This glossary of business definitions contains over 2,000 business terms used in compensation and benefits administration. Continually updated, this specialized business dictionary focuses on definitions of Human Resources terms and business terms.

Ability to Pay

This term is found in labor negotiations and refers to the ability of an organization to afford a wage or benefit cost increase.

Absolute Assignment

This is when a right to a benefit is transferred from one person to another. (An example is the ownership of a life insurance policy or the right to retirement benefits).

Accelerated Life Insurance Benefits

This is when benefit payments from life insurance or long-term benefit plans are increased to cover expenses for a chronically ill individual.

Accidental Death and Dismemberment

This describes common group benefit plan coverage where insurance pays for a covered individual's permanent disfigurement, loss of a body part, or permanent loss of use of a body part or function of the body, or death.

Accidental Death and Dismemberment (AD&D) Rider

An addition to a Life Insurance Policy, it provides these benefits as a supplement to basic death insurance coverage. Typically, this additional amount is payable only if the insured dies in an accident or loses any two limbs or his/her eyesight in an accident. (Some riders are third party administered).

Accidental Death and Dismemberment Insurance (AD&D)

An insurance plan that provides benefits in the event of loss of life, limbs, or eyesight as the result of an accident. As costed in ERI's Benefit Assessor software (and as sold), it is priced as U.S. cents ($.01) per $1,000 of coverage on a monthly basis.

Accounting Principles Board (APB)

This Board published rules by which United States CPAs conducted their accounting. The Financial Accounting Standards Board (FASB) replaced it in 1974.

Accounting Research Bulletin (ARB)

These were the bulletins published in the U.S. before 1960, which stated the generally accepted accounting principles.

Accrual Basis

In accounting, this is the method where expense items and income are recognized as incurred or earned, even if they have not yet been received or paid. This is also called ACCRUAL METHOD. It is the opposite of CASH BASIS.

Accrual of Benefits

In pension (defined benefit) plans, it is the accumulation and counting of pension credits for years of experience, age, and earnings. In profit sharing plans (defined contribution), it is the vesting of funds accumulated in personal accounts.

Accrual of Vacation Pay

This is the counting of vacation time due. Usually accumulation is by the number of hours or days worked. For example, after two years of service, an employee would have the right to two weeks of paid vacation.

Accrued Liability

The value of a pension plan's promised benefits calculated by an actuary (actuarial valuation), taking into account a set of investment and benefit assumptions to a certain date.

Accumulated Benefit Obligation (ABO)

The value of a Pension Plan's vested and non-vested promised benefits using a formula (or formulae) typically based upon employees' years of service.

Accumulated Cost of Insurance

This basic value reflects the cost of a single payment (premium) at the end of a term necessary to provide benefits to the insured that would have collected during that term.

Accumulated Funding Deficiency

In the United States, this is the amount by which the accumulated promises of a Pension Plan, as compared to the funds available, do not meet certain minimum funding standards.

Accumulated Value

In profit sharing plans, this is the amount of money available in an individual account, including earnings.

Accumulation Option

A life insurance term where dividends are left in a policy so that they can earn tax-free interest. Sometimes called Accumulated Interest Option.

Accumulation Period

A Deferred Annuity period in which premiums are payable.

Acid Test

A ratio used by financial analysts where the available assets (cash, marketable securities, and account receivables) are divided by the current liabilities (Current Assets/Current Liabilities). Also called the Quick Ratio.

Acquisition

When one organization purchases another, with the surviving organization being the purchaser. (As opposed to a Merger, where both organizations might change forms.) Acquisitions may be of two types - purchase of assets or purchase of stock. The latter includes purchase of all liabilities, including retirement and welfare plans. The former often does not include these liabilities (although union fund retirement plan obligations are not escaped with an asset only purchase).

Acquisition Expenses

These are costs associated with and caused by one organization purchasing another. Also called Acquisition Costs.

Across-the-Board Increase

A wage or salary increase where either a flat rate (common number of cents/hour) or a common percentage of salary is used. Also called a General Increase.

Actively at Work Provision

Should an employee's health insurance coverage be scheduled to commence and that employee is absent from work for certain specified reasons, the coverage will not commence until the employee returns to work.

Activities of Daily Living (ADL)

Activities of daily living include getting in and out of bed, dressing, bathing, eating, and generally getting around inside the home.

Actual Hours

The number of hours worked during a pay period, as compared to the scheduled hours.

Actuarial Assumptions

These are assumptions made by actuaries regarding mortality, morbidity, interest, expense and other forecasts. In insurance, they are used to set insurance reserves. In retirement plans, they are used (along with salary levels and turnover) to determine the annual contribution deemed necessary to a pension plan.

Actuarial Cost Method

One of many mathematical approaches by which an actuary determines the annual amount a Pension or Benefit Plan Sponsor should contribute.

Actuarial Department

The department, within an insurance company, that determines the reserves needed for liabilities.

Actuarial Equivalent

An alternative form of a benefit equal in value. For example, a Lump Sum payout of a benefit rather than smaller monthly payments.

Actuarial Valuation

In a pension or a benefit plan trust, this is the total amount needed to meet promised benefits. This set of mathematical procedures typically calculates the value of benefits to be paid, the funds available, the annual contribution required, and the amount of expense that an organization can take on for accounting and tax purposes.

Actuarially Sound

This is a description of when a Voluntary Employee Beneficiary Association Plan (VEBA) or pension plan has the amounts of funds necessary to meet liabilities.

Actuary

In life insurance, this is a professional who calculates mortality rates, morbidity rates, lapse rates, premium rates, policy reserves and other values. In pension work, a professional who applies these and other principles to calculate retirement plan obligations.

ADEA (Age Discrimination in Employment Act)

In the United States, the Age Discrimination in Employment Act of 1967 protects employment rights of individuals age 40 and over. 1978 amendments raised the minimum mandatory retirement age to 70 years of age for most employees.

Adjustable Life Insurance Policy

A variable life insurance contract where a person can change his or her annual premiums and the amount of coverage provided.

Administrative Services Only (ASO)

Common to health welfare plans, where an organization employs an outside organization to provide administrative services for self-funded plans. The ASO Contract or provider provides claim and policy administration, but the purchasing organization retains financial responsibility. ASO providers are also called THIRD-PARTY ADMINISTRATORS.

Administrator

An organization designated under the legal terms of the contract, plan, or trust to operate and direct a Benefit Plan. This is almost always a corporation, rather than an individual or the Plan Sponsor.

Admitted Reinsurer

In the United States, this is a corporation that is licensed to accept reinsurance in a state or territory. Also called an AUTHORIZED REINSURER.

Advance Funding

An organization deposits funds in a plan in advance of the time when funds will be distributed.

Advanced Underwriting Department

This is the insurance industry's misnomer for the main company's home office department that provides technical and marketing assistance to agents in the field.

Adverse Impact

This is where a not obviously discriminatory practice affects a protected group of employees. This term is used in salary administration, retirement, and benefit discrimination tests, as well as in general human resource practices.

Adverse Selection

Occurs when an employee or group of employees purchase or select coverage with a greater than likely loss at the expense of an insurance company (or the organization if it is self-insured). This is also called ANTI-SELECTION.

Affiliated Director

A Board of Directors member who is not a current employee, but who may be either a retired employee or one who does business with the organization on which he/she serves as a member.

Affinity Provider

An Internet term related to the sharing of links. In some cases, two sites link to each other on a reciprocal basis. The term partner is not used.

Age Discrimination

In the United States, an employer is prohibited from treating individuals over age 40 differently because of their age.

Age of Majority

The legal term used for when an individual can enter into and be bound by a legal contract.

Agency

Several definitions: 1) A service or business authorized to act on the behalf of others. (For example, an employment agency that refers employees to organizations for a fee.)(2) A government's administrative section. (3) A legal term describing the relationship between two parties -- a principal and his or her agent, representing the principal in business transactions with a third party.

Agency Agreement

A contract that describes an agent's authority.

Agency System

A distribution system whereby insurance companies use their own commissioned agents to sell and deliver insurance policies. The agency system is the most common system for distributing individual life insurance products and includes the branch office distribution system and the general agency distribution system. Also called the ordinary agency system. See also branch office distribution system, brokerage distribution system, and general agency distribution system.

Agent

An individual who sells insurance policies as either a Direct Writer or Independent Agent. Also services insurance policies for clients.

Agent of Record

The agent or broker who is recognized by the insurer as the person to whom commission is to be paid.

Agent's Statement

The portion of the insurance application in which the agent reports anything he or she knows or suspects about the proposed insured that is not reported by the applicant or proposed insured.

Aggregate Funding Method(s)

A method of accumulation of money for a pension plan, where an actuary determines the present value of all future payments of benefits and deducts from this value any funds that may be on hand with trustee or with the insurance company and distributing the balance as a cost over the future.

Aggregate Mortality Table

A type of mortality table that shows total statistics for the probability of living and dying throughout a person's entire life cycle. It is based on the combined statistics of both the Ultimate Mortality Table and the Select Mortality Table.

Aging Survey Data

The practice of increasing market survey data by an assumed percentage, which is representative of wage movement, to bring the data to a consistent point in time. Also known as 'advancing' or 'trending' the data.

Aleatory Contract

A contract under which one party provides something of value to another party in exchange for a conditional promise. This promise is that the other party will perform a stated act if a specified, uncertain event occurs. Insurance contracts are aleatory (dependent on chance) because the policy owner pays premiums to the insurer, and in return the insurer promises to pay benefits if the event insured against occurs.

Alien Corporation

A company that is incorporated under the laws of another country. Compare to DOMESTIC CORPORATION and FOREIGN CORPORATION.

Alienation of Benefits

The assignment of a plan participant's benefits to an individual other than the participant. In the United States, ERISA generally prohibits such alienation of benefits, although exceptions to this rule exist and include the use of a participant's vested benefit as collateral for a loan. The ERISA prohibition on alienation of benefits prevents creditors from attaching an individual's pension benefits.

All-Causes Deductible

In the context of health insurance, this is a deductible that must only be satisfied once during a given period of time. If the period of time is a calendar year, as it usually is, then this type of deductible is known as a calendar year deductible. Contrast with a PER CAUSE DEDUCTIBLE.

Allocated Funding

A method of funding a pension plan whereby a portion of the total plan funds is allocated to each participant. This type of funding is often achieved through the purchase of annuities or insurance contracts for each participant. Contrast with unallocated funding.

Allowance Supplemental

Payments such as those for hardship, relocation, or the education of dependent children. It is distinguished from differential, which is a payment to offset differences in costs between the home and assignment locations.

All-Salaried Work Force

A pay policy that makes exempt/nonexempt status 'invisible' to workers. Under this policy, all employees are paid on a salaried basis and all pay is defined in the same terms, such as a monthly or annual salary.

Alternative Minimum Tax (AMT)

This is an IRS mechanism created to ensure that corporations, trusts, high-income individuals, and estates all pay at least some minimum amount of tax, regardless of deductions, exemptions or credits. The AMT is triggered when there are large numbers of personal exemptions on state and local taxes paid, by Incentive Stock Option (ISO) plans, or large numbers of miscellaneous itemized deductions or medical expenses.

American Council of Life Insurance (ACLI)

An organization that collects and disseminates data on life insurance markets in the United States.

American Stock Exchange (AMEX)

An organization overseeing the buying and selling of publicly owned shares of stock listed on the exchange.

Americans With Disabilities Act of 1990 (ADA)

This law creates non-discrimination protection for people with disabilities, similar to the Title VII of the Civil Rights Act of 1964 extended to other minorities. Under the law, employers may not refuse to hire a person due to his or her disability.

American-Style Option

A stock option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American-Style options vs. European-style options, which may only be exercised during a specified period of time just prior to expiration.

Amortization

1) The gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time. Such payments must be sufficient to cover both principal and interest. 2) Writing off an intangible asset investment over the projected life of the assets.

Amortization Basis

The process of paying off an interest-bearing liability through a series of installment payments.

Anniversary Date

Several definitions: 1) The date used by insurance companies for the purpose of determining the experience rating for the completed accounting period and establishing the premium rates for the next period. (2) The date used in some pay systems to trigger a raise.

Anniversary Year

The 12-month period following an employee's date of hire or date of re-employment (after a one-year break in service), and each succeeding 12-month period.

Annual Benefits Statements Under The Employee Retirement Income Security Act of 1974 (ERISA)

Employers are required to provide participants in qualified plans specific information about the status of their projected pension income or account balances.

Annual Bonus

Usually a lump-sum payment (cash, shares, etc.) made once a year in addition to an employee's normal salary or wage for a fiscal or calendar year. Generally nondiscretionary and not based on predetermined performance criteria or standards.

Annual Bonus Plans

A plan in which each year, usually at the end of the year, employees become eligible for an additional amount of money or other reward.

Annual Budget

A 12-month operating budget ending on the last day of the calendar year (i.e. December 31 of that year).

Annual Incentive

Usually a lump-sum payment (cash or stock) made in addition to an employee's normal pay for a fiscal or calendar year, based on performance (individual, business unit and/or company). May also be called an annual bonus.

Annual Information Return

In Canada, a report containing financial and other information that pension plans must file annually with the appropriate provincial or federal government.

Annual Lease Valuation Automobiles

Enables Employers, in a number of ways, to determine the value of a worker's personal use of a company car.

Annual Renewable Term Life Insurance (ARTLI)

Life insurance that allows an individual to continue the coverage at the end of the year for a specified number of years. This coverage is also called YEARLY RENEWABLE TERM INSURANCE (YRT).

Annual Report Form 5500

In the United States, a detailed report of membership and financial information pertaining to the operation of a pension plan. This report must be filed annually with the Internal Revenue Service.

Annual Statement

An accounting report that insurers must file each year with the appropriate regulatory agency. This report contains detailed accounting and statistical data that regulators use to evaluate a life and health insurance company's solvency and its compliance with insurance laws.

Annualized Increase Percent (also, Equivalent Annual Percent Increase)

Salary increase that is expressed as an annual rate of increase, calculated by dividing the number of months since the last increase (the dominator) into 12 (the numerator) and multiplying the result by the increase percent.

Annually Renewable Term (ART) Insurance

See yearly renewable term (YRT) insurance.

Annuities and Annuity Contracts

An annuity is a contract for the payment of specified or objectively determinable periodic payments over a specified period of time or over the lifetime of the recipient.

Annuity Mortality Table

A calculation of probability of dying at each age. Used by actuaries to calculate premiums and reserves for annuities in which benefits are paid only if a designated person is alive. Annuity mortality tables usually project lower rates of mortality than do mortality tables that are used for life insurance. See also MORTALITY TABLES.

Anti-Selection

Occurs when an employee or group of employees purchase or select coverages with a greater than likely loss at the expense of an insurance company (or the organization if it is self-insured). This is also called Adverse Selection.

Apparent Authority

When a principal (client who hires an agent) suggests to a third party that the agent may act on the principal's behalf. The third party believes in the authority of the agent, but that authority was not expressly conferred; it is implied.

Applicant

The employee or individual applying for benefit coverage.

Application

A paper or electronic form that must be completed by an employee who desires a certain benefit. Information provided by the individual allows the insurance carrier or employing organization the information necessary to enroll (or not enroll) the individual.

Approval Type Temporary Insurance Agreement

An agreement issued along with a conditional premium receipt that provides temporary life insurance coverage as of the date the insurer approves the proposed insured as a standard risk. See also insurability conditional premium receipt and temporary insurance agreements. Compare to insurability type temporary insurance agreement.

Arbitration

For collectively bargained single employer plans, the bargaining agreement's grievance and arbitration procedure may double as a claims procedure.

Area Differential

Several definitions: 1) Allowance paid to compensate expatriate employees for medium-term cultural and hardship factors present in his or her country of assignment as compared to the base country. (This is also known as a hardship allowance.) (2) Allowance paid to domestic employees in some geographic areas, which is based on different average pay levels and or cost of living.

Area Wage Surveys

These are standard survey formats used across geographic boundaries so that consistent reporting can illustrate the same jobs and their different pay in various geographic areas.

Arithmetic Mean

Arithmetic Mean (as defined by the U.S. DOL) is the rate of wages to be determined, to the extent feasible, by adding the wages paid to workers similarly employed in the area of intended employment and dividing the total by the number of such workers. This computation usually produces a Weighted Average.

Assessment Method

An early method of funding life insurance where members of the plan were charged in advance for the amount of money that the administrators estimated would be needed to pay each year's death claims. Also called the pre-death assessment method.

Assessor Series

Geographic, Salary, Benefit, Relocation and Executive Compensation software and databases designed to assist the compensation and benefits analyst and manager with his/her research.

Asset

An asset is anything of value that is owned by an organization or an individual. Examples are cash, computer equipment, and investments. Assets can be any percentage of real property or of personal property that can be liquidated in order to pay debts. Assets are shown on the balance sheet of a company's Annual Statement.

Asset Investment Performance

The periodic review of the actions of the asset manager(s) who are investing a qualified pension plan's assets. The plan administrators of such plans have a fiduciary responsibility to conduct this review regularly.

Asset Sale

A transaction whereby the purchaser only acquires title to certain identified assets and or liabilities of the seller, with no obligation for any non-identified liabilities or assets. (A buyer may, for example, acquire only one line of product from a seller.)

Asset Share Calculation

A method of calculating that imitates the way in which the assets of a particular block of policies should grow, depending on certain assumptions about future interest rates, morbidity, mortality, expenses and so on.

Asset-Liability Matching

The process of investing, purchasing, selling and otherwise adjusting an insurance company's asset holdings so that cash is available when it is needed to cover the company's liabilities.

Assignee

The party to whom all or certain contractual rights are transferred under an absolute or collateral assignment.

Assignment

Several definitions: 1) The transfer of ownership rights in a life insurance policy or other type of contract from one party to another. (2) The document that causes the transfer of ownership rights to go into effect. See also ABSOLUATE ASSIGNMENT and COLLATERAL ASSIGNMENT.

Assignment Location

The country in which an expatriate lives and works during an assignment.

Assignment of Benefits

An authorization directing an insurer to make payment directly to a provider of benefits, such as a physician or dentist, rather than to the insured.

Assignor

The person or party who transfers certain contractual rights under an absolute or collateral assignment.

Association Organization Insurance

Organization insurance extended to the members of a trade, professional, or other association.

Assumption Reinsurance

A reinsurance agreement by which one company permanently transfers (cedes) full responsibility for a block of policies to another company. After the cession, the ceding company is no longer a party to the insurance agreement.

Attained Age

The current age of the insured. Also refers to the age of the insured at the time the insured's policy was issued, plus the number of years elapsed since the policy was issued.

Attained Age Conversion

The changing of a life insurance policy from one form of insurance to another (such as from term life insurance to whole life insurance) at a premium rate that is based on the age the insured person has reached at the time the change takes place.

Attendance Bonus

Attendance Bonuses are provided to employees who have maintained perfect attendance for a period of time, typically a full quarter or year. These bonuses are usually provided in the form of a flat cash amount, additional paid time off, or gift awards upon completion of the period of perfect attendance.

Attending Physician's Statement (APS)

A written statement from a physician who has treated, or is currently treating, a proposed insured or an insured for one or more conditions. The statement provides the insurance company with information relevant to underwriting a risk or settling a claim.

Authorized Reinsurer

In the United States, this is a corporation that is licensed to accept reinsurance in a state or territory. They are often also called an Admitted Reinsurer.

Automatic Dividend Option

For a specific life insurance policy, this is the dividend option that applies in the event that the policy owner does not choose an option. See DIVIDEND OPTIONS.

Automatic Nonforfeiture Option

For a specific life insurance policy, a specified nonforfeiture benefit that automatically becomes effective when a renewal premium is not paid by the end of the grace period and the policy owner has not elected another nonforfeiture option. See also nonforfeiture options.

Automatic Premium Loan (APL)

A life insurance nonforfeiture option that allows the insurer to pay overdue premiums on a policy by establishing a loan against the policy's cash value. See also NONFORFEITURE OPTIONS.

Automatic Reinsurance Treaty

A reinsurance agreement in which the reinsurer agrees, for a stipulated type of risk, to accept each risk or a portion of each risk submitted by the ceding company, up to a certain limit, provided the ceding company insures up to its usual retention limit. In this agreement, the ceding company assumes full underwriting responsibility for all cases reinsured.

Automatic Wage Adjustment

Automatically increasing or decreasing wages according to a specific plan formula.

Automatic Wage Progression

Automatically increasing wages after specified periods of service, until the employee reaches the top of his or her salary range. Automatic wage progression often is achieved through an automatic step-rate pay system.

Automobile Benefits

An allowance to an employee for the use of his/her own automobile, which may or may not be taxable.

Automobile Insurance

Companies that maintain a fleet of cars for the use of employees who require transportation for business purposes may purchase insurance for automobiles and drivers of the automobiles.

Average

The average is the result of dividing the sum of two or more quantities by the number of quantities. Example: (a + b + c)/3 = the average. See also mean.

Average Frequency (Of Salary Increases)

Normally calculated on a department-wide or company-wide basis. It is determined by summing up the months between increases granted for the employee groups and dividing by the number of increases and employees.

Average Hourly Earnings

Hourly pay determined by dividing hours worked per period into the total wages earned for that period.

Average Indexed Monthly Earnings

In the United States, this is the figure on which social security disability, retirement and other benefits are based. The figure is an average of the monthly earnings on which a worker has paid Social Security tax. The figure is indexed, that is, adjusted to compensate for inflation.

Average Percent Increase

Calculated by dividing the sum of salary increase amounts for all eligible employees by the eligible payroll. Both the numerator and the denominator include those who were eligible and participated but received no increase.

Average Straight-Time Hourly Earnings

Hourly pay determined by dividing the hours worked per period into the total straight-time earnings for the period (excluding overtime).

Awards

Awards, prizes and gifts are a traditional way for employers to recognize and reward employees for their contributions to the company. Such contributions may comprise long years of service, a cost-saving suggestion, a good safety record, or outstanding performance.