SVIA

Glossary

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Default Risk

See credit risk.

Deferred Compensation Plan

An Internal Revenue Code Section 457(b) defined contribution plan (often for employees of states and local governments), also known as an “eligible” deferred compensation plan. The term may also generically refer to a non-qualified employee benefit plan sponsored by a private sector employer that is subject to Internal Revenue Code Section 409A.

Defined Benefit Plan

A tax-qualified pension plan that provides for the payment of a retirement benefit, according to a specified formula, usually reflecting years of employment service and salary. Required contributions by the plan sponsor are usually actuarially determined. The plan sponsor makes all investment decisions and is responsible for the funding adequacy of the plan.

Defined Contribution Plan

A tax-qualified retirement plan under which the amount of the participant's benefit will vary depending upon the amount of employer (or plan sponsor) and/or employee contributions made to the participant's account and the investment earnings or losses thereon. Most defined contribution plans that include employee contributions (e.g., 401(k) plans) permit participants to direct the investment of their accounts.

Department of Labor (DOL)

A federal agency created in 1913 to advance workers' welfare, working conditions, and, in general, employment opportunities. A division of the DOL, the Employee Benefits Security Administration (EBSA) is responsible for the interpretation and enforcement of ERISA, e.g., regulating fiduciary standards for pension plans and plan reporting on Form 5500.

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Diversification

The use of a variety of investments in an effort to reduce risk exposures.

Downgrade

See credit quality downgrade.

Duration

A measure of the price sensitivity of a financial instrument or investment portfolio due to changes in interest rates, expressed in years, and calculated as the time-weighted present value of cash flows.