Glossary of Pension Terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

ACCRUED PENSION - amount of pension credited to a plan member according to service, earnings, etc., up to a given date.

ACTUARY - a professional in the pension and insurance fields responsible for calculating risks and premiums. In Canada, full professional recognition requires membership in the Canadian Institute of Actuaries.

ADDITIONAL VOLUNTARY CONTRIBUTIONS - contributions to a plan made voluntarily by an employee in addition to those contributions required to be made to attain a pension. Extra benefits may be purchased by additional contributions but no additional cost is borne by the employer. Additional voluntary contributions are not locked-in by legislation.

AD HOC ADJUSTMENT - amount added to a pension after retirement or termination to compensate for increases in the cost of living on an irregular basis and not as a result of a prior commitment or contract.

ADMINISTRATOR - the person or persons who administer the pension plan, i.e., who arrange for pension payments, funding of the plan, etc. For most plans, the employer is responsible for administration (although the employer may hire a third party to administer the plan on its behalf). Some plans are administered by a board of trustees or similar body.

ANCILLARY BENEFITS - benefits in addition to regular pension benefits and survivor benefits, such as bridging benefits and enriched early retirement benefits.

ANNUITY - periodic payments (usually monthly) provided by the terms of a contract for the lifetime of an individual (the annuitant) or the individual and his or her designated beneficiary. An annuity may be a fixed or varying amount, and may continue to be paid for a period after the annuitant's death.

ASSET MIX - refers to the proportions of various types of investments held by a pension fund, usually expressed as a percentage of total investments held in bonds, stocks, real estate, etc.

TOP OF PAGE

BENEFICIARY - a person who on the death of a plan member or former member, may become entitled to a benefit under the plan.

BENEFIT - generally, any form of payment to which a person may become entitled under the terms of a plan, but often refers specifically to the pension normally provided by the plan formula.

BENEFIT FORMULA - provision in a pension plan for calculating a member's defined benefit according to years of service and earnings, fixed dollar amount, etc.

BEST FIVE-YEAR AVERAGE - a benefit formula that determines the amount of a member's pension by applying the member's average earnings during the five years when earnings were highest.

BRIDGING BENEFITS - a temporary benefit provided to members who retire prior to the age when CPP benefits are normally payable (age 65) in order to supplement pension income until the CPP benefits are payable.

TOP OF PAGE

CAREER AVERAGE PLAN - a defined benefit plan that applies the unit of benefit to earnings of the member in each year of service, and not to the final or final average earnings.

COMMUTED VALUE - the amount of a lump sum payment payable today estimated to be equal in value to a future series of payments.

CONTINUOUS SERVICE OR MEMBERSHIP OR EMPLOYMENT - period during which an employee is continuously employed by the same employer or continuously participates in his or her employer's pension plan, including periods of temporary absence or suspension or periods of layoff. To be distinguished from credited service.

CONTRIBUTORY PLAN - a pension plan which requires the employees to make contributions by payroll deduction in order to qualify for benefits under the plan.

CREDITED SERVICE - length of service used in the plan formula to calculate a defined benefit.

TOP OF PAGE

DEFERRED MEMBERS - terminated employees who are eligible for a deferred vested pension. Considered by legislation to be former members.

DEFERRED VESTED PENSION - a specified pension determined at the time of termination of employment or termination of a plan but not payable until some later date.

DEFINED BENEFIT PLAN - a pension plan that defines the pension to be provided (based on service, average earnings, etc.) but not the total contributions. If the plan is contributory, the rate of employee contributions may be specified, with the employer paying the balance of the cost. To be distinguished from a defined contribution plan.

DEFINED CONTRIBUTION PLAN - a plan under which the amount of the employer contribution per plan member and, where applicable, the amount of the employee contribution is specified in advance and the benefits to be received by the pensioner is calculated at the date of retirement based on the accumulated contributions and the return on the investment of the contributions. 

DIVISION OF PENSION CREDITS - also known as "credit splitting", a provision in a pension plan or pension legislation whereby one spouse on spousal relationship breakdown, may obtain a share of pension credits earned by the other partner during the spousal relationship.

TOP OF PAGE

ELIGIBILITY REQUIREMENT - a condition such as length of service that must be met before an employee is permitted or required to join a pension plan. Term may refer to the eligibility for certain benefits.

EMPLOYEE - means an individual, employed to do work or to provide a service, who is in receipt of or entitled to remuneration for the work or service.

EMPLOYER - refers to the person or organization from whom an employee receives remuneration, and includes any or all of the employers that are required to contribute to a specified multi-employer pension plan.

EMPLOYMENT PENSION PLAN - a pension plan offered by an employer or supported by a group of employers for the benefit of employees. The term includes plans covering employees of governments and the private sector, but does not include the Canada Pension Plan or other public programs.

ENRICHED EARLY RETIREMENT BENEFITS - a pension paid on retirement prior to the normal retirement date, which is not reduced to the extent it should be to fully account for the longer period of time over which the pension is likely to be paid.

TOP OF PAGE

FINAL PAY PLAN - a term commonly used for a pension plan in which benefits are based on earnings in a member's last years of service.

FLAT BENEFIT PLAN - a defined benefit plan that specifies a dollar amount of pension to be credited for each year of service.

FORMER MEMBER - means a person whose membership in a plan has terminated and who retains a present or future entitlement to a benefit pursuant to a plan. A pensioner would be considered a former member, as would a person who is entitled to a deferred vested pension. However, a person who transferred pension money to a Locked-in Retirement Account is not a former member because he or she no longer retains an entitlement under the plan.

FULLY FUNDED - a term describing a plan which, at a given time, has sufficient assets to provide for all accrued benefits.

FUNDING - systematic monthly payments into a pension fund which, with investment earnings on these funds, are intended to provide for benefits as they become payable.

TOP OF PAGE

GUARANTEED ANNUITY - an annuity which will be paid for the lifetime of a person or for a certain period whichever is longer, but in any event for a minimum period, e.g., if an annuitant with a five year guarantee dies after three years, payment will be continued to a beneficiary or the estate for two years.

TOP OF PAGE

INDEXING - a provision in a pension plan calling for periodic adjustments to benefits (usually after retirement) according to a formula based on a recognized index of price or wage levels such as the Consumer Price Index.

INVESTMENT MANAGERS - plan sponsors frequently are assisted by investment managers who help them decide how the pension funds should be invested. These managers are supervised by the plan sponsor.

INVESTMENT RETURN - earnings of a pension fund including interest, dividends, and capital gains and losses.

TOP OF PAGE

JOINT AND SURVIVOR PENSION OR ANNUITY - an annuity payable until the death of the retired employee, and continuing thereafter to the surviving spouse until that person's death. Required to be provided as an option at time of retirement.

LOCKING IN - legislative requirement that pension benefits cannot be withdrawn or otherwise forfeited on termination of employment if the employee is vested.

LOCKED-IN RRSP - see Locked-in Retirement Account

LOCKED-IN RETIREMENT ACCOUNT (LIRA) - an RRSP upon which certain contractual conditions have been placed. The key conditions include:

• money must be locked-in and must be used to provide a pension;
• non-assignable and exempt from seizure;
• pension payable at age 55 or an earlier date if permitted by the pension plan from which the money was transferred;

TOP OF PAGE

MEMBER - an employee on whose behalf an employer is required to make contributions to a pension plan and who has not terminated his or her membership or commenced his or her pension.

MONEY PURCHASE PLAN - see Defined Contribution Plan.

TOP OF PAGE

NEGOTIATED COST DEFINED BENEFIT PLAN - a defined benefit plan in which employer contributions are fixed (usually by negotiations) and benefits are not guaranteed.

NON-CONTRIBUTORY PLAN - a pension plan in which all required contributions are made by the employer.

NORMAL RETIREMENT DATE - the date at which the member becomes entitled to retirement benefits without reduction or increase.

TOP OF PAGE

PENSION - generally any periodic payment payable for the lifetime of a person who has become entitled to such a benefit pursuant to the terms of a pension plan.

PENSION BENEFITS ACT, 1992 - Saskatchewan's legislation regulating employment pension plans.

PENSION PLAN - a plan, scheme or arrangement organized and administered to provide pensions for members and former members pursuant to which an employer is required to make contributions.

PLAN SPONSOR - refers to the employer sponsoring the pension plan for employees.

PORTABILITY - options available to certain members on termination of employment.

PRESCRIBED RRSP - see Locked-in Retirement Account. The term "prescribed" means the details surrounding the RRSP are provided in The Pension Benefits Regulations, 1993.

TOP OF PAGE

REGISTERED RETIREMENT INCOME FUND (RRIF) - a prescribed retirement arrangement that can be established with funds locked-in by pension legislation. The key characteristics of the RRIF include:

• the contract must be registered as a retirement income fund pursuant to the Income Tax Act;
• a spousal consent form must be signed before assets may be transferred to a RRIF;
• the contract must comply with the requirements of Section 29.1 of The Pension Benefits Regulations, 1993;
• the owner of the contract must be paid an income each year (except for the first year of the contract);
• the owner determines the amount of income to be paid each year at the beginning of the year, subject to the minimum withdrawal rules under the Income Tax Act;
• at any time the owner of the contract may purchase a life annuity with money in the contract, but the owner is never required to purchase an annuity;
• the owner determines how the balance in the RRIF is to be invested.

REGISTERED RETIREMENT SAVINGS PLAN (RRSP) - a personal retirement savings plan as defined by the Income Tax Act.

RETIREMENT - withdrawal from the active work force because of age; may also be used in the sense of permanent withdrawal from the labour force for any reason, including disability.

RETIREMENT INCOME - income from pension and other sources to which a retired person is entitled. Term may include both private and public pension payments, income from personal savings, government income supplements and certain other sources of income.

TOP OF PAGE

SPECIFIED MULTI-EMPLOYER PENSION PLAN - a plan that is administered for employees of two or more employers and that is specified by the superintendent of pensions as a specified multi-employer plan. Generally refers to a plan in which the employee-employer relationship is not well defined. For example, in some construction trades, workers are employed for a particular job as opposed to being hired by a particular employer on an indefinite basis.

SPOUSE - refers to:

(i) a person who is married to a member or former member; or

(ii) if a member or former member is not married, a person with whom the member or former member is cohabiting as spouses at the relevant time and who has been cohabiting continuously with the member or former member as his or her spouse for at least one year prior to the relevant time.

The relevant time means "at the date of death" with respect to the pre-retirement survivor benefit and "at the date of retirement" with respect to the post-retirement survivor benefit.

SOLVENCY DEFICIENCY - refers to a shortfall in a plan's assets relative to its liabilities at a particular point in time assuming that the plan was terminated at that point.

SOLVENCY RATIO - the ratio of the market value of the plan's assets to its liabilities as measured on a plan termination basis.

SUBSIDIZED EARLY RETIREMENT BENEFITS - see enriched early retirement benefits.

SUPERINTENDENT OF PENSIONS - a person charged with the administration and enforcement of The Pension Benefits Act, 1992.

SURPLUS - if a pension plan's assets exceed the plan's liabilities, the difference is called a surplus.

SURVIVOR PENSION OR SURVIVOR BENEFIT - a monthly benefit payable under a pension plan to the surviving spouse of a deceased member or former member.

TOP OF PAGE

TERMINATION OF MEMBERSHIP OR EMPLOYMENT - severance of the employment relationship for any reason other than death and retirement.

TERMINATION OF PLAN - this occurs when a pension plan ceases to operate. All members are vested and entitled to receive a pension.

TOP OF PAGE

UNFUNDED LIABILITY - any amount by which the assets of a pension plan are less than its liabilities on a going concern basis.

UPDATING (BENEFITS) - a term applied to the occasional review and increase of accrued benefits to reflect rising wage levels where the plan does not provide for automatic improvements as in final earnings formula.

TOP OF PAGE

VARIABLE BENEFIT – a retirement option that may be offered by a defined contribution pension plan that can be established with funds locked-in by pension legislation.  The key characteristics of the Variable Benefit include:

• the pension plan must be registered as a defined contribution pension plan pursuant to the Income Tax Act;

• a spousal consent form must be signed before assets may be transferred to a Variable Benefit Account;

• a spousal waiver form must be signed before assets may be transferred to a Variable Benefit Account;

• the plan must comply with the requirements of Section 29.2 of The Pension Benefits Regulations, 1993;

• the pensioner determines the amount of income to be paid each year at the beginning of the year, subject to the minimum withdrawal rules under the Income Tax Act;

• at any time the pensioner may purchase a life annuity with money in the Variable Benefit Account, but the owner is never required to purchase an annuity;

• at any time, the pensioner may transfer the money in the Variable Benefit Account to a prescribed RRIF, another plan or to a LIRA (provided you are not yet 69  years of age); and

• the pensioner determines how the balance in the Variable Benefit Account is to be invested.

VESTED BENEFITS (VESTING) - benefits to which an employee has unconditional entitlement under the plan as a result of satisfying age or service requirements.

YEAR'S MAXIMUM PENSIONABLE EARNINGS (YMPE) - term used in the Canada Pension Plan which refers to the earnings from employment on which CPP contributions and benefits are calculated. YMPE is changed each year according to a formula based on average wage levels. YMPE is published annually by Human Resources and Social Development Canada's Income Security Division.

TOP OF PAGE