GlacierWealth · Owner's guide

401(k) & Form 5500 glossary.

The language around retirement plans is full of codes, sections, and roles. These are the terms a small-business owner is most likely to see on a filing, in a fee disclosure, or in a conversation with an adviser.

401(k) plan

A defined-contribution retirement plan that lets employees defer part of their salary into individual accounts. The employer may also contribute. The owner is usually the named fiduciary.

408(b)(2) disclosure

A service-provider disclosure required by ERISA section 408(b)(2). It lists who provides services to the plan, what those services are, how the provider is paid, and whether the provider is a fiduciary.

12b-1 fee

An ongoing asset-based charge inside some mutual funds that can be used to compensate recordkeepers, brokers, or advisers out of participant assets.

Brokerage window

A plan feature that lets participants invest through a brokerage account inside the 401(k), rather than being limited to the plan's preset fund menu. Reported on Form 5500 with feature code 2R.

Code 2R

A plan characteristic code reported on line 8a of Form 5500 or line 9a of Form 5500-SF. It indicates the plan offers a self-directed brokerage window.

ERISA

The Employee Retirement Income Security Act of 1974. The federal law that sets fiduciary standards, reporting rules, and participant protections for most private-sector retirement plans.

ERISA §402(a)

The section of ERISA that requires every plan to name one or more fiduciaries with authority to control and manage the plan. In most small companies, the owner is the named fiduciary.

ERISA §404(a)(1)(B)

The prudent-expert standard. It requires a fiduciary to act with the care, skill, prudence, and diligence that a prudent person familiar with such matters would use.

ERISA §409

The section that makes a breaching fiduciary personally liable to restore plan losses and return any improperly obtained profits.

Fiduciary

A person who exercises discretionary authority or control over plan management or assets. The duty is personal and cannot be absorbed by the corporate form.

Form 5500

The annual return/report most retirement plans file with the Department of Labor, IRS, and PBGC. It includes schedules that disclose plan finances, service providers, and participant counts.

Form 5500-SF

The short-form version of Form 5500 filed by many small plans. It requires less disclosure than the full form and omits Schedule C provider compensation detail.

Indirect compensation

Payments to service providers that come out of plan assets indirectly, such as revenue sharing or sub-transfer-agency fees, rather than from an invoice paid by the plan sponsor.

Named fiduciary

The person or entity named in the plan document as responsible for controlling and managing the plan under ERISA §402(a). Often the business owner in small companies.

Participant-directed account

An account where the participant chooses investments from the plan's menu. Most 401(k) balances are participant-directed unless the plan uses a managed or advised approach.

Plan assets

The total money held in the plan for participants. Fees paid from plan assets reduce participant balances, including the owner's.

Recordkeeper

The service provider that tracks participant balances, contributions, loans, and distributions. Recordkeepers are often paid through a combination of direct and indirect fees.

Revenue sharing

Indirect payments from the funds in a plan's lineup to the recordkeeper, broker, or adviser. It is paid out of participant assets and does not appear as a separate invoice.

Schedule C

A schedule attached to full Form 5500 filings that reports direct and indirect compensation paid to plan service providers.

Section 3(16) administrator

An ERISA fiduciary hired to handle day-to-day plan administration, such as compliance testing, filings, and participant notices.

Section 3(21) fiduciary

An investment fiduciary who provides recommendations but does not take discretionary authority. The named fiduciary retains final decision-making responsibility.

Section 3(38) investment manager

An ERISA fiduciary who takes full discretionary authority for selecting and monitoring plan investments, relieving the named fiduciary of investment liability.

Self-directed brokerage window

The same as a brokerage window. It allows participants to invest outside the preset fund menu through a brokerage account inside the plan.

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