Certain tax terms are used in this section that may not be defined elsewhere. They are provided below along with the meaning.
Defined by the Internal Revenue Code (Section 125) as a plan that permits the participants to choose between two or more benefits consisting of cash and qualified benefits. Some examples of qualified benefits include health insurance, life insurance, dependent care, etc. Benefits taken as cash are taxable to the member. Qualified benefits reduce the Social Security wages, Medicare wages and the W-2 taxable wages.
A plan where employees can accumulate money on a tax-deferred basis. Such plans for government employees are authorized by Section 457 of the Internal Revenue Code. These plans are not qualified pension plans, and therefore have different rules than qualified pension plans. ICMA and Nationwide are two of many deferred compensation plan providers.
A plan that meets the requirements of Section 401 of the Internal Revenue Code. Such plans receive tax advantages, e.g., the tax deferral of member contributions. IMRF, State Teachers' Retirement System, and police and fire pension plans are examples of qualified pension plans.
This describes special regulations under Internal Revenue Code Section 403(b) wherein employees of certain institutions (schools and hospitals) may reduce their taxable income by permitting the employer to pay part of their earnings into a deferred annuity.