The process of setting aside a certain portion of a participant's pay to contribute to a company-sponsored qualified retirement plan.

Salary Reduction Agreement

A formal agreement between the employer and employee under which the employee agrees to take a reduction in salary or to forgo a salary increase. Typically the agreement requires the employer to deposit the deferral into a benefit plan, such as a 403(b), 401(k), thrift, or caeteria plan. The agreement may state a specific dollar amount of salary reduction or a percentage of compensation reduction.

Salary Reduction Plan

A plan that enables the employee to defer receipt and taxation of a portion of current compensation.

SARSEP

A salary reduction plan that is available only to companies with 25 or fewer employees. What distinguishes a SARSEP from other SEPs is the opportunity for employees to elect to contribute a portion of their pay on a pretax basis. Under current law, new SARSEPs cannot be established. Those established prior to 1997, however, can continue to be funded.

Savings Incentive Match Plan for Employees (SIMPLE)

An employer-sponsored retirement plan that can be either an IRA for each employee of part of a 401(k) plan. Available to employers with 100 or fewer employees who earn at least $5,000 a year and who have no other qualified plans.

Savings or Thrift Plan

A defined contribution plan in which participants make contributions on a discretionary basis with limits, and to which employers may also contribute, usually on the basis of fully or partially matching participants' contributions. Contributions are commonly made with after-tax earnings.

S Corporation

A closely held corporate entity governed by a distinct and separate set of tax rules and restrictions found in the Internal Revenue Code, resulting in the corporation being taxed like a partnership.

Secondary Market

A market in which an investor purchases an asset from another investor rather than the issuing corporation. An example is the New York Stock Exchange.

Section 501(c)(3)

Nonprofit entities recognized by the Internal Revenue Code that are organized and operated for religious, charitable, scientific, educational, literary, or safety-testing purposes.

Securities

The general term for what the funds that are invested actually buy: shares, bonds, stocks, debentures, etc.

Security Analyst

One who studies various industries and companies and provides research reports and valuation reports.

Security Depository

A physical location or organization where securities certificates are deposited and transferred by bookkeeping entry.

Security Lending

A practice where owners of securities, either directly or indirectly, lend their securities to (primarily) brokerage firms for a fee. The borrower pledges either cash, securities or a letter of credit to protect the lender. Securities are borrowed by cover fails of deliveries or short sales, provide proper denominations, and enable brokerage firms to engage in arbitrage trading activities.

Separate Account

Also called a pooled fund or account. An account established or maintained by an insurance company, that operates apart from and independently of the general assets of the company. These accounts pool the contributions of more than one participant and invest them in securities or an underlying mutual fund.

Share

A unit of ownership in a corporation or a mutual fund.

Short Sale

A market transaction in which an investor sells borrowed securities in anticipation of a price decline. If the seller can buy back that stock later at a lower price, a profit results. If the price rises, however, a loss results.

Simplified Employee Pension (SEP)

A pension plan established by a business on behalf of employees; contributions are deposited into the Individual Retirement Accounts (IRA) of the employees.

Sinking Fund Provision

A means of repaying funds advanced through a bond issue. The issuer makes periodic payments to the trustee, who retires part of the issue by purchasing the bonds in the open market.

Small Cap Stock

The stock of companies whose market value (total number of shares outstanding multiplied by their price) is less than $500 million. Small cap companies grow faster than big cap companies and typically use any profits for expansion rather than for paying big dividends. But they're also more volatile than big cap companies and fail more often.

Soft Dollars

The purchase of research materials from brokerage firms and paid for by commissions (or part of the commissions) generated by securities transactions of trust accounts. Covered by Section 28(e)(1) of the Securities Exchange Act of 1934. Opposed to this is the purchase of materials by "hard dollars", which is when payment is made by the trust department itself, typically by issuing a check.

Sole Proprietorship

A business owned by a single individual.

Standard & Poor's 500 Index

An index of 500 major U.S. corporations. It is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The index tracks industrial, transportation, financial and utility stocks. The composition of the 500 stocks is flexible and the number of issues in each sector vary.

Standardized Plan

A master or prototype plan that provides limited options to be selected by an employer. Generally, most of the plan's terms are predetermined by the sponsoring organization.

Standardized Prototype

An adoption agreement which requires all employees to be covered and which defines compensation as total compensation. A standardized adoption agreement provides fewer options than an non-standardized adoption agreement, but the installation process is often simpler.

Stock

A share in a corporation. When a stock fund invests in a company's shares, it's buying a piece of the company. Also known as equity.

Stock Bonus Plan

A profit sharing plan in which employer contributions generally are made with employer shares. Employee stock ownership plans (SDOPs) and leveraged employee stock ownership plans (LESOPs) are the most common types of stock bonus plans.

Stockbroker

An agent who for commission handles the public's orders to buy and sell securities.

Stock Dividend

A dividend paid in additional shares of stock rather than in cash.

Stockholder's Equity (Book Value)

An indication of how well the firm used reinvested earnings to generate additional earnings.

Stock Split

The division of a company's existing stock into more shares. In a 2-for-1 split, each stockholder would receive an additional share for each share formerly held and the price would be split in half.

Stop-Limit Order

An order placed with a broker to buy or sell at a specified price or better after a given stop price has been reached or passed.

Stop-Loss Order

An order placed with a broker to buy or sell when a certain price is reached; designed to limit an investor's loss on a security position.

Summary Plan Description (SPD)

A detailed, reader-friendly description of benefit plan provisions that must be provided to all plan participants and beneficiaries.