A plan that provides partial pay replacement for up to a stipulated number of weeks, after a waiting period. Most commonly, this program replaces approximately 65 percent of pay after a one week waiting period, for up to 26 weeks.
Accidental Death and Dismemberment (AD&D)
A provision in a life insurance contract for double indemnity (twice the normally applicable benefit) if the insured individual dies as the result of an accident.
Accidental death benefit
An additional benefit that will be paid under an insurance policy if the insured individual dies by accidental means. Also called double indemnity.
Accumulated, as actuarial costs of liabilities, during years of employee service before a specific valuation date of a pension plan.
A benefit earned by an employee as a participant in a benefits plan as of a certain date. If the plan is not a defined benefit plan, the accrued benefit is the balance in the participant’s account at a given time. If the plan is a defined benefit plan, the accrued benefit is the amount determined under the terms of the plan that is paid to the participant in the form of an annual benefit commencing at normal retirement age.
Accrued benefit cost method
An actuarial cost method that assigns the pension cost associated with a year of service based on the benefits earned during that year by each participant in a plan. Also termed unit credit method.
Accrued future service benefit
A retirement benefit stemming from credited service after the effective date of the plan but prior to a specified current date.
The difference between the projected benefits liability (the present value of all future benefits) and the actuarial present value of future normal costs. From a retrospective viewpoint, the accrued liability is the cumulative normal cost of a plan adjusted for experience gains and losses as of a valuation date.
Accumulated funding deficiency
Under the minimum-funding standards of ERISA, the situation that exists when, at the end of a plan year, the funding standard account, on a cumulative basis, has an excess of total charges over total credits. Pension plans, generally defined benefit and money-purchase plans, maintain a special funding standard account to determine whether a pension plan has satisfied the minimum-funding requirements. The account is to be charged each plan year (with normal costs for that year) the minimum amortization of past service costs, increases in liabilities from plan amendments, and amortization of experience losses. The account is to be credited each year with employer contributions made under the plan, amortization of decreases in plan liabilities resulting from plan amendments, and amortization of experience gains. Should the total charges exceed the total credits at the end of a plan year, the account will show a deficiency called the accumulated funding deficiency. A plan will satisfy the minimum-funding requirements of ERISA only if, at the end of a plan year, it does not have an accumulated funding deficiency.
A specific period during which the insured person must incur eligible medical expenses at least equal to the deductible to establish a benefits period under a major medical expense or comprehensive medical expense policy.
Active life fund
The unallocated fund for active participants under a deposit administration contract issued by an insurance company. While a plan participant is still active (i.e., prior to the participant’s retirement), the plan’s assets are kept in an accumulation account. This fund is simply an unallocated fund of money that increases with interest and is referred to as a deposit account, deposit fund, deposit administration fund, or purchase payment fund. When an employee retires, the employee’s pension is purchased from the insurance annuity account, and the purchase price is debited to the accumulation account.
An individual participant in a pension plan for whom benefits are accrued under the plan at any time during the plan year and for whom the employer is obligated to make contributions to a pension fund.
Actual deferral percentage
The percentage of a plan participant’s compensation contributed to a cash or deferred pension plan.
Estimates with respect to the occurrence of future events that are used to resolve uncertainties in the determination of pension cost. Mortality rates, employee turnover, investment returns, expenses, and salary scales are examples of actuarial assumptions.
A person professionally trained to make technical computations that apply probability and statistical projection to insurance problems, particularly in determining the reserves or premiums that are required to provide a given benefit in the future.
See Americans With Disabilities Act of 1990.
See Age Discrimination in Employment Act.
See Accidental Death and Dismemberment.
Adjustable life insurance
A type of insurance that allows the policyholder to change the plan of insurance, raise or lower the face amount of the policy, increase or decrease the premium, and lengthen or shorten the protection period.
Administrative-services-only (ASO) plan
An arrangement in which an employer or other party pays a fee to an insurance carrier or other contractor to handle administration of claims, benefits, and so forth for a self-insured plan.
See plan administrator.
A benefit given, usually in the form of cash, to employees who adopt children to help defray legal and other costs.
Contributing money to a benefits plan before the money is needed to pay benefits.
The tendency of individuals to consider their health status in selecting a retirement or insurance option that provides high benefits levels but is more costly to the plan. In insurance, an individual with impaired health or who anticipates medical care needs applies for insurance coverage that is financially favorable to the individual and costly to the insurance company. Also known as antiselection.
Age Discrimination in Employment Act of 1967(ADEA)
A federal statute prohibiting age-based employment discrimination against individuals who are more than 40 years old.
An insurance company representative, usually state licensed, who solicits and negotiates contracts of insurance as well as services the contracts on the insurer’s behalf.
The maximum amount that can be collected for any disability, for any period of disability, or under the policy.
A projected benefits cost method that is used to compute pension cost by spreading the entire cost of future benefits over the average future service lives of active plan participants as of the valuation date. The aggregate method applies, on a collective basis, the principle followed for individual participants in the level-premium method.
Alienation of benefits
An ERISA requirement that plan benefits cannot be assigned or alienated under a tax-qualified plan. The provision generally specifies that payments are payable only to the plan participant and not to an employer or a third party. Exceptions are made for assignments to secure loans if those loans do not constitute prohibited transactions and for qualified domestic relations orders issued to satisfy a participant’s obligation for alimony, child support, or a property settlement agreement.
Benefits for which the maximum amount payable for specified services is itemized in the insurance contract.
A contract with an insurance company under which funds deposited with the insurance company are currently used to purchase immediate or deferred annuity contracts for individual plan participants.
The distribution of a plan sponsor’s contribution to a pension plan to each participant’s account. With respect to a profit-sharing plan, also refers to the distribution of earnings and forfeitures to the accounts of the various participants.
Alternative delivery systems
Health services provided by means other than an inpatient, acute-care hospital. Examples include skilled and intermediary nursing facilities, hospice programs, and home health care.
Ambulatory care benefits
Benefits for outpatient health services as opposed to services delivered in a hospital or an institution.
Americans with Disabilities Act of 1990 (ADA)
A federal law giving equal access to employment to qualified individuals who have disabilities. It prohibits discrimination on the basis of disability.
See Average Monthly Wage method.
See Supplemental benefits.
The contributions made to a participant’s account under a profit-sharing plan as well as under other plans that use individual account balances. Annual additions are computed by taking into consideration allocations of employer contributions, employee (participant) contributions, and forfeitures under a formula provided by federal law.
Earned paid leave, roughly equivalent to vacation leave.
A report that must be filed annually by each employee benefits plan.
The person during whose life an annuity is payable, usually the person to receive the annuity.
Fixed payments, normally in equal amounts, made to a retired participant or a participant’s beneficiary that continue for the lifetime of the participant (life annuity) or for a specified period.
A contract that provides an income for a specified number of years, regardless of life or death.
The payment or one of the regular periodic payments that an annuitant makes for an annuity.
Annuity conversion rate
A factor used to determine the amount of annuity payable for each dollar of a participant’s contributions that has been accumulated to the date of retirement.
See Associate of the Society of Actuaries.
See Administrative Services Only (ASO) plan.
A last-resort arrangement often required under state law whereby firms or individuals who are denied insurance because they pose too high a risk are guaranteed access to insurance at higher rates.
Assignment of benefits
In the health insurance context, this refers to the insured individual’s agreement that the provider of services be paid directly by the plan. In the pension context, this refers to an assignment to a third party of the participant’s right to pension benefits and is generally prohibited under ERISA. Exceptions to the prohibition are made for qualified domestic relations orders and for plan loans.
Associate of the Society of Actuaries (ASA)
A designation earned by actuaries who pass five examinations covering such topics as general mathematics, probability and statistics, and numerical analysis.
Average indexed monthly earnings
A method of calculating social security benefits.
Average monthly wage method (AMW)
A method of calculating social security benefits for workers born before 1922.