3(21) Fiduciary

An ERISA 3(21) fiduciary is an individual or institution obligated to provide to a plan sponsor investment advice that is in the best interests of the sponsor and plan participants. Such fiduciaries do not assume legal liability in the event a plan sponsor is sued by plan participants. A 3(21) fiduciary does not exercise discretion, meaning the fiduciary’s role is only that of advisor. The plan sponsor retains the power to make changes in the retirement plan investments and remains legally responsible and liable.

3(38) Fiduciary

An “Investment Manager” with full discretionary powers for selecting, monitoring and (if necessary) replacing the investment options in a qualified retirement plan. 3(38) represents the highest level of Fiduciary responsibility that can be assumed by an Investment Manager on behalf of a plan sponsor (see Fiduciary).

Asset Allocation

A method of investing by which investors include a range of different investment classes − such as stocks, bonds, and cash alternatives or equivalents − in their portfolios. See Diversification.

Asset Class

A group of securities or investments that have similar characteristics and behave similarly in the marketplace. Three common asset classes are equities (e.g., stocks), fixed income (e.g., bonds), and cash alternatives or equivalents (e.g., money market funds).

Balanced Portfolio

A portfolio with an investment objective of both long-term growth and income, through investment in both equities and bonds.

Basis Point

One-hundredth of one percent, or 0.01%. For example, 20 basis points equal 0.20%. Investment expenses, interest rates, and yield differences among bonds are often expressed in basis points.


An unmanaged group of securities whose performance is used as a standard to measure investment performance. Some well-known benchmarks are the Dow Jones Industrial Average and the S&P 500 Index.


Compensation paid to a broker or other salesperson for his or her role when investments are bought or sold.


The cumulative effect that reinvesting an investment’s earnings can have by generating additional earnings of their own.


An investment approach that accepts lower rewards in return for potentially lower risks. Typically, this strategy is appropriate for an individual nearing retirement who does not have sufficient time to absorb and recover from severe short term market fluctuations.


The gross pay contributed to a retirement account by an employee or individual on a pre-tax or Roth basis. The amount cannot exceed annual contribution limits established by the IRS.


Movement of funds out of a retirement account, typically triggered by termination of employment, retirement, or reaching age 70 1⁄2. Funds can be distributed as a lump sum cash payout, or transferred into an alternative retirement account. Tax treatment of the distributed funds depends on age, method of distribution, tax status of the dollars in question at the time of the initial contribution (see Roth and Traditional).


The practice of investing in multiple non-correlated asset classes with different risk characteristics to reduce the risk of owning any single investment.

Emerging Market

Generally, economies that are in the process of growth and industrialization, such as in Africa, Asia, Eastern Europe, the Far East, Latin America, and the Middle East which, while relatively undeveloped, may hold significant growth potential in the future. Investing in these economies may provide significant rewards, and significant risks. May also be called developing markets.

Employer Match or Employer Matching Contribution

A type of employer contribution whereby a company elects to make a contribution that is contingent on the employee’s deferral rate. The employer incentive may be discretionary and the terms vary plan to plan.


A security or investment representing ownership in a corporation, unlike a bond, which represents a loan to a borrower. Often used interchangeably with “stock.”

Equity Fund

A fund that invests primarily in equities.

ERISA (Employee Retirement Income Security Act)

Enacted in 1974, ERISA protects retirement accounts from seizure and imposes certain rules that govern plan administrators of retirement plans. These rules are designed to protect plan participants and preserve their retirement savings.

Expense Ratio

A measure of what it costs to operate an investment, expressed as a percentage of its assets or in basis points. These are costs the investor pays through a reduction in the investment’s rate of return.


A person who owes a duty of care and trust to another and must act primarily for the benefit of the other in a particular activity. For retirement plans, the law defines that a Fiduciary must always act in accordance with the best interests of plan participants, following all plan rules and documents unless they conflict with the regulations outlined in ERISA. Fiduciaries must diversify investments and ensure that fees incurred in the service of their duty are reasonable. Fiduciaries suffer penalties when they do not perform their duties properly.

Fixed Income Fund

A fund that invests primarily in bonds and other fixed-income securities, often to provide shareholders with current income.

Global Fund

A fund that invests primarily in securities anywhere in the world, including the United States.


A benchmark against which to evaluate a fund’s performance. The most common indexes for stock funds are the Dow Jones Industrial Average and the Standard & Poor’s 500 Index.

Index Fund

An investment fund that seeks to parallel the performance of a particular stock market or market index. Index funds are often referred to as passively managed investments.

International Fund

A fund that invests primarily in the securities of companies located, or with revenues derived from, outside of the United States.

Investment Advisor

A person or organization hired to give professional advice on investments and asset management practices.

Investment Return

The gain or loss on an investment over a certain period, expressed as a percentage. Income and capital gains or losses are included in calculating the investment return.

Investment Risk

The possibility of losing some or all of the amounts invested or not gaining value in an investment.

Large Capitalization (Cap)

A reference to either a large company stock or an investment fund that invests in the stocks of large companies.

Large Cap Fund

A fund that invests primarily in large cap stocks.

Managed Portfolio/Profile

A collection of investments that are selected by an Investment Advisor based on diversification needs and risk tolerance.

Management Fee

A fee or charge paid to an investment manager for its services.

Market Risk

The possibility that the value of an investment will fall because of a general decline in the financial markets.

Mid Capitalization (Cap)

A reference to either a medium sized company stock or an investment fund that invests in the stocks of medium-sized companies.

Mid Cap Fund

A fund that invests primarily in mid-cap stocks.

Money Market Fund

A mutual fund that invests in short-term, high-grade fixed-income securities, and seeks the highest level of income consistent with preservation of capital (i.e., maintaining a stable share price).

Mutual Fund

An investment company registered with the SEC that buys a portfolio of securities selected by a professional investment advisor to meet a specified financial goal (investment objective). Mutual funds can have actively managed portfolios, where a professional investment advisor creates a unique mix of investments to meet a particular investment objective, or passively managed portfolios, in which the advisor seeks to parallel the performance of a selected benchmark or index.

Passive Management

The process or approach to operating or managing a fund in a passive or non-active manner, typically with the goal of mirroring an index. These funds are often referred to as index funds and differ from investment funds that are actively managed.

Plan Administrator

The “Plan Administrator” of a qualified retirement plan is defined in section 3(16) of ERISA, and is charged with the following primary responsibilities:1) Ensuring all filings with the federal government (form 5500, etc.) are timely made; 2) Making important disclosures to plan participants; 3) Hiring plan service providers if no other fiduciary has that responsibility; 4) Fulfilling other responsibilities as set forth in plan documents.

Plan Sponsor

A designated party, usually a company or employer, that sets up a healthcare or retirement plan such as a 401(k) for the benefit of the organization’s employees. The responsibilities of the plan sponsor include determining membership parameters, investment choices and, in some cases, providing contribution payments.


A collection of investments that are owned by an individual, organization, or fund. Rate of Return: The gain or loss on an investment over a period of time. The rate of return is typically reported on an annual basis and expressed as a percentage.


The process of moving money from one type of investment to another to maintain a desired asset allocation.

Required Minimum Distribution (RMD)

A required minimum distribution is the amount that traditional, SEP or SIMPLE IRA owners and qualified plan participants must begin withdrawing from their retirement accounts by April 1 following the year they reach age 70 1/2. The retiree must they withdraw the RMD amount each subsequent year based on the current RMD calculation.

These required minimum distributions are determined by dividing the retirement account’s prior year-end fair market value by the applicable distribution period or life expectancy. Some qualified plans allow certain participants to defer beginning their RMDs until they retire, even if they are older than age 70 1/2. Qualified plan participants should check with their employers to determine whether they are eligible for this deferral. Also, Roth IRAs do not require withdrawals until after the owner dies.


The gain or loss on an investment. A positive return indicates a gain, and a negative return indicates a loss.


The potential for investors to lose some or all the amounts invested or to fail to achieve their investment objectives.

Risk Tolerance

An investor’s ability and willingness to lose some or all of an investment in exchange for greater potential returns.


Transfer of funds from one eligible tax-deferred 401(k) or IRA account to another tax-deferred retirement account. A rollover is not taxable, regardless of the age of the participant.


An option within some employer-sponsored qualified plans (and IRAs) allowing employees to defer money into the plan on an after-tax basis. Roth contributions and any gains from investment returns earned on Roth contributions are not subject to taxation at the time the money is withdrawn.

Russell Indexes

A group of indexes that are widely used to benchmark investment performance. The most common Russell index is the Russell 2000 Index, an index of U.S. small-cap stocks, which measures the performance of the 2,000 smallest U.S. companies in the Russell 3000 Index.

Safe Harbor

A specific type of 401(k) plan that encourages employee participation, without discrimination in favor of highly compensated employees. Typically a Safe Harbor plan involves a matching or across-the-board employer contribution.

Securities and Exchange Commission (SEC)

Government agency created by Congress in 1934 to regulate the securities industry and to help protect investors. The SEC is responsible for ensuring that the securities markets operate fairly and honestly.


A general term for stocks, bonds, mutual funds, and other investments.


A representation of ownership in a company or investment fund.

Share Class

Some investment funds and companies offer more than one type or group of shares, each of which is considered a class (e.g., “Class A,” “Advisor” or “Institutional” shares). For most investment funds each class has different fees and expenses but all of the classes invest in the same pool of securities and share the same investment objectives.

Small Capitalization (Cap)

A reference to either a small company stock or an investment fund that invests in the stocks of small companies.

Small Cap Fund

A fund that invests primarily in small-cap stocks.

Stable Value Fund

An investment fund that seeks to preserve principal, provide consistent returns and liquidity. Stable Value Funds include collective investment funds sponsored by banks or trust companies or contracts issued by insurance companies.

Standard & Poor's 500 Stock Index (S&P 500)

An index comprised of 500 widely held common stocks considered to be representative of the U.S. stock market in general. The S&P 500 is often used as a benchmark for equity fund performance.

Traditional 401(k)

Retirement savings vehicle that allows employees to make tax-deferred contributions to an account.

Time Horizon

The amount of time that an investor expects to hold an investment before taking money out.


A person or group of persons recognized as having exclusive authority and discretion over the management and control of plan assets; a subset of the overarching duty to control, manage and administer the plan.

Value Fund

A fund that invests primarily in stocks that are believed to be priced below what they are really worth.


The amount and frequency of fluctuations in the price of a security, commodity, or a market within a specified time period.

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