Educational
Resources

• 12b-1 Fee
• A 12b-1 fee is a charge to shareholders to cover a mutual fund’s shareholder servicing, distribution and marketing costs. The fees are typically passed through from the fund company to the service provider.
• 401(k)
• You participate in a 401(k) retirement savings plan by deferring part of your salary into an account set up in your name. Any earnings in the account are federal income tax deferred. If you change jobs, 401(k) plans are portable, which means that you can move your accumulated assets to a new employer's plan, if the plan allows transfers, or to a rollover IRA. With a traditional 401(k), you defer pretax income, which reduces the income tax you owe in the year you make the contribution. You pay tax on all withdrawals at your regular rate, determined by your filing status and tax bracket. With the newer Roth 401(k), which is offered by some but not all employers who offer traditional 401(k)s, you contribute after-tax income. Earnings accumulate tax deferred, but your withdrawals are completely tax free if your account has been open at least five years and you're at least 59 1/2. In either type of 401(k), you can defer up to the federal cap, plus an annual catch-up contribution if you're 50 or older. However, you may be able to contribute less than the cap if you're a highly compensated employee (HCE) or if your employer limits contributions to a percentage of your salary. Your employer may match some or all of your contributions, based on the terms of the plan you participate in, but matching isn't required. With a 401(k), you are responsible for making your own investment decisions by choosing from among investment alternatives offered by the plan. These alternatives may include mutual funds, variable annuity separate accounts, fixed-income investments, and sometimes company stock. Your plan may also offer a brokerage window that allows you to select among a wide range or investments through a designated account. You may owe an additional 10% federal tax penalty if you withdraw from a 401(k) before you reach 59 1/2. You must normally begin to take minimum required distributions by April 1 of the year following the year you turn 70 1/2 unless you're still working. When you retire or leave your job for any reason you may roll over your traditional 401(k) assets into a traditional IRA and your Roth 401(k) assets into a Roth IRA. You may also rollover your traditional 401(k) to a Roth IRA and pay the tax that is due on the combined value of your contributions and earnings.
• Administration/Recordkeeping
• 401(k) Plan Administration and Recordkeeping are ongoing services to help ensure that a 401(k) plan is run in the manner it was designed, complies with governing body regulations, and that transactions are accounted to individual accounts. Administration and Recordkeeping services include, but are not limited to the following services: setup and issuance of new plans and documents, performance of plan compliance and testing, tracking participant contributions and earnings, preparation of required tax documents.
• Annual Audit
• Federal law requires that all ERISA-covered plans with more than 100 participants be audited by an independent auditor. It is also common to refer to a DOL or IRS examination of a plan as a plan audit. Any charge imposed by a service provider in connection with this audit is reflected on Schedule B.
• Asset Allocation
• Asset allocation is essentially how much you invest in stocks, bonds, cash and/or other asset classes. To determine what’s right for you, it typically starts with understanding your tolerance for market swings and your time horizon to use the money. If you are nearing retirement or just simply a more conservative investor, your asset allocation may skew more towards bonds. If you are young or like to be a more aggressive investor, your allocation may skew more towards stocks.
• Asset Classes
• An asset class is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Asset classes are made up of instruments which often behave similarly to one another in the marketplace. The big three asset classes are stocks, bonds, and cash. Other asset classes commonly used in investing are real estate (REITs) and commodities. There are sub-asset classes too (e.g., Stock funds may be large-cap, small cap, etc.).
• Asset Management Fee
• An on-going price typically charged to 401(k) plan participants for a 401(k) advisor providing investment services for a 401(k) plan. Services may include the selection of investments suitable for a retirement plan and the on-going monitoring of these and other investment alternatives, management of model portfolios or target date funds, and other investment guidance information provided to employers and employees.
• Average Daily Balance
• A finance/accounting method where the value of assets in the entire 401(k) plan for a period of time (typically a quarter) is used to determine the asset management fee. The asset average daily balance is used versus the value at an end of quarter because the average balance is more representative of asset values of the account during the period.
• Bonds
• When you invest in bonds, you are loaning money to a company or government. In return, bonds pay a periodic interest payment or a lump sum at maturity. Bonds are typically safer investments than stocks but carry a lower expected return for their safety.
• Cash
• Cash equivalents are investments securities that are meant for short-term investing. They have high credit quality and are highly liquid. These securities have a low-risk, low-return profile and include U.S. government Treasury bills, bank certificates of deposit, bankers' acceptances, corporate commercial paper, and other money market instruments.
• Commodities
• A commodity is a basic good used in commerce that is interchangeable with other goods of the same type. Commodities are most often used as inputs in the production of other goods or services (e.g., corn, wheat, oil, and metals including gold). The quality of a given commodity may differ slightly, but it is essentially uniform across producers.
• Diversification
• Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt at limiting exposure to any single asset or risk. The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security. In other words, by not having all your eggs in one basket, it can help increase the chance of building a bigger nest egg.
• Dividends
• A dividend is a distribution of a portion of a company's earnings, decided by the board of directors. The purpose of dividends is to return wealth back to the shareholders of a company. There are two main types of dividends: cash and stock. Dividends can be paid out in cash, by check or electronic transfer, or in stock, with the company distributing more shares to the investor. Cash dividends provide investors income but come with tax consequences if not in a 401(k) or IRA. They also cause the company's share price to drop.
• Dollar-Cost Averaging
• Dollar-cost averaging is investing a set amount on a regular interval into a one or more funds or securities. This helps reduce the impact of volatility on buying investments or angst and often the futility of trying to “time” the market. When prices are high (markets rise), the investor purchases fewer shares of an investment, and when prices are low (markets drop), the investor purchases more shares. In 401(k) plans, most employees are contributing each payroll and leveraging the benefits of dollar-cost averaging to build savings and wealth over the long-term.
• Employer Matching Contribution
• As an incentive to encourage employees to save for retirement, many employers offer an employer matching contribution (aka a match) up to a certain dollar amount or percentage of an employee’s compensation. As an example, an employer may match dollar for dollar for the first 4% of salary an employee contributes to her 401(k) account. If an employee earns $50,000 per year and contributes 4%, or $2,000 annually, she will receive another 4% or $2,000 annually from her employer, or $4,000 total. If an employee does not contribute, she receives zero from the employer as well. If she contributes 3%, she receives 3% from the employer.
• ERISA 3(38) Advisor
• An advisor that is delegated by an employer to serve as the 401(k) plans “investment manager” to select, monitor and replace investments for the company’s retirement plan. An ERISA 3(38) Advisor takes on this fiduciary duty and is legally responsible to manage the investment roster and/or model portfolios in line with the best interest of the plan participants, typically as defined in an established Investment Policy.
• Exchange Traded Funds
• Exchange Traded Funds (ETFs) are a basket of stocks, bonds, or commodities that typically track a market index such as the S&P 500 or the Dow Jones Industrial Average. An ETF is similar to a mutual fund in that they both work to diversify risk by holding a collection of stocks and/or bonds. However, an ETF is a security that can be traded throughout the day just like a stock on the major exchanges. A mutual fund’s net-asset value is calculated at the end of each day and shares are redeemed once a day at this price. ETFs almost always track an index (not actively managed). Mutual funds may be actively managed or index-based. ETFs can have lower overhead and the ability to issue shares, which can lead to lower expense ratios than even index mutual funds.
• Index Investing
• Index investing is a passive investment strategy that seeks to replicate the returns of a benchmark index (i.e., the Dow, NASDAQ or S&P 500). Most index funds offer diversification, plus lower expenses, than actively managed strategies. For example, Vanguard S&P 500 (VOO), an ETF that tracks the S&P 500 Index, contains over 500 different stocks. Investing in VOO provides diversification in large-cap equities. Historically, index funds have outperformed actively managed funds due to lower costs and the difficulty for managers to forecast where the market is going especially over the long-term (markets are unpredictable).
• Model Portfolio
• A model portfolio consists of a specially selected basket of index funds with varying allocations. Model portfolios are developed and balanced to meet the needs of specific investing profiles, including time horizon and risk tolerance.
• Money Market Mutual Fund
• A fund that purchases short-term, high-quality securities, such as Treasury bills, negotiable CDs and commercial paper. Money market funds pay income to shareholders in the form of extra fund shares (usually priced at $1 each), and are intended to be a conservative investment.
• Mutual Funds
• A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. Such funds typically come with higher fees than other investments due to their additional operational overhead.
• REIT
• Real Estate is often available as an asset class to invest in via Real Estate Investment Trusts (REITs). A REIT is a company that owns and operates various real estate properties in which 90% of the income it generates is paid to shareholders in the form of dividends.
• Roth Contributions
• Roth contributions are investment made with after-tax monies; however, when monies are withdrawn in retirement, they are tax-free -- earnings and all. Investment growth including interest, dividend and capital gains accumulate tax-free. Common examples of vehicles that offer the option for Roth contributions are 401(k) plans with the Roth 401(k) feature and Roth IRAs. Roth IRAs do have some earning limits that may limit who can utilize it. Roth 401(k)s can be used by any investor with access to a 401(k) with the Roth option no matter their earnings. Investors in a 401(k) can choose how much they want to contribute tax-deferred or in the Roth 401(k). Note that any and all employer contributions are made on a tax-deferred bases by law.
• Set Up
• The one-time price charged by a provider to establish the 401(k) plan design in line with a company’s objective, and ready the websites and employee support to launch a retirement plan.
• Stocks
• When you buy stock, you're purchasing a tiny bit of ownership in the company. The stock is traded on an exchange or electronic marketplace and has a trading price (value). Stock values go up and down. Generally, the better the company performs, the more your share of stock is worth. If the company doesn't do well, your stock may be worth less.
• Tax-Deferred Contributions
• Tax-deferred contributions refers contributions that are excluded from your current year taxes. The investment growth—such as interest, dividends, or capital gains—will accumulate tax-free until the investor withdraws them. An investor can benefit from both lower taxes at the time of contribution as well as the tax-free growth of earnings over time. Common examples vehicles that offer the option for tax-deferred contributions are a 401(k) plan and traditional IRAs. If monies are held until retirement age, withdrawals will be taxed at your tax rate at the time of withdrawal (thus, why they are called tax-deferred).

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