a group of individuals all having the same grievance

Compensation is your gross salary minus your retirement (IPERS, POR, Judicial) deductions. The maximum amount you may contribute is reduced by deductions for FICA, insurances, flexible spending accounts, auto use maintenance, employee organizations, and assignments.

Compounding payment of earnings on not only the principal sum invested, but also on the earnings already realized or accumulated

Contract fee an annual fee assessed by some inactive providers

Contribution maximum maximum amount you can contribute to the employee contribution plan during a calendar year. (See plan 457 maximum limits, 403b maximum limits)

Contribution minimum you must contribute at least $25 per month to the 457 plan

Demutualization the conversion of a mutual/life insurance company from a policyholder company to a stock company

Direct rollover the movement of tax-deferred retirement assets from one plan or custodian directly to another without taxation

Distribution payments made to a participant or beneficiary from a retirement plan; funds are taxable to the recipient. You should contact your provider for information on your options. The most commonly used options are listed below:

Lump sum you receive your entire account balance in one cash payment minus federal taxes and state taxes for Iowa residents only

Systematic Withdrawal you receive payments in a specified amount or for a specific period of time, you can elect to receive payments on a monthly, quarterly, semi-annual, or annual basis; payments continue until your account is exhausted

Partial lump sum followed by periodic payments you designate the amount of the lump sum and then you receive payments in a specified amount or for a specific period of time; you can elect to receive payments on a monthly, quarterly, semi-annual, or annual basis; payments continue until your account is exhausted

Annuitization see definition in glossary

See Special Tax Notice for tax information

Diversification the practice of spreading investment dollars over a variety of different investment vehicles (stock funds, bond funds, and fixed rate accounts) to reduce the amount of risk in your investment portfolio

Dollar cost averaging investment strategy by which you systematically invest fixed sums of money over time, without regard to the share price at the time. You end up buying more shares when the price is low and fewer when the price is high.

Early withdrawal penalty IRS penalty on money withdrawn from a tax-deferred retirement plan before age 59 ½; this DOES NOT apply to the 457 plan, but DOES apply to the 401(a) plan

Eligibility you may contribute to the Retirement Investors' Club if you are a permanent or probationary employee of the State of Iowa and are regularly scheduled to work 20 or more hours per week or you have a fixed annual salary. This program is not available to employees of Regents institutions

Fee a charge for services received, the amount reduces the total return of your portfolio:

Provider fee paid to the provider for administration of your account

Fund management fee paid to the fund manager for managing your assets in that particular fund

Fixed rate account Principal and earnings are guaranteed by the provider. Current rates for RIC core providers are updated periodically. For the most accurate rate information contact the RIC providers directly.

Fluctuate to change in price, value, or rate

Fund manager the person or persons responsible for making portfolio decisions for a mutual fund or subaccount

Fund a pool of stocks, bonds, cash, or other securities professionally managed to meet a common objective (also called mutual fund or subaccount); your contributions purchase shares of a portfolio with many other investors; shares are purchased at a specific price per share; the price fluctuates in the market. Listed below are types offered in the Retirement Investors' Club:

Money Market invests in short-term, high-quality debt investments to generate low interest and provide liquidity with lower risk to principal value

Balanced fund invests in a combination of stocks and bonds to provide both growth and income

Bond fund invests primarily in bonds

Global fund invests in stocks or bonds throughout the world, including the U.S., unlike international funds, which exclude the U.S.

International fund invests in stocks and bonds of companies outside of the U.S.

Large cap stock fund invests in companies with over $5 billion in capitalization

Mid cap stock fund invests in companies with $1 billion to $5 billion in capitalization

Small cap stock fund invests in companies with $250 million to $1 billion in capitalization

TIPS fund (treasury inflation-protected securities) invests Treasury notes or bonds that offer protection from inflation

Lifestyle fund invests in other funds, is managed to reflect levels of risk and return suitable to specific times of an investor’s life; only available at VALIC

Money market fund invests in short-term debt instruments that pay varying amounts of interest, very liquid type of fund that is designed not to fluctuate in value and always trades at $1.00 per share; only available at MassMutual Life

Hardship withdrawal strictly defined Internal Revenue Code provision allowing you to withdraw some or all of your 403b account assets to cover the cost of an emergency and any tax liabilities incurred by the withdrawal. The emergency must have been unforeseeable and create a severe financial hardship. Examples of what WILL NOT qualify as an emergency are property taxes; income taxes; divorce; debt; overdue bills; mortgage; college costs.

Individual Retirement Account (IRA) different types:

Traditional tax-deferred retirement account that allows you to set aside funds up to a maximum amount per year. Contributions qualify as a deduction against income earned in that year and interest accumulates tax-deferred until funds are withdrawn. If you do not participate in a pension plan at work or do participate and meet certain income guidelines you may make deductible contributions; all others will be non-deductible

Roth retirement account that allows you, subject to certain income limits, to save for retirement while allowing your savings to grow tax-free; taxes are paid on contributions, but withdrawals, subject to certain rules, are not taxed at all

Rollover retirement account that allows you to move a lump sum payment from the Retirement Investors' Club and certain distributions from your pension plan into an IRA. Earnings made are tax-deferred until distribution

Investor types there are basically five different types of investors:

1. Aggressive concerned with maximum growth and able to tolerate a substantial amount of risk; may have a longer retirement time horizon and are able to weather short-term market setbacks

2. Moderately aggressive concerned with high growth and able to tolerate a substantial amount of risk; may have a medium retirement time horizon and are able to weather short-term market setbacks

3. Moderate concerned with steady investment growth and able to tolerate a fair amount of risk; limited ability to weather short-term market setbacks

4. Moderately conservative concerned mainly with preserving original value; can tolerate a limited amount of risk; may have a short-to-medium time until retirement and limited ability to weather short-term market setbacks

5. Conservative concerned with preserving original value; unable to tolerate more than minimum risk; may have a short time until retirement and no ability to weather short-term market setbacks

Match benefit provided by the State, where a portion of your contribution dollars to the 457 plan are matched by your employer up to a monthly maximum match amount

Maturity the date on which a bond’s principal is repaid to the investor and interest payments cease

Minimum required distribution minimum payment required to be taken from a 401 or 457 account annually in order to satisfy the Internal Revenue Code’s requirements; starting in the year you reach age 70 ½ or retire, if later, you must begin taking payments

Mutual fund see definition of fund in glossary

Net asset value (NAV) the dollar value of a single fund share/unit, before the provider’s base fee is applied, based on the value of the underlying assets of the fund minus its liabilities, divided by the number of shares/units outstanding; is calculated at the end of each business day

Normal retirement age age 65, unless you declare a different normal retirement age; it cannot be earlier than a year in which you are eligible to receive benefits without an age reduction penalty from your regular pension plan (IPERS, POR, or Judicial)

Objective the result desired by an investor or managed fund, such as growth, income, or a blend of both

Owner the State of Iowa, which holds the funds in trust for the exclusive benefit of you, the participant

Participant an employee/former employee who contributes to or holds assets in the Retirement Investors' Club

Payout period time frame during which annuity or systematic withdrawals are made

Pension plan employer-sponsored retirement plan, such as Iowa Public Employees’ Retirement System, Peace Officers' Retirement, Accident, and Disability System, or the Judicial Retirement System, in which a retired employee receives a specific amount based on salary history and years of service. The employer bears the investment risk. Employee, employer, or both make contributions.

Personnel Assistant person within your agency who handles deferred compensation issues; this person may also handle payroll and other benefit issues

Plan Administrator Department of Administrative Services, Human Resources Enterprise employee designated by the director to administer the plan

Plan document legal description of the plans within the Retirement Investors' Club

Portability ability for you to roll over to and from your account balances from your Retirement Investors' Club or other pension plan to a different plan, such as 401(k) or IRA, without restriction or penalties

Portfolio collection of investments owned by the same individual or organization

Pretax before state and federal taxes have been deducted

Prospectus document disclosing the terms of a mutual fund or subaccount, available from your provider

Provider the State’s Retirement Investors' Club has two types of investment providers:

Active provider investment company that is able to open new accounts for state employees.

Inactive provider investment company that cannot open new accounts or receive contributions for state employees.

Qualified Domestic Relations Order (QDRO) in divorce proceedings, a QDRO is an order from the court to the Retirement Investors' Club, that allows one spouse to receive funds from the other spouse’s Deferred Compensation accounts

Rebalancing adjustments made in your asset allocation to counteract the fact that some assets have performed differently and now comprise different percentages of the portfolio than they were intended

Retirement Investors' Club (RIC) voluntary retirement savings program designed to increase your personal long-term savings. The program contains two plans, the 457 Employee Contributions Plan and 401(a) Employer Contribution Plan. Also know as deferred compensation.

Return annual measurement of earning or loss on an investment, expressed as a percentage of the total amount invested

Risk the possibility of loss of principal or less-than-expected returns; there are many kinds of risk: economic risk; financial risk; inflation risk; market risk; and liquidity risk

Risk/return investment theory that correlates increased risk-taking with greater return on an investment and lower risk-taking with lower return on an investment

Risk tolerance your ability to handle fluctuation in the value of your portfolio

Rollover your tax-free reinvestment of a distribution made to you from a retirement plan, such as a 457 or 401(a) plan, into an IRA or other qualified plan within 60 days of distribution

Security stocks, bonds, and other investments expected to yield a return

Self-directed brokerage account investment option offered by some of our active providers that allows you to transfer an amount to an outside broker for investment in a full array of mutual funds. Various fees and minimum deposit amounts apply to each Self-directed Brokerage account.

Service Credit Purchase option to purchase IPERS credits (if eligible) with the use of deferred compensation 457 money. This is a nontaxable transfer. 401(a) assets cannot be used to purchase pension credits.

Standard and Poor’s 500 Index (S&P 500 Index) well-known, value-rated index of 500 major US companies: 400 industrial firms; 20 transportation firms; 40 utilities firms; and 40 financial firms; considered to be a benchmark of the overall stock market

Stock certificate of ownership in a corporation

Subaccount see definition of fund in glossary

Surrender charge fee imposed for cashing out an annuity contract during the penalty phase. Our 5 active providers have no surrender charges.

Penalty-free withdrawal amount if you are still in the surrender penalty phase of your investment, you usually have the option of moving a portion of your account each contract year, generally around 10%

 

Target Date Fund A mutual fund that automatically resets the asset mix of stocks, bonds and cash equivalents in its portfolio according to a selected time frame that is appropriate for a particular investor. A target-date fund is similar to a life-cycle fund except that a target-date fund is structured to address some date in the future, such as retirement. Its returns are not guaranteed, but depend on how the market performs.

 Tax deferral postponing taxes due on an amount invested and/or its earnings until they are taken as income

Transfer movement of assets, within the Retirement Investors' Club, from one provider to another provider. You may have the option to:

  • transfer 100% of your policy value to another provider
  • possibly transfer the annual penalty-free amount (on an inactive provider policy) until the balance is transferred
  • stop funding the old policy and redirect future contributions to a different provider

It is important to check with your provider for possible surrender charges that may apply.

Trustee the director of the Iowa Department of Administrative Services

Unforeseeable Emergency strictly defined Internal Revenue Code provision allowing you to withdraw some or all of your 457 account assets to cover the cost of an emergency and any tax liabilities incurred by the withdrawal. The emergency must have been unforeseeable and create a severe financial hardship. Examples of what WILL NOT qualify as an emergency are property taxes; income taxes; divorce; debt; overdue bills; mortgage; college costs.

 

Variable Rate Fund Professionally managed pool of stocks, bonds, cash, and/or other securities (referred to as mutual fund or sub account). Contributions purchase fund shares with other investors at various market prices.  Mutual fund categories include, but are not limited to:

  • Bond funds
  • Balanced funds
  • Large, Mid, & Small cap stock funds
  • Total US stock market index funds
  • International/Global funds
  • Life stage/target date/asset allocation funds
  • Socially conscious funds
  • Real estate funds