Glossary

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- B -

Beneficiary

The individual named by a participant in a pension or other plan who will receive any benefits provided by the plan in the event of the participant’s death (also referred to as the designated beneficiary). This term is sometimes used to refer to any participant of a plan.

Benefit formula

The method of calculating an employee’s pension amount, usually determined by multiplying a fraction of the employee’s earnings, or a fixed dollar amount, by the years of service under the employer’s plan.

Best average benefit formula

A defined benefit formula where the earnings component is the average earnings received during a certain number of the highest paid years.

Bridging supplement

A supplemental pension plan benefit that is payable to an employee who retires before becoming eligible for government benefits, but ends when Old Age Security (OAS) or Canada Pension Plan/Quebec Pension Plan (CPP/QPP) benefits are paid (or are offset by those benefits).

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Career average benefit formula

A defined benefit formula where the earning component equals an employee’s average earnings during the whole period of coverage under the plan. For example, the pension may be one-fiftieth of each year’s earnings (i.e. 2 per cent of the average earnings over all the years of coverage of the plan, multiplied by the number of years of service).

Career average plan

A plan that relates the benefits for one year’s employment to that of a year’s earnings. As a result, the benefit at retirement is expressed as a percentage of the career’s average earnings.

Commuted value

The amount of an immediate lump-sum payment estimated to be equal in value to a future series of payments.

Compulsory retirement

A provision in a pension plan, collective agreement, or employer’s rules requiring that the employee must retire at a certain age or under other specified conditions.

Continuous service

The period during which an employee was employed by the same employer. This period may be defined in a pension plan to include periods of absence as well as service with an associated or predecessor employer.

Contributory pension plan

A pension plan under which employees are required to contribute a portion of the cost of pension benefits.

Current service

An employee’s period of service after becoming a member of a pension plan.

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Death benefit

When applied to a pension plan, the sum of money paid if a pension plan member dies before their pension commenced.

Deferred annuity or deferred pension

A life annuity payable at a future date to an employee whose membership in a pension plan has terminated before the plan’s normal pensionable age (often age 65).

Defined benefit formula

A generic term for any benefit formula that specifies, for a given income level and service period, the amount of pension that may become payable.

Defined benefit pension plan

A pension plan that defines the benefit to be (i) a percentage of the employee’s earnings over their entire service or over a specific number of years; (ii) a fixed dollar amount per month for each year of service, independent of earnings. The employer pays the full cost of the plan or the balance after allowing for a specified rate of employee contributions.

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Early retirement

A pension plan provision for retirement earlier than normal pension age. The amount of pension credited under the plan formula may be reduced based on the member’s attained age; or an unreduced pension may be payable if a specified service condition (e.g. 30 years) has been met.

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Final average benefit formula

A defined benefit formula where the earnings taken into account are the average level of earnings in the last few years before retirement. The number of years used to calculate the average varies, usually ranging from three to 10 years.

Final earnings benefit formula

A defined benefit formula where the earnings taken into account are those in the pay period (usually one year) immediately before retirement.

Flat benefit formula

A benefit formula that provides a fixed (or flat) dollar amount of pension for each period such as a month’s or year’s service, regardless of the plan member’s earnings level.

- I -

Indexing

The automatic adjusting of accrued pension benefits according to changes in an index (e.g. Consumer Price Index).

- N -

Non-contributory plan

A pension plan where the entire cost, including contributions, is borne by the employer.

Normal pensionable age

The earliest age at which a pension plan member may receive an unreduced pension or annuity on terminating employment for any reason other than disability.

Normal retirement age

The age specified in a pension plan at which employees are expected to retire; it may be the earliest age at which an unreduced pension is payable.

- O -

Old Age Security

A federal program providing a universal, flat rate pension to all residents age 65 and over, regardless of need.

- P -

Past service

An employee’s service that is recognized for pension plan purposes, but performed before either the inception of the plan or the employee’s membership in the plan.

Past service liability

An employer’s benefit liability assumed with respect to service rendered by employees before the introduction or amendment of a pension plan, whichever is relevant.

Pension benefits

Payments made to pension plan members or their beneficiaries under the terms and conditions of the pension plan.

Pension fund

The net assets set aside for the purpose of meeting the retirement benefit payments of the pension plan, as they become due.

Pension plan

A formal arrangement entered into by an employer to provide retired employees with a regular income for life, in consideration of past services. The arrangement establishes a formula for determining pension benefits and conditions an employee must meet to be entitled to benefits.

- R -

Registered pension plan (RPP)

An employer-sponsored pension plan that, on meeting federal and provincial government requirements, is accepted for registration (thereby qualifying for favourable tax treatment) under The Income Tax Act and any applicable provincial legislation.

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Sponsor

In the case of a single employer pension plan, the sponsor is typically the employer. In the case of a multi-employer pension plan, the sponsor is typically the association, committee, board of trustees, or other group representing the employees and employers, or other parties who established the plan.

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Unfunded liability

The amount that a pension fund’s assets must be augmented to ensure the plan is fully funded.

Unit benefit formula

A defined benefit formula that provides a unit of pension equal to a percentage of an employee’s earnings for each year of service or of their participation in the plan.