Definition of Terms

A plan sponsored by employers which allows participating employees the opportunity to defer taxation on a portion of regular salary or bonuses by electing to have such amounts contributed to the plan instead of receiving them as cash.

Asset Allocation
The process of dividing the assets in a portfolio among various asset classes to either a) maximize the portfolio's return for a given level of risk; or b) maximize the portfolio's risk for a given level of return.

Benefit Consultant
An individual or organization hired by a group plan holder to review, analyze, and make recommendations on benefit strategies, including benefit plan design, carrier selection, pricing, etc. An insurance professional who provides information, advice and counseling for their clients.

Buy/Sell Agreement
Provides for the transfer of ownership of the business in certain circumstances, including death and disability. The agreement prevents an owner from selling his or her interests to an outsider without the consent of the other owners. Proper funding should be in place to ensure that money is available to buy the shares of a deceased or disabled owner. Life insurance is often coupled with the agreement to satisfy this prerequisite.

Cafeteria Plan
An employee benefit plan that offers participants a choice between cash and one or more qualified, or tax-favored, benefits. To obtain the benefit of tax-favored treatment, the plan must comply with Internal Revenue Code Section 125. Typical benefits include health insurance, group term life and dental benefits.

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)
The federal law that requires employers with more than 20 employees to extend group health insurance coverage for up to 36 months after a qualifying event (e.g. termination of employment, reduction in hours, divorce). The right to continue such coverage ends when a qualified beneficiary becomes covered under any other group health plan that does not contain any pre-existing condition or other limitations.

Defined Contribution Approach (Health Insurance)
A retiree health program that commits to a specified level of annual contributions to an employee's health care account during his or her working years. The value of the account at retirement is used to provide health care benefits.

Defined Contribution Plan
Defined by the Internal Revenue Code and ERISA as a plan that provides for an individual account for each participant and for benefits based solely on (1) the amount contributed to the participant's account plus (2) any income, expenses, gains and losses, and forfeitures of accounts of other participants that may be allocated to the participant's account. 401(k), 403(b) and 457 plans are defined contribution plans.

Employee Assistance Program (EAP)
An employment-based health service program designed to assist in the identification and resolution of a broad range of employee personal concerns that may affect job performance. These programs deal with situations such as substance abuse, marital problems, family troubles, stress and domestic violence, as well as health education and disease prevention. The assistance may be provided within the organization or by referral to outside resources.

Family and Medical Leave Act of 1993 (FMLA)
Requires employers with more than 50 employees to provide eligible workers with up to 12 weeks of unpaid leave each year for birth, adoptions, foster care placements, and illnesses of employees and their families.

Health Insurance Portability and Accountability Act of 1996 (HIPAA)
Federal legislation that improves access to health insurance when changing jobs by restricting certain preexisting condition limitations, and guarantees availability and renewability of health insurance coverage for all employers, regardless of claims experience or business size.

Health Maintenance Organization (HMO)
Prepaid group health insurance plan which entitles members to services of participating physicians, hospitals, and clinics. Emphasis is on preventative medicine. Members pay a flat periodic fee.

Key Man Insurance
A life insurance policy protecting a corporation or business from the death of a key employee. Key man Insurance is often required by investors in a business where one or a small number of individual employees are key to the success of the venture.

Point of Service (POS)
An option provided by some HMOs that allows covered persons to go outside the plan's provider network for care, but requires they pay higher cost-sharing than they would for network providers.

Preferred Provider Organization (PPO)
A delivery system where providers are under contract to a carrier to provide care at a discount or for a fixed fee, and the carrier provides incentives to patients to use the contracting providers. The PPO does not assume insurance risk, and it does not facilitate the sharing of risk by its covered persons.

Section 125 Plan
A plan in compliance with Section 125 of the IRC, which protects an employee from constructive receipt of the cash he or she has, as a choice of benefits under a cafeteria plan. This means that employee contributions to a Section 125 plan may be made with pre-tax dollars.

Self Funding
When a business funds a benefit plan from its own resources rather than purchasing insurance. The employer assumes the risk of expected claims. With stop-loss insurance, the employer's costs are capped at a certain level. A minimum number of employees is necessary to have an acceptable spread of risk, and cash reserves need to be adequate to meet the up front stop-loss deductible.

Third Party Administrator (TPA)
An organization that performs managerial and clerical functions related to an employee benefit insurance plan by an individual or committee that is not an original party to the benefit plan.

Work Site Products
Supplementary benefits, with premiums paid either by the employer or through payroll deduction, including Cancer insurance, Accidental Death and Dismemberment, Section 125, Hospital Indemnity Plans, Medical Reimbursement Programs, etc.