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Glossary |
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401(k) Plan
A tax-qualified plan regulated by the IRS and sponsored by your employer that lets you invest regularly on a pre-tax basis. The money you set aside in a 401(k) plan reduces your wages for federal (and usually state) income tax purposes. Your pre-tax savings become taxable when they are removed from the plan and are paid to you.
Balanced Fund
A fund that invests in a mix of common stocks and income-producing securities such as bonds. A balanced fund can offer a higher return than a pure stock fund when stock prices decline. In a rising market, however, a balanced fund may not keep pace with a fund that is invested in a higher percentage of common stocks.
Bond
A bond is basically an "IOU" promissory note of a corporation or government. A bond is evidence of a debt on which the issuer usually promises to pay the bondholder a specific amount of interest for a specific length of time and to repay the loan on the maturity date.
Capital
Any form of wealth (money, personal property, real estate, stocks, bonds, etc.) that is available to be used to create even more wealth.
Collective Trust Fund
A fund that works much like a mutual fund but does not have many of the regulatory requirements that apply to mutual funds. As a result, it often has lower operating expenses but still offers portfolio diversification, professional management, and investment flexibility.
Common Stock
Shares of ownership in a corporation.
Compounding
A process whereby the value of an investment increases exponentially over time due to compound interest.
Conduit IRA
While retirement funds are being rolled over from one qualified plan to another, a conduit IRA is used to temporarily hold the transferring funds.
Diversification
Mixing a wide variety of investments to reduce the impact of any one investment on the value of your savings.
Dividend
In relationship to stocks, the earnings of a corporation that are passed along to shareholders.
The amount per share is determined by the Board of Directors and is normally paid quarterly. In relationship to the Alcoa Stock Fund, which has been established as an employee stock ownership plan under the U.S. Internal Revenue Code, participants may choose to receive an annual payment of dividends. Dividends are paid directly to the trust.
For mutual or collective trust funds in the plan, dividends are paid out of the income received from the funds' investments and are usually reinvested in these funds.
Eligible Earnings
Your contributions to the Savings Plan are based on a percentage of your eligible earnings, which include your regular base wages (either salary or regular hourly wages, which, for hourly, include the straight-time portion of overtime) and if applicable, cash COLA, regular vacation pay, witness pay, holiday pay (for a holiday not worked), bereavement pay, schedule premium, shift premium, jury pay, job upgrades, income and wage adjustments, reporting pay, and call-out pay. If you receive commission payments, those will be considered as well. For the purposes of the plans, eligible earnings will not include any amounts in excess of IRS limits.
In addition to the above definition, eligible earnings for purposes of crediting employer retirement income contributions will include any variable compensation awards or incentive compensation payable to an eligible participant.
Equity
Another term for a stock or a mutual fund made up of stocks. Equity can also mean ownership.
Equity Index Fund
A passively managed fund that seeks to mirror stock market performance as a whole by holding common stocks identical to those in a specific index, such as the S&P 500
ERISA
The Employee Retirement Income Security Act of 1974, as amended, a federal law that governs employee benefit plans.
Global Equity Fund
A fund that seeks capital appreciation by investing in both U.S. and non-U.S. stocks. Currency fluctuations add risk to the global portfolio.
Income Fund
A fund that principally seeks high current income by investing in government and/or corporate bonds and, in some cases, income-producing stocks.
Inflation
An increase in what it costs to purchase goods and services. Typically, the inflation rate is expressed as a percentage and is measured over a finite period - usually a month or a year.
Interest
The cost of using money, usually paid by the one who borrows the money to the one who lends it. Interest is typically expressed as a percentage of the principal amount of the loan for a period of one year.
International Fund
A fund that seeks capital appreciation by investing primarily in non-U.S. stocks. Currency fluctuations and political developments could add risk to the portfolio.
IRA
Individual Retirement Account. A tax-deferred retirement account for an individual that permits him or her to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 ½ or later (or earlier, with a 10% penalty). The exact amount depends on the year and your age. IRAs can be established at a bank, mutual fund, or brokerage. Only those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make contributions to an IRA on a non-deductible basis.
Large Company Fund
A fund that generally seeks growth of capital by investing primarily in common stocks of large, well-established companies with a longer track record (capitalization typically over $5 billion).
Market Risk
The chance that the value of investments will go up or down over time.
Mid-Size Company Fund
A fund that seeks growth in capital over time by investing in companies having market capitalization of $1 billion to $5 billion.
Mutual Fund
A fund that offers shares in its managed portfolio of securities to investors. Your money is pooled together with that of other participants in the fund. The portfolio's investments match the objectives stated in the fund's prospectus and are usually invested in stocks and/or bonds.
Net Asset Value (NAV)
The price or market value of an individual share of a mutual or collective trust fund.
Portfolio
An investor's or fund's total holdings in stocks, bonds, cash, real estate, and other investments. Investors may establish portfolios to reduce risk through diversification.
Prime Interest Rate
The interest rate banks charge to their largest corporate clients, determined as of the first business day of each calendar quarter. It is usually the most favorable interest rate a bank offers.
Principal
The amount originally invested, not counting interest or dividends.
Prospectus
A disclosure statement required by the Securities and Exchange Commission (SEC) for mutual funds and company stocks and bonds. You are strongly encouraged to read a fund's prospectus before you invest in it.
Qualified Plan
The Alcoa Savings Plan is qualified under ERISA, meaning that your savings and employer contributions are set aside in a separate account in your name. These accounts are administered by a trustee, subject to independent audit, and treated tax-favorably by the IRS.
Rate of Return
The amount an investment changes in value (gains or losses) over a period of time, expressed as a percentage of the investment.
Rollover
A tax-free reinvestment of a distribution from a qualified retirement plan into an IRA or other qualified plan within a specific time frame, usually 60 days. These transfers can happen when leaving a job at an employer that offered a retirement plan such as a 401(k) plan. The company can issue a check for the amount minus 20% in withheld taxes. To avoid this penalty, the rollover must be done trustee to trustee, meaning that the check is made out to the new trustee or custodian of the rollover IRA. The company will provide the check and the participant must deposit the check into the new account within 60 days.
Short-Term Bond Fund
A fund that seeks income by investing in shorter maturity bonds. The income it generates will usually be lower than that offered by longer maturity bond funds. Short-term bond fund portfolios typically have an average maturity of up to three years.
Small Company Fund
A fund that generally seeks long-term growth by investing in companies with market capitalization under $1 billion. Sometimes the fund's managers use more aggressive investment techniques that involve greater than average share price volatility. This means small company funds can be subject to the greatest price fluctuations but also can provide the greatest potential return over the long term. This fund type is typically called an aggressive growth or value fund.
Stable Value Investments
Investments that are designed to protect principal savings (the initial amount saved) while providing a steady rate of return. Stable value investments are considered less risky than stocks or bonds.
Stocks
Stocks are the most aggressive type of investment. While they are high risk, they also have a high potential for return. The stock funds in the Alcoa Savings Plan represent a variety of investing styles and risks. You can invest in a fund that focuses on small, medium, or large corporations. You can invest in an international, global, or emerging markets fund.
Vesting
Vesting refers to the portion of your account that belongs to you and is "non-forfeitable". Whatever you contribute to the Savings Plan is always yours. In other words, you have a non-forfeitable right to your own contributions, including any rollover contributions, and any investment earnings or loss on them.
Volatility
The ups and downs of the value of an investment. Stock investments tend to have higher volatility than bond or stable value investments
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