Glossary of Pension Plan Terms

In the pension area, a professional who is responsible for calculating the liabilities of pension plans and the costs of providing pension plan benefits. Under the PBSA, all actuarial reports must be prepared by a person who is a Fellow of the Canadian Institute of Actuaries.

A contract purchased from an insurance company to provide periodic (usually monthly) payments to a person for his or her lifetime.

A bridge benefit usually provides income from the date a pension plan member retires to the date when the member is entitled to receive Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) retirement benefits and/or Old Age Security benefits, usually at age 65.

The national inter-jurisdictional association of pension regulators whose mission is to facilitate an efficient and effective pension regulatory system in Canada. CAPSA discusses regulatory issues of common interest and develops practical solutions to further the coordination and harmonization of pension regulation across Canada.

A plan into which contributions are made on a tax-deferred basis. A CAP may include a defined contribution registered pension plan, a pooled registered pension plan, a group registered retirement savings plan, a registered education savings plan or a deferred profit-sharing plan.

For the purposes of federal pension legislation, a person who has been cohabiting with a member in a conjugal relationship for at least one year.

The amount of an immediate lump-sum payment estimated to be equal in value to a future series of payments. The value is calculated using assumptions prescribed by the Canadian Institute of Actuaries that are based on current market conditions.

The period during which an employee is continuously employed by the same employer. Continuous employment may be defined in the pension plan (or by law) to include certain periods of absence and/or of employment with an associated or former employer.

A specified pension determined when a member's employment or plan terminates that is not payable until sometime later, usually at retirement.

A pension plan that defines the pension benefit to be provided based on factors such as years of plan membership and average earnings calculated in accordance with the terms of the plan.

A pension plan that defines the amount of employer and employee contributions (if any) to the pension fund, determined on an individual account basis. The benefit the member will receive on retirement is determined at the date of retirement and is based on accrued contributions and investment income.

Members who are within 10 years of pensionable age are eligible to receive an early retirement pension from the plan (e.g. if the plan's pensionable age is 65, members could choose to retire at any time between the age of 55 and 65). However, the amount of pension may be reduced to compensate for the fact that it is payable for a longer period of time.

An actuarial valuation that calculates the assets of the pension plan and the expected cost of the promised benefits based on the assumption that the plan is continuing.

A pension that will be paid to a person for his or her lifetime, with a minimum number of payments guaranteed. For example, if the plan member opts for a five-year guarantee but dies after three years, payment will continue to the survivor or the estate for two more years.

Employment in connection with the operation of any work, undertaking or business that is subject to the legislative authority of the Government of Canada, such as banking, telecommunications, inter-provincial transportation, etc.

A pension payable for the lifetimes of both the plan member and his or her spouse or common-law partner. Under the PBSA, payments may be reduced by a maximum of 40% on the death of either partner but a plan may provide other options.

Includes representatives of the Canadian Securities Administrators (CSA), the Canadian Council of Insurance Regulators (CCIR) and the Canadian Association of Pension Supervisory Authorities (CAPSA). The mandate of the Joint Forum is to coordinate and streamline the regulation of products and services in the Canadian financial markets.

A personal retirement income fund offered by financial institutions. It is similar to a Registered Retirement Income Fund (RRIF). A LIF can be purchased with pension funds on termination of employment or retirement. A LIF is used to provide a regular retirement income, and is subject to minimum and maximum withdrawal limits. LIFs offered under federal law are governed by the PBSA and the federal Income Tax Act. See also Restricted Life Income Fund (RLIF).

A personal retirement savings account offered by financial institutions. It is similar to a Registered Retirement Savings Plan (RRSP), except that the funds are locked in. A Locked-in RRSP is used to hold money that is transferred out of a pension fund on termination of employment. Locked-in RRSPs are governed by the PBSA and the federal Income Tax Act. See also Restricted Locked-in Registered Retirement Savings Plan (RLSP).

A legislative requirement whereby pension benefits cannot be used for any purpose other than to provide a retirement pension. Funds transferred to LIFs, RLIFs, Locked-in RRSPs and RLSP are also locked-in.

An account in relation to which a member, former member, survivor or former spouse or former common-law partner of the member or former member is permitted to make investment choices. A member choice account only applies to an account that is maintained in respect of a defined contribution provision of a pension plan or for additional voluntary contributions in a defined benefit plan.

The estimated value of a member's pension benefits accruing in a particular year as determined under the Income Tax Act. For defined benefit plans, the PA is determined by a formula. For defined contribution plans, the PA is the total of all employer and employee contributions for the year. A person's RRSP contribution room is reduced by the value of the previous year's PA.

The periodic amount that a member or former member is or may become entitled to under the terms of the pension plan.

The aggregate value, at any given time, of a person's pension benefit and other benefits that is provided to them under a pension plan.

The legislation regulating private pension plans of employees working in areas of included employment in Canada. It sets out minimum standards for funding the plan, member benefits, administration, information to members, and investments.

Regulations that support the PBSA and provide additional specifications.

The expected cost of the promised benefits based on actuarial assumptions such as future salary levels, investment returns, when members will retire and when they will die.

The age specified in the plan text as the age at which members are entitled to a pension that is not reduced because of early retirement. It can be a specific age or be the age at which a certain number of years of service are attained, or require the attainment of both a certain age as well as a minimum number of years of service. If your pension plan offers unreduced early retirement benefits that require the plan administrator's consent, then that early retirement age would not be considered to be the pensionable age under the plan.

The person or group that is responsible for managing your pension plan and the pension fund. The plan administrator could be the employer, a board of trustee or a pension committee. The plan administrator may hire a third party service provider to manage the day-to-day work but the plan administrator is ultimately responsible.

Discontinuation of a pension plan resulting in the cessation of benefit accruals under that plan.

Distribution of the benefits and assets of a pension plan that has been terminated.

A type of pension plan that is similar to a defined contribution plan but employer contributions are not mandatory. A PRPP pools contributions together for investment purposes and for cost efficiency. Administrators of PRPPs must hold a licence issued by the Superintendent of Financial Institutions.

The federal legislation regulating pooled registered pension plans that fall under federal jurisdiction.

Regulations that support the PRPP Act and provide additional specifications.

The options available on cessation of membership, death, marriage breakdown, or plan termination. Members, or survivors in the case of a member's death, can transfer the commuted value of accrued pension benefits to a Locked-in RRSP, a LIF, an RLIF, another pension plan (if agreed to by the new plan), or the commuted value can be used to purchase an immediate or deferred annuity. A member can forego these options and instead receive a deferred pension from the plan at retirement.

A personal retirement income fund offered by financial institutions. An RRIF is intended to provide an ongoing flow of income. RRIFs are governed by the Income Tax Act which determines minimum withdrawal amounts.

A personal retirement savings account offered by financial institutions. RRSPs are governed by the Income Tax Act which sets the maximum amount of RRSP contributions that can be deducted from an individual's taxable income.

Similar to a Life Income Fund (LIF), however, an RLIF holder may, on a one time basis, unlock 50% of the funds.

An investment account that can only be established as a result of a transfer of funds from an RLIF. Similar to a Locked-in Registered Retirement Savings Plan, however, the funds in an RLSP can only be transferred back to an RLIF, a pension plan, if that plan permits, or to an insurance company to purchase an immediate or deferred life annuity.

The expected cost of the promised pension benefits based on the assumption that the plan is terminating.

The ratio of the assets of the plan to the solvency liabilities of the plan.

An actuarial valuation that calculates the assets of the pension plan and the expected cost of the promised benefits based on the assumption that the plan is terminating.

For the purposes of pension legislation, a person married to the member or former member (includes a void or null marriage).

In defined benefit plans, the amount by which the assets of a pension plan exceed the expected cost of the promised benefits (pension liabilities).

The common-law partner at the time of the member's death or, if there is no common-law partner then, the spouse at the time of the member's death.

A pension benefit that is paid as a variable payment from a defined contribution plan. This variable benefit is similar to making withdrawals from a LIF and is subject to a minimum withdrawal required by the Income Tax Act and a maximum withdrawal determined under the Regulations.

Pension benefits to which an employee is entitled upon cessation of membership under a pension plan. Under federal legislation, an employee's pension benefits are vested immediately when they join a pension plan.

The earnings on which Canada Pension Plan / Quebec Pension Plan contributions and benefits are calculated. The YMPE changes each year according to a formula using average wage levels. The YMPE is set annually by the Canada Revenue Agency (CRA) and is available on the CRA website.