Pension Terms

The following is a list of terms used in pensions and pension plan management

Active Management: A style of investment management that seeks to attain above-average risk-adjusted performance.

Actuarial Assumptions: Estimates about the future made by the actuary to determine the sponsor’s required annual contributions into the fund and to ensure that the plan’s specified benefits will be met.

Actuarial Reduction: Where a member retires early, his or her pension is reduced by a certain percentage known as the actuarial reduction, to arrive at his or her early-retirement pension. The actuarial reduction reflects the fact that the pension begins before normal retirement and is expected to be paid for a longer period.

Actuarial Valuation: A report prepared by the actuary to determine the required contributions that must be paid into a defined benefit plan and to determine if the present fund is sufficient to cover the present accrued liabilities.

Actuary: Prepares actuarial valuations for defined benefit plans. An actuary is required to be qualified as a Fellow of the Canadian Institute of Actuaries (FCIA).

Administrative Agent: The organization or firm providing day to day administration services of the pension plan.

Administrator: The party responsible for managing the pension fund and administering the plan in accordance with the plan terms and applicable legislation. The CEPP administrator is a Joint Board of Trustees (JBT).

Ancillary Benefits: Benefits that are in addition to a regular lifetime pension, such as survivor or death benefits, bridging benefits, and indexation.

Annuity: A series of regular payments made to the retiree.

Averaging Period: The average of an employee’s salary over a specific period used for pension benefit calculations, three years as per the CEPP terms.

Benefit Percentage: The percentage used to determine the pension benefit in a salary-related defined benefit formula. The CEPP percentage is 2%.

Bridge Benefit: A supplemental benefit payable between an employee’s early retirement date and age 65, which is the age at which government benefits commence. The bridge benefit is not necessarily related to the size of the prospective government benefits.

Commuted Value: The actuarial present value of a deferred pension calculated at the employee’s termination date.

Consumer Price Index: Series of numbers whose ratios measure the relative prices at various times of a selected group of goods and services that typify those bought by urban families.

Contributory Plan: A plan in which both the employee and the sponsor make contributions into the fund.

Custodian: The institution that holds the pension investments in safekeeping.

Defined Benefit Plan: A plan where a specific formula defines the benefit each employee is to receive upon retirement.

Final or Best Average: Benefits are based on the member’s salary averaged over a period of three continuous years of CEPP highest salary.

General Portability: The right of an employee who terminates before retirement to transfer his or her pension entitlement to another pension plan, or to a locked-in RRSP or other prescribed retirement savings arrangement.

Going-Concern Valuation: An actuarial valuation prepared to determine whether or not the present assets of the pension plan would cover the accrued benefits of the plan, assuming the plan is a continuing pension plan.

Indexation: Refers to the periodic increase in a pension because of inflation. Increases are usually made in line with changes in the Consumer Price Index (CPI) as determined by Statistics Canada.

Investment Manager: Invests the fund assets and selects securities within the discretion determined by the plan sponsor or administrator, usually as set out in the plan’s Statement of Investment Policies and Procedures (SIP&P).

Joint and Survivor Annuity: An annuity where the pension payments continue until the death of both the pensioner and his or her spouse.

LIF: Life Income Fund

LIRA: Locked-in Retirement Account

Locked-In RRSP: An RRSP containing funds transferred from an RPP which cannot be withdrawn but may be used to buy a life annuity at retirement age.

LRIF: Locked-in Retirement Income Fund

Normal Pension Cost: The employer’s obligation to contribute to the pension plan in respect of benefits expected to accrue to members every year.

OAS: Old Age Security

Passive Management: A style of investment management that seeks to attain average risk-adjusted performance.

Past Service Pension Adjustment (PSPA): Used to reduce the member’s RRSP room to take into account changes in the past-service benefit.

Pension: Monthly payments made on retirement to the member or spouse/beneficiary for lifetime or specific period.

Pension Adjustment (PA): The portion of the retirement benefit accrued to the individual during the previous tax year.

Pensionable Salary: The salary used to determine the lifetime pension of a member of the CEPP.

Pensionable Service: The amount of years of service a member has accrued in the pension plan.

Plan Text: A legal document that describes the terms and conditions of the pension plan.

Pooled Fund: A pension fund that is commingled with other funds for investment purposes.

Provision for Adverse Deviation (PfAD): A prescribed additional level of funding by which a pension plan will fund a reserve to protect against future adverse plan experiences, therefore ensuring greater benefits security to plan members.

Reciprocal Transfer Agreement: An agreement between administrators of two pension plans to assist and facilitate transfers between plans.

RPP: Registered Pension Plan

RRIF: Registered Retirement Income Fund

RRSP: Registered Retirement Savings Plan

Solvency Ratio: The ratio of pension plan assets to liabilities. Solvency special payments are only required for plans that are less than 85% funded on a solvency basis. If the solvency ratio falls below 85%, only the portion of the deficiency that falls below the 85% threshold needs to be funded over a 5-year period.

Solvency Valuation: An actuarial valuation prepared to determine whether or not the present assets could cover the accrued benefits should the plan be discontinued on the date of the valuation.

Surplus: The excess of the value of plan assets over the liabilities of the plan.

Trust Agreement: Establishes the Trust and outlines the specific duties and responsibilities of the trustee.

Trustee: Responsible for holding and investing the funds and paying the benefits in accordance with the terms of the trust agreement.

Unfunded Actuarial Liability: The portion of the actuarial liability of the fund not offset by plan assets.

Unreduced Early Retirement Date: The date on which an employee may retire with a full and unreduced pension benefit, which is prior to the employee’s normal retirement date. An employee will be required by the plan to have a combination of age and years of credited service in the plan equalling at least 80 years in order to retire with an unreduced pension.

Vesting: The entitlement to a pension provided by the sponsor’s contributions if the member completes a prescribed number of years in the plan.

Year’s Maximum Pensionable Earnings (YMPE): The amount of earnings defined by the Canada/Quebec Pension Plan (CPP/QPP) on which benefits from the CPP/QPP are based.