Glossary of Terms

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Accrual Rate – The rate usually specified in the benefit formula of a defined benefit pension plan as a percentage of earnings, at which pension benefits are earned. Example: 1.4% of pensionable earnings for each year of service

Accrue– To accumulate over a period of time. For example, service accrues with each month worked

Act – Each pension plan is established by an Act. The Acts establishing the Government of Newfoundland and Labrador’s pension plans are:

  • Public Service Pensions Act, 1991
  • Uniformed Services Pensions Act, 1991
  • Teachers’ Pensions Act
  • Members of the House of Assembly Pensions Act
  • Provincial Court Judges’ Pension Plan Act
  • Government Money Purchase Pension Plan Act

Active Plan Member – Plan member making (or deemed to be making) regular contributions to the plan, including those on an approved leave of absence (with or without pay)
Actuarial Assumptions – Factors used by the actuary in forecasting uncertain future events affecting pension cost. They include such things as salary growth, interest, investment earnings, and mortality rates
Actuarial Cost – A cost is characterized as an actuarial cost if it is determined by use of present values which in turn are calculated on the basis of certain assumptions (mortality, interest, retirement age, etc.). An actuarial cost is often used to associate the costs of benefits under a pension plan with the time the benefits are earned
Actuarial Valuation – Assessment of the financial health of a pension plan by an independent actuarial consulting firm
Actuary– A person who is a Fellow of the Canadian Institute of Actuaries. Actuaries are business professionals who apply their knowledge of mathematics, probability, statistics, and risk theory, to real-life financial problems involving future uncertainty. These uncertainties are usually associated with life insurance, property and casualty insurance, annuities, pension or other employee benefit plans, or providing evidence, in courts of law, on the value of lost future earnings
Amended Pension Adjustment Statement – A Pension Adjustment that has been amended after reporting to Canada Customs and Revenue Agency. For example, if a plan member purchases a leave of absence and pays for it before April 30 of the year following the end of the leave, an amended pension adjustment is submitted to include the increased benefit from the leave. (See Pension Adjustment)
Annual Benefit Statement – Once a year, plan members receive a benefit statement through their employer that describes their status in the plan. The statement gives many details including:

  • normal retirement date
  • early retirement date
  • an estimate of the amount of a plan member’s pension benefit at the statement date, assuming they are already eligible
  • survivor pension entitlement
  • credited pensionable service
  • accumulated contributions in the plan (including interest)
  • balance owing on purchase of service contracts

Annuity– A contract that provides an income for a specified period of time such as a number of years or for life. The process of annuitizing refers to the conversion of a lump sum to a series of periodic payments under an annuity contract

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Benefit– A commuted value, pension, refund or any other entitlement payable to the plan member (or a survivor of the plan member) by the pension plan
Best Five Year Average Salary – The salary used in the calculation of your pension benefit. It is the average of your highest five years of annual salaries
Break in Service – Any interruption or irregularity in your accumulation of pensionable service, for example:

  • periods during which neither you nor your employer made contributions and no contributory service was accumulated
  • periods when you worked less than full time, even though your employment contract was full time

Bridge Benefit – Formerly called CPP Offset. A temporary supplement to a pension, paid from the earliest retirement date until age 65 or death, whichever comes first

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Canada Pension Integration – the adjustment of your pension to reflect your lower contribution rate up to the YMPE for the period of time you contributed to the Public Service Pension Plan
Canada Pension Plan (CPP) – The federal pension plan administered by Human Resources Development Canada. It applies in all provinces and territories of Canada except Quebec
Cohabitating Partner – Cohabitating Partner:

  1. in relation to an active plan member, inactive plan member or retired plan member who has a spouse, means a person who is not the spouse who has cohabitated continuously with the active plan member, inactive plan member or retired plan member in a conjugal relationship for not less than three years
  2. in relation to an active plan member, inactive plan member or retired plan member who does not have a spouse, means a person who has cohabitated continuously with the active plan member, inactive plan member or retired plan member, in a conjugal relationship for not less than one year and is cohabitating or has cohabitated with the active plan member, inactive plan member or retired plan member within the preceding year

Commuted Value – The commuted value of a pension benefit refers to the amount of money that needs to be set aside today, at current market interest rates, to provide sufficient funds to pay for a pension when a plan member retires, i.e., how much a benefit is worth today. Commuted values express the lump sum value of a promised benefit, usually from a defined benefit pension plan. The commuted value takes into account the benefits, interest and mortality. The lower the current interest rates, the higher the commuted value will be, because it is assumed that the amount today will earn less from now until retirement; and, conversely, the higher the current interest rates, the lower the commuted value
Consumer Price Index (CPI) – The consumer price index measures monthly and yearly changes in the cost of 300 goods and services commonly bought by Canadians. If the combined cost of this “basket” of items goes up, then there has been inflation. The greater the increase, the higher the inflation rate has become. Pensions paid under the Public Service Pension Plan and the Teachers’ Pension Plan are indexed to the cost of living, and the consumer price index is one of the factors used to calculate annual cost of living increases for pension benefits
Contribution – The amount of money the plan member and the employer are required to pay into the pension plan
Contribution Rate – The percentage of the plan member’s salary that the plan member and the employer contribute to the plan
Contributory Service – Number of months the plan member and the employer made contributions to the plan. It is used to determine eligibility for a pension and whether the pension will be reduced (and by how much) should you decide to retire before normal retirement age. Plan members earn one month of contributory service for any month in which, as a full-time employee, they worked or received income
Cost of Living – The average cost of goods and services required by a person or family, as measured by the consumer price index (CPI). (See Indexing and Consumer Price Index

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Deferred Pension – A pension payable at a later date, either because the plan member terminates employment before the earliest date at which the pension may begin, or because the plan member chooses to have the pension commence at a later date. For example, a plan member may choose to defer a pension in order to later receive an unreduced pension
Defined Benefit Pension Plan – a Defined Benefit Pension Plan is characterized primarily by a formula under which retirement (and other) pension benefits are calculated. The amount of the pension benefit is typically based on earnings and credited pensionable service. (See Defined Contribution Pension Plan)
Defined Contribution Pension Plan – A pension plan that provides a pension based on the contributions made by the plan member and the employer and the interest earned on those contributions. (See Defined Benefit Pension Plan
Disability Pension – A pension benefit payable to disabled plan members who meet the eligibility criteria established by the relevant pension plan

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Employer Reporting – On a regular basis, employers covered under the pension plans submit reports of their employees’ personal and pension-related data, along with payment of both employee and employer contributions, to the Pension and Group Insurance Administration Division
Estimate – An estimate of your future benefit entitlement. As these estimates cannot account for future changes in your employment status, changes in legislation and other factors, the estimates are not guaranteed. No money is paid out on the basis of these estimates

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Fiduciary – A person who is entrusted with exercising rights and powers for the benefit of another person or other persons. A fiduciary cannot benefit personally from the exercise of this responsibility
Full-time Employee – An employee who works the number of hours which constitute full-time employment as determined by a particular employer

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Immediate Pension – A pension payable the first of the month following the month in which a plan member retires. Disability pensions are payable with effect from the expiration of sick leave
Inactive Plan Member – Plan member who has terminated employment and left his or her contributions on deposit in the pension plan to take a benefit, usually a pension, at a later date
Indexing – Increases to semi-monthly pension amounts are based on the annual increase in the cost of living. Once pension payments have commenced, and the plan member has attained age 65, the lifetime pension will be adjusted each October by up to 60% of the increase to the Canadian consumer price index. These cost of living adjustments begin the first October after age 65. If the cost of living decreases, the pension remains the same – it does not decrease. (Indexing is a provision of the Public Service Pension Plan and the Teachers’ Pension Plan

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Joint Trusteeship – With respect to pension plans, means that the management of a pension plan is shared between the representatives of both plan members and plan employers

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Leave of Absence – An employer approved absence from duty, with or without pay
Liabilities – The cost of a pension plan’s current and future benefit commitments (the amount required to pay for benefits that are currently being paid by the plan plus the amount required to pay for benefits that are expected to be paid in the future)
Limited Member – A spouse or ex-spouse of a plan member, who has been designated, as the result of a marital breakdown, as a “limited member” and is entitled to a portion of the plan member’s pension benefits
Locked-In – Refers to pension plan funds that cannot be paid in cash. The funds must be used to provide a life-time pension benefit
Locked-in Registered Retirement Savings Plan (RRSP) – Has all the essential characteristics of a regular RRSP with the exception of a cash surrender provision. A locked-in RRSP cannot be surrendered for cash but must be used to purchase an annuity payable for life
Locked-in Pension – A legislative requirement that vested benefits under the pension plan must be used to provide a lifetime retirement income and are not available as immediate cash

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Marital Breakdown– For pension purposes, this means a relationship breakdown between spouses. (See Limited Member)

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Non-contributory Service – Period of time worked, for an employer designated under a pension plan, without making pension contributions

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Old Age Security (OAS) – The basic federal income security program for seniors who are age 65 and older

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Past Service Pension Adjustment (PSPA) Statement – The difference between the sum of pension adjustments actually reported and the sum of pension adjustments that include any increased benefits from the purchase of post-1990 service. (See Pension Adjustment (PA) Statement)
PBA – See Pension Benefits Act
>Pension – A lifetime semi-monthly income paid by your pension plan
Pension Adjustment (PA) – The value of pension earned in a year. It is reported in Box 52 of your T-4 and is used by the Canada Revenue Agency to determine your RRSP contribution room for the tax year
Pension Adjustment Reversal (PAR) – A calculation done to reflect restored RRSP contribution room for the years for which pension contributions have been refunded
Pension Adjustment (PA) Statement – An annual statement received before the last day of February from your payroll office. The Pension and Group Insurance Administration Division reports the PA amount to The Canada Revenue Agency. The Canada Revenue Agency uses this amount, along with information from your previous year’s tax return, to calculate your individual RRSP contribution limit for the following year. (See Past Service Pension Adjustment (PSPA) Statement)
Pension Benefits Act (PBA) – The provincial statute designed to protect the interests of pension plan members of Newfoundland and Labrador. The PBA sets minimum standards for pension plans in areas such as eligibility, vesting, portability and disclosure to members and sets out rules for the solvency and investment of pension plans
Pension Formula – The formula used by a pension plan to determine the amount of the retirement pension benefit
Pension Fund – Trust fund in which your contributions and your employer’s contributions accumulate and are invested to pay for current and future pension benefits
Pensionable Earnings – The portion of a plan member’s total earnings upon which contributions are based and the pension benefit is calculated (e.g., regular earnings, excluding overtime)
Pensionable Salary – Portion of your salary that is used to calculate your pension contributions and Best Five Year Average
Pensionable Service – Service credited for pension purposes. Plan members earn one full month of pensionable service when they work at least one day per month. Pensionable service is used to determine the amount of a commuted value and a pension
Pensioner – See Retired Plan Member
Plan Member – See Active Plan Member, Inactive Plan Member, and Retired Plan Member
Portability– The ability to carry certain pension rights––including contributions and years of service from one plan to another, provided your contributions remained on deposit (you didn’t take a refund when you left that plan)
Principal Beneficiary – The spouse of an active plan member, inactive plan member or retired plan member, or where an active plan member, inactive plan member or retired plan member has a cohabitating partner, his or her cohabitating partner

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Reciprocal Transfer Agreement – Means an agreement between two or more plans under which service with any party to the agreement will be recognized for purposes such as:

  1. satisfying minimum service requirements for plan participation
  2. fulfilling minimum service requirements for benefit entitlement
  3. preventing a break in continuous service
  4. accruing pension service credits

The agreement provides for the transfer of an appropriate sum of money from the pension fund of one employer directly to the pension fund of another, to fund benefits of an employee who leaves the first employer to enter employment with the second

Reduced Pension – If you apply for an early pension but you do not meet the minimum age plus service requirements, your pension will be reduced<
Refund of Contributions – Cash refund of your past contributions to the plan, plus a legislated amount of interest
Registered Retirement Savings Plan (RRSP) – A retirement savings plan, approved and registered under the provisions of the Income Tax Act (Canada), under which taxes on the deposits and investment income may be deferred until the savings are withdrawn
Registered Retirement Income Fund (RIF) – An option into which RRSP funds may be transferred once a person has reached the age of 69. (See Life Income Fund and Registered Retirement Savings Plan)

Retired Plan Member – Someone who is retired and is now collecting a pension from the pension plan. Also known as a pensioner

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Salary – The basic salary that you receive from your employer and on which your contributions to the pension fund are based. (Does not include overtime or bonuses)
Seasonal Employee – A full time employee whose services are of a seasonal but recurring nature
Spouse – A person who:

  1. is married to an active plan member, inactive plan member or retired plan member
  2. is married to an active plan member, inactive plan member or retired plan member by a marriage that is voidable and has not been voided by a judgment of nullity
  3. has gone through a form of a marriage with an active plan member, inactive plan member or retired plan member, in good faith, that is void and is cohabitating or has cohabitated with an active plan member, inactive plan member or retired plan member within the preceding year

Survivor Benefit – A benefit payable to the principal beneficiary or child of an active plan member, inactive plan member or retired plan member

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Trustee – Person or persons who have been entrusted with managing a trust’s assets in the best financial interest of the trust’s beneficiaries. Where pensions are concerned, an individual plan member’s “trust” is their pension plan benefits. A pension plan’s “trust” is the pension plan and the pension fund. Trustees are fiduciaries. They must abide by all laws, rules and regulations governing trustees. They have a duty:

  • to adhere to the terms of the trust and to the law
  • to act personally and not to delegate
  • to act as a prudent person would act, that is, with care
  • to act with loyalty to the trust, that is, to avoid any conflict of interest
  • of impartiality, that is, to act in an even-handed manner
  • to safeguard and invest the assets
  • to inform the beneficiaries
  • to pay the proper amounts to the proper beneficiaries

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Unfunded Liability – Occurs when there are fewer assets in the fund than liabilities
Unreduced Pension – Monthly pension benefit where there is no reduction included in the pension benefit formula. (See Reduced Pension)

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Valuation – An actuarial examination of a pension plan to determine whether contributions are being accumulated at a rate sufficient to provide the funds out of which the promised pensions can be paid when due. The valuation shows the actuarial liabilities of the plan and the applicable assets
Vesting – Refers to the earned right of a pension plan member to receive benefits funded by employer contributions. Under the PSPP a plan member is considered vested upon accumulating 5 years of pensionable service

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Waive – To relinquish (give up) a right or entitlement

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Year’s Basic Exemption (YBE) – A portion of earnings upon which no CPP contributions are required. The YBE is included in salary for the purpose of calculating CPP benefits.
Year’s Maximum Pensionable Earnings (YMPE) – Maximum salary limit for contributions to the Canada Pension Plan.

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