Human Resources
Retirement Investors' Club (RIC)
Glossary
review easy-to-understand definitions of terminology used in this website
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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plan established for your employer match dollars and rollovers; contributions and earnings grow tax deferred until withdrawn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from your salary, and also permits employer contributions; contributions and earnings grow tax deferred until withdrawn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 employer-sponsored, non-qualified retirement plan for employees of the Department of Education and the Board of Regents administration staff that permits you to make pretax contributions from your salary; contributions and earnings grow tax deferred until withdrawn
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that permits you to make pretax contributions from your salary; contributions and earnings grow tax deferred until withdrawn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 you will earn 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. 403(b) accounts have lower catch-up limits. See 3-year Catch-Up for more information.
3-Year Catch-Up: if you are eligible, you may contribute up twice the IRS regular limit or $31,000 for 2007.
50+ Catch-Up: if you are 50 (or will turn age 50 in the calendar year) or older, you may contribute up to 20,500 for 2007.
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 457 plan during a calendar year; see plan 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 an investment choice where principal and rates of return are guaranteed by the provider (view current fixed rates)
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:
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
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 Hartford Life
Hardship withdrawal 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. The following are examples of what WILL NOT qualify as an emergency: property taxes; income taxes; divorce; debt; overdue bills; mortgage; college
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 your contribution dollars to the 457 plan are matched $1 for every $2 you contribute up to a maximum amount; see chart for details
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. The 2006 active providers are: AIG Retirement, Hartford Life, ING Financial Advisers, and Nationwide. See Investment Provider Comparison chart for basic information.
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 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.
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 4 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%
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
- transfer the annual penalty-free amount until the balance is transferred (some inactive provider policies may not have this option)
- 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