A 125 Plan, often called Cafeteria Plan or Flex Plan, is an Employer plan by which Employees may pay for certain costs on a Pre-tax basis. Covered costs often include health insurance premiums and child care.

Plans, also referred to as “Tax Deferred Annuity Plans, TDA Plans, Tax Sheltered Annuity Plans or TSA Plans” are usually salary reduction arrangements between a public school entity and its Employees. Such plans allow Employee Participants to defer Pre-tax dollars to invest for future retirement needs. The normal investment vehicles are Annuities, Variable Annuities and Mutual Fund Custodial Accounts.

457 Plans, also referred to as “Non-Qualified Deferred Compensation”, are usually deferred compensation arrangements between a governmental entity, in this case a school district, and its employees. Such plans allow Employee Participants to defer Pre-tax dollars to invest for future retirement needs.

A contract provided by an insurance company Service Provider that offers a fixed rate of interest for a specific period of time; or an index rate tied to the performance of a specific market index such as the Standard & Poor’s (S&P) 500. All returns are net of any charges by the insurance company. Please see the section of this guide entitled “Questions to Ask a Service Provider.”

Payout An amount paid at regular intervals under one of several options available to the annuitant and/or any other payee. This amount may be paid on a variable or fixed basis, or a combination of both.

Contributions before Federal income tax are withheld from an Eligible Employee’s or Participant’s salary or wages. Before Tax or Pre-tax contributions can include 125, 403(b) and 457 Plans and state sponsored retirement plan contributions.

The person(s) or estate designated by the Participant to receive benefits under the 403(b) Plan after the death of the Participant.

A Calendar Year or Tax Year is January through December. This is not to be confused with the school year or contract year.

All wages, salaries or other amounts earned during the Calendar Year by an Employee or Participant for services provided for the Employer, including any salary reduction amounts made pursuant to a Salary Reduction Agreement and Pre-tax contributions to a state sponsored retirement plan.

See “Mutual Funds”.

The Economic Growth and Tax Relief Reconciliation Act of 2001 was enacted to provide tax relief and increase Employees’ investment opportunities.

The amount of before or Pre-tax contributions that a Participant has voluntarily elected to have reduced from their salary through a Salary Reduction Agreement.

Any person employed by a Qualified Employer as a common law Employee.

An Employer qualified to sponsor a 403(b) or 457 Plan. An educational institution is a Qualified Employer.

ERISA is an acronym for the Employee Retirement Income Security Act of 1974. Public school employers are by law excluded from ERISA.

A sales charge at the time the fund is set up.

See “Service Provider Agreement”.

Compensation which is currently includable in the Participant’s gross income for Federal income tax purposes. In 1998 and after, Includable Compensation is defined as the Participant’s compensation minus any Pre-tax contribution to a state sponsored retirement plan. For prior years, Includable Compensation does not include any amount deferred by such Participant under a 403(b) Plan, 457 Plan or excludable under Section 125, 401 or other applicable sections of the IRC code. A Participant’s Includable Compensation for a taxable year is determined without regard to any community property laws.

The terms IRC, Section or Code refer to the Internal Revenue Code. For example: Internal Revenue Code Section 403(b) or Internal Revenue Code Section 457.

IRC Section 402(g) limits salary reduction contributions made by a Participant to $15,500 for 2007, $15,000 for 2006, $14,000 for 2005, $13,000 for 2004, $12,000 for 2003, $11,000 for 2002, $10,500 for 2001 and 2000 and $10,000 for 1999 and 1998. For tax years prior to 1998, the limit is $9,500. Section 402(g) allows for an exception to the $15,500 limit if certain criteria are met. A Participant is eligible to contribute more than $15,500 in elective deferrals if all the following conditions are met:

1. The Participant works for a qualified Employer, such as an educational institution.
   
2. The Participant has more than fifteen years of service with the current Employer.
   
3. The Participant has contributed, on average, less than $5,000 of elective deferrals per year to this or any other retirement plan offered by the Employer.

The Normal IRC 415 calculation limit was increased on 1/01/2002 from 25% to 100% of includable compensation up to a maximum of $40,000, with future year limits in $1,000 increments.

The 403(b) Maximum Allowable Contribution limit is the amount an Employee can contribute to the Plan in a tax year. This calculation is based on many factors such as: years of service with current employer, age as of 12-31 of the current year, prior contributions to the Plan, retirement system (STRS, PERS or Apple) and any catch up provisions.

An investment offering professional management and diversification for Participants who wish to own stocks, bonds, etc. without making individual investment decisions. Funds are offered for all investment risk tolerances and include large, mid and small capitalization portfolios investing in the United States and internationally. Fund categories include aggressive growth, growth, income, equity income, balanced, bond etc. There are also index funds that replicate various stock and bond indices. The section of the guide entitled “Questions to Ask a Service Provider” contains a number of important questions about annuities fixed and variable, and mutual fund 403(b) custodial accounts.

The age at which actuarial penalties disappear for the state sponsored retirement plan provided by the Employer. In California under PERS, this age is 63; but under STRS, it is age 63 or age 61 years, 9 months for those with 30 years of service.

An Eligible Employee or former Eligible Employee who is or has been enrolled in a 403(b) Plan and who retains the rights to benefit under the Plan.

All contribution made in prior Tax Years to any 403(b) or 457 Plan Employer sponsored retirement plan. Prior contributions are a very important part of calculating a Participants Maximum Allowable Contribution (MAC). Prior contributions to 403(b), 457 and Employer-sponsored plans must be actual figures and are best provider by Employers. Prior contributions to state-sponsored retirement plan can be calculated using a formula provided by the IRS. Risk Tolerance or Comfort Zone A Participant’s tolerance for risk. It is a means of determining which investment alternative, Annuities, Variable Annuities or Mutual Funds are an appropriate investment. A qualified insurance agent, securities registered representative or financial planner should be able to provide a series of questions to determine a Participant’s tolerance for risk and thus recommend an appropriate 403(b) investment.

A written agreement between the Employer and a Participant setting forth certain provisions and elections relative to the Plan, establishing the amount of the Elective Deferral and Service Provider(s) selected.

Any Insurance company and/or Mutual Fund Custodial Account provider offering investment alternatives in your Employer’s 403(b) Plan. The term also includes all representatives of these organizations.

An agreement established between a Qualified Employer and a Service Provider of 403(b) or 457 investment vehicles. It defines the terms and conditions with respect to purchases, sales, transfers or other transactions related to the servicing of 403(b) and 457 annuity contracts and/or custodial accounts that are processed through a Service Provider.

The term that refers to what is known in the financial services industry as a contingent deferred sales charge. There are two types of Surrender Charges, contract and rolling. A contract Surrender Charge is based upon the contract date. A rolling Surrender Charge is based upon the date each contribution is received. Ask your Service Provider to explain the difference.

Please see “403(b) Plan.”

The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 allows Participants in certain qualified retirement plans including 403(b) plans to borrow funds from their accounts without the loan becoming a taxable distribution. Loan provisions vary from Service Provider to Service Provider. The law permits you to borrow 100% of the withdrawal value of your TSA, if the loan does not exceed $10,000. If the amount borrowed exceeds $10,000, the maximum loan is 50% of the withdrawal value of your TSA not to exceed $50,000. The loan must be repaid in at least quarterly installments of principal and interest over a period not to exceed 5 years, with one exception: if the purpose of the loan is to acquire your principal residence, the repayment period may be extended beyond the 5 years with the agreement of the Service Provider. There are proposed changes to this law, and we will update as they become available.

1. A contract provided by an insurance company comprised of both fixed and variable investment accounts, in which: The fixed account offers a fixed rate of interest for a specific period of time; there are no mortality charges assed by the insurance company.
2. The variable accounts, or separate accounts resemble mutual funds and are professionally managed stock, bond and money market investment options. The insurance company guarantees the value of all periodic and transfer contributions. This provision is called a “guaranteed death benefit”. The insurance company assesses mortality and administrative charges for this guarantee.
3. The section of this guide entitled “Questions to Ask a Service Provider” contains a number of important questions about annuities fixed and variable, and mutual fund custodial accounts.