A parent-subsidiary relationship consists of a parent organization and one or more subsidiary organizations. In a parent-subsidiary relationship, at least 80% of each company's stock is owned by one or more other companies, and the parent company owns at least 80% of at least one company. Parent-subsidiary relationships may be found in a series of related companies, in a pyramidal structure or in a combination of these relationships.

Participant

An employee (or former employee) eligible to receive benefits, or whose beneficiaries may receive benefits, from a qualified retirement plan.

Participant Contributions

The dollars that employees contribute to their 401(k) plans.

Participant-Directed Investing

In this case, the employee decides how to invest his or her funds. It is the company's responsibility to offer a variety of investment opportunities so that the employee can make investments according to his or her long term goals and risk.

Participant-Directed Plan

A defined contribution plan in which each participant is allowed to choose how to invest the assets held in his or her account.

Partnership

An unincorporated business with two or more owners.

Party in Interest

Per the Department of Labor, any person or entity prohibited by ERISA from entering into certain transactions with a qualified plan, unless the transaction is permitted by a statutory or administrative exemption.

Par Value (bond)

The face value of a bond, generally $1,000 for corporate issues, with higher denominations for many government issues.

Payout Ratio

Dividends per share divided by earnings per share. Provides an indication of how well earnings support the dividend payments. The lower the ratio, the more secure the dividend.

PBGC

Pension Benefit Guarantee Corp. The PBGC is a guarantee fund, established by ERISA, which covers all defined benefit pension plans. Companies with a defined benefit plan must pay premiums into this fund according to the number of employees in the plan and the current ratio of assets to liabilities in the plan.

Pension Plan

There are two types of pension plans: defined benefit pension plans and defined contribution pension plans. A defined benefit plan is a qualified retirement plan that provides a specified retirement benefit to participants. A defined contribution pension plan is a qualified retirement plan that usually provides for periodic contributions specified in a written formula and an unspecified retirement benefit equal to the value of the participant's account balance at retirement.

Plan Administrator

A person specifically designated by the qualified retirement plan as the administrator: 1) by name, 2) by reference to the person or group holding a named position, 3) by reference to a procedure for designating an administrator, or 4) by reference to the person or group charged with the specific responsibilities of plan administrator. If no person or group is designated, the employer is the administrator.

Plan Document

Mandatory, legal instrument used to administer a plan. Normally contains a description of requirements for eligibility, rights of participants, provisions for amendment and termination of the plan and employer and employee contributions.

Plan Document : Custom

This document allows employers to choose specific provisions for their retirement plan. The IRS requires an extensive submission package. These documents are the most costly.

Plan Document : Non-Standard

Plan document that requires filing and approval by the IRS relative to minor exceptions to the typical prototype. It has been pre-approved for document language only and allows greater flexibility in plan design.

Plan Document: Prototype

IRS pre-approved standard plan document. Upon signature this becomes a legal document with all provisions chosen. Standardized documents require no further correspondence with the IRS unless the Plan Sponsor has previously maintained another qualified plan.

Plan Sponsor

The entity sponsoring the plan. Generally the Plan Sponsor and the employer are the same.

Plan Year

Any 12-month period during which the plan chooses to keep its records. In most cases, this period will be either the calendar year or the fiscal year of the plan sponsor.

Pooled Trust

A trust sponsored by one employer to combine and accumulate the assets of different plans of the employer and its subsidiaries.

Portfolio

The group of individual securities held by a person or an institution.

Premium Bond

A bond that is valued at more than its face amount.

Present Value

The value today of a future payment, or stream of payments, discounted at some appropriate interest rate.

Price-Earnings Ratio (P/E)

Market price per share divided by the firm's earnings per share. A measure of how the market currently values the firm's earnings growth and risk prospects.

Price-to-Book Ratio

Market price per share divided by book value (tangible assets less all liabilities) per share. A measure of stock valuation relative to net assets. A high ratio might imply an overvalued situation; a low ratio might indicate an overlooked stock.

Principal

The original amount of money invested or lent, as distinguished from all profits or interest earned on that money.

Profit Margin

Net earnings after taxes divided by sales. Measures the ability of a firm to generate earnings from sales.

Profit Sharing Plan

A defined contribution pension plan that uses a variable level of contributions based on company profits. Profit sharing plans allow firms to limit allocations to a pension fund in lean years. However, they suffer from lower maximum deduction limits than standard plans.

Program Trading

Computer-based trigger points are established in which large volume trades are indicated. The technique is used by institutional investors.

Prohibited Transaction

Generally, any direct or indirect dealing or transaction between a qualified plan or IRA and a disqualified person or party in interest.

Projected Benefit Method

A method for calculating and funding a defined benefit plan that looks ahead to each participant's retirement date, projects the benefit the plan must pay at that point, and amortizes the total cost of all benefits over the intervening years.

Prospectus

The written statement that discloses the terms of a securities offering or a mutual fund. Strict rules govern the information that must be disclosed to investors in the prospectus. You should always read the prospectus on any mutual fund before investing.

Prototype Plan

A plan made available by a sponsoring organization for adoption by employers; like a master plan, it consists of a basic plan document and an adoption agreement. Unlike a master plan, a separate funding medium is available to each adopting employer, and plan administration is the responsibility of the adopting employer.

Prudent Investor Rule

The latest development is evaluating fiduciary prudence. The current (1992) Model Uniform Act differs from the traditional Prudent Man Rule in that it indicates that: (1) no asset is automatically imprudent, but must be suitable to the needs of the beneficiaries, (2) the entire portfolio is viewed when evaluating the prudence of a fiduciary, and (3) certain actions can be delegated to other agents and fiduciaries. ERISA [ 404(a)(1)(c)] generally follows the approach of the Prudent Investor Rule.

Prudent Man Rule

A rule originally stated in 1830 by the Supreme Judicial Court of Massachusetts in Harvard College v. Amory [9 Pick. (Mass.) 446], that, in investing, all that can be required of a trustee is that he conduct himself faithfully and exercise a sound discretion and observe how men of prudence, discretion, and intelligence manage their own affairs not in regard to speculation, but in regard to the permanent disposition of their funds considering the probable income as well as the probable safety of the capital to be invested. The current (1959) model uniform rule categorizes certain types of assets as automatically imprudent, looks at each investment separately in determining prudence, and prohibits the delegation of responsibilities. Most states have adopted the Rule as a part of state fiduciary law, usually with certain different specifics from state to state.

Put Option

The right to sell stock at a specified (exercise) price within a specified period of time.