Pension Terminology

Actuarial Present Value

What a Member's deferred pension is worth today in a lump sum. 

Actuarial Valuation

An analysis of the financial condition of a pension plan which calculates the liabilities of the plan and costs of providing plan benefits. An actuary prepares the valuation and the pension plan must file the valuation with the provincial government at least once every three years.

Actuary

A business professional who is a member of the Canadian Institute of Actuaries (CIA) and is responsible for preparing and signing valuations. Actuaries apply their knowledge of mathematics - particularly of probability, statistics and risk theory - to real-life financial problems involving future uncertainty, usually associated with life insurance, property and casualty insurance, annuities, pensions or other employee benefit plans.

Annuity

A series of regular, periodic payments, including a pension. An annuity is normally purchased from a life insurance company which then pays the purchaser a series of regular (usually monthly) payments. An individual usually purchases an annuity by making a lump sum payment from an RRSP or other source to the insurer.

Assets

Plan assets refer to all contributions and investment earnings in the pension fund.

Average YMPE

The average of the Year's Maximum Pensionable Earnings for the earlier of the year of retirement or termination, or the year in which the Member stops contributing to CPP, and the four preceding years. The YMPE is the maximum amount of earnings on which the Member contributes to the CPP as set by CRA for CPP effective January 1 each year.

Beneficiary

The person or persons designated in writing to receive any lump sum death benefits payable under the CAAT Pension Plan. If the Member has a Spouse, that person is the Beneficiary, as long as the two are not living separate and apart.

Bridge Benefit

An extra pension payable from the CAAT Pension Plan from a Member's early retirement date up to age 65. The Bridge Benefit approximates the amount of CPP that is earned while a Member of the CAAT Pension Plan. The Bridge Benefit is also indexed at the same rate as the Lifetime Pension. Indexation granted to the Bridge Benefit ceases, along with the Bridge Benefit itself at age 65.

CAAT Pension Plan

The Pension Plan that has been established for the employees of Ontario Colleges. Employees of the Ontario College Application Service (OCAS) and the CAAT Pension Plan also participate.

Canada Revenue Agency (CRA)

The Canada Revenue Agency (CRA) administers tax laws for the Government of Canada and for most provinces and territories. It provides tax-sheltered mechanisms through the Income Tax Act for individuals saving for retirement, and sets maximum standards for the benefits a plan can provide.

Children

The dependent Children of the Member, who have not reached the age of 18, subject to the requirements of the Income Tax Act.

College

An Ontario College body, established under the Ontario Colleges of Applied Arts and Technology Act (2002), that participates in the CAAT Pension Plan.

Common-Law Spouse

The person who, although not legally married to the Member, Former Member or Pensioner, has been living with him or her as a couple for at least one year, or for a shorter period if there are natural or legally adopted children of the common-law relationship.

Commuted Value

What a Member's deferred pension is worth today in a lump sum. Also known as Actuarial Present Value.

Consumer Price Index (CPI)

An inflation measure computed by Statistics Canada which calculates the change in prices of a fixed basket of commodities purchased by Canadians each month. If the combined cost of these goods goes up, inflation increases. The Consumer Price Index is used to calculate annual cost of living increases for pension benefits, also referred to as Indexing.

Contributory Earnings

The earnings on which a Member pays pension contributions; they may not be the same as the Member's actual income or "earned income" for income tax purposes since overtime pay, certain lump sum or other payments, and most lump sum termination payments are excluded from Contributory Earnings.

CPP

Canada Pension Plan. The CAAT Pension Plan contribution and benefit formulas are integrated with CPP, which means that the contributions and the pension take into account that the Member was also contributing to CPP while working. A retired Member who qualifies can choose to receive a CPP pension as early as age 60 on a reduced basis. A retired Member will receive a Bridge Benefit payment from the CAAT Pension Plan up to age 65, regardless of when the Member begins a CPP pension.

Credited Interest

The interest credited each year on Member contributions.

Deemed Contributory Earnings

The earnings a Member would have received had the Member's workload not been reduced or if the Member had not been on leave. The Deemed Contributory Earnings may be increased by:

• negotiated increases
• increases resulting from normal progression through job classification, or
• increases obtained through a grievance procedure.

For a Member entitled to the disability benefit under Section 11.01 of the CAAT Pension Plan, the Deemed Contributory Earnings are based on the normal annual rate of earnings on the last day such earnings were received. In addition, this rate is increased each January 1 that the Member remains entitled to the disability benefit by the following percentage rates:

• up to December 31, 1987, 5% for each full calendar year the Member remains disabled
• for the period January 1, 1988 to December 31, 1991, the same percentage increase that was granted to Pensioners in the previous year
• for the period after December 31, 1991, the same percentage increase that is granted to Pensioners for pensions accrued after December 31, 1991.

Deemed Contributory Earnings may be used in determining the Highest Average Pensionable Earnings.

Deferred Pension

The pension calculated at the time of termination of employment and payable at age 65 that will only be provided at a later date because the Member:

• is not old enough to begin immediate pension payments; or
• chooses to wait until a later date to begin receiving pension payments.

Deficit

A deficit exists in a pension fund when the actuarial valuation determines the fund's assets are less than the liabilities.

Defined Benefit Pension Plan

The pension received is determined by a defined formula usually, but not always, based on a combination of earnings and years of Pensionable Service. The CAAT Pension Plan is a Defined Benefit Plan.

Early Reduced Pension

The benefit payable at Early Retirement, which may be reduced by a fixed formula for every year and part year the Member is away from the Normal Retirement Date.

Early Retirement Date

The last day of the month in which a Member chooses to retire, prior to the Normal Retirement Date. Early Retirement in the CAAT Pension Plan occurs when a Member starts receiving a pension before age 65. The amount of the Member's benefit will not be reduced if certain age or service eligibility requirements are met.

Early Unreduced Pension

A Member can retire early from the CAAT Pension Plan with a pension that is not reduced for retiring early if certain age and Pensionable Service requirements are met. (See the 85 Factor and the 60/20 Rule).

Eligibility Service

The part of a Member's period of employment as an Other Than Regular Full-Time Employee required to qualify for membership in the CAAT Pension Plan. It is 24 months of continuous eligibility service. "Continuous" means having worked, been on vacation or on an authorized leave of absence with or without pay in each pay period in the previous 24 months. Service will also be deemed to be continuous if during the previous 24 months there was a pattern of periods of employment that were predictable, predefined or consistent, even if the periods of employment were interrupted by a termination of employment.

Employee

An individual working for a CAAT Pension Plan Employer. 

Employer

A College of Applied Arts and Technology, the CAAT Pension Plan, the Ontario Colleges Application Service (OCAS) and any other employer approved by the Sponsors' Committee of the CAAT Pension Plan.

Excess Contributions

On termination of employment, the CAAT Pension Plan compares 50% of the Commuted Value of the Member's deferred pension to the total of the contributions the Member made on which the College contributed a matching amount, plus interest. If the Member's contributions plus interest are more than 50% of the Commuted Value, then that Member is entitled to a refund of the difference, called Excess Contributions. It does not apply if the Member transfers directly to another College and may not apply if the Member transfers pension benefits to another employer under a Reciprocal Transfer Agreement.

Fiduciary

An individual or institution occupying a position of trust. An executor, administrator or trustee responsible for the assets belonging to another person.

Former Member

A Member who has ceased to be employed by an College, and is either:

• entitled to a deferred pension that has not been transferred out of the pension fund, or
• entitled to an early retirement pension and has deferred its start date.

Full-Time Employees

Employees under age 71 who automatically join the CAAT Pension Plan on their date of hire. Full-Time employment has no predetermined end date. This is what distinguishes it from non-regular employment, typically contract employment, which does have a predetermined end date. 

Governance

Pension plan governance refers to the structure, processes and safeguards for overseeing, managing and administering the plan to ensure the fiduciary and other obligations of the plan are met.

Guardian

A person who is legally responsible for the care and management of the deceased Member's Children.

Highest Average Pensionable Earnings

Formerly Highest Average Earnings. The sum of the Member's earnings during the 60 consecutive months of Pensionable Service during which the earnings were highest, divided by 60, multiplied by 12. If the Member has fewer than 60 months of Pensionable Service, the total of the Member's earnings is divided by the number of months of Pensionable Service, and multiplied by 12.

Income Tax Act

Federal law governing tax collection and related benefit distribution, administered by Canada Revenue Agency (CRA). For pension plans, it provides tax-sheltered mechanisms for individuals saving for retirement and sets maximum standards for the benefits a plan can provide.

Indexing

The periodic cost of living adjustment of pension benefits usually based on a percentage of the Consumer Price Index adjustment for the previous year.

Liabilities

The amount required by the plan to cover the cost of paying current and future pension benefits.

Lifetime Pension

A pension that is paid for the Pensioner's lifetime, in other words, from the time the pension starts until the end of the month in which the Pensioner dies. The Lifetime Pension will grow each year that indexing is granted.

Locked-in

The Ontario Pension Benefits Act requires that the benefits under a pension plan must be used to provide a lifetime retirement income and not for any other purpose. We describe this as being locked-in. A Member's benefit is locked-in if, upon termination, the Member is vested - that is, has completed either two years of Plan membership or two years of Pensionable Service.

Locked-In Retirement Income Fund (LRIF)

A savings vehicle set up to receive funds transferred from a locked-in pension plan.

Locked-in RRSP (LRRSP)

A Registered Retirement Savings Plan to which a Commuted Value is transferred and from which funds cannot be withdrawn before the Member reaches age 55. These funds can only be used to purchase a life annuity or a Life Income Fund (LIF), or a Locked-in Retirement Income Fund (LRIF). Under the Ontario Pension Benefits Act, a LRRSP is called a Locked-in Retirement Account or LIRA.

Maximum Lifetime Annual Pension

CRA dictates that for 2011, the Maximum Lifetime Annual Pension a Member can earn for each year of Pensionable Service is the lesser of:

• $2,552.22 per year of Pensionable Service; or
• 2% of Highest Average Earnings multiplied by years of Pensionable Service.

Member

An Employee of a College who is contributing to the CAAT Pension Plan.

MOPPS (Major Ontario Pension Plans)

The group of pension plans made up of 12 employers in the public sector. The "MOPPS Agreement" specifies the rules for reciprocal transfers between these plans. The CAAT Plan cancelled its participation in the MOPPs Agreement effective September 30, 2013 and now relies on the Pension Benefits Act transfer methodology to transfer benefits into and out of the Plan.

Normal Retirement Date

The last day of the month in which a Member turns 65.

Old Age Security (OAS)

Federal income security program available to most Canadians age 65 or over. Employment history and retirement date are not factors in determining eligibility, however residence requirements must be met.

Other Than Regular Full-Time Employees (OTRFT)

Employees who are either working full-time hours with a predetermined end date of employment or part time hours, with or without a predetermined end date of employment. OTRFT Employees can join the CAAT Pension Plan when they have completed 24 months of continuous eligibility service. 

Past Service Pension Adjustment (PSPA)

A PSPA is required to change a previously reported Pension Adjustment (PA), or for past service for a period for which a PA was not reported.

Pension Adjustment (PA)

The deemed value, according to CRA, of the lifetime benefit earned by a Member in any year under a pension plan. The PA reflects the benefit accrued in the previous year. This amount reduces available RRSP contribution room in the current year.

Pension Adjustment Reversal (PAR)

Generated when a Plan Member has terminated employment and is entitled to a refund of contributions or chooses a Commuted Value transfer (for post 1989 service) or a transfer to another registered pension plan and this amount is less than the sum of the PAs and PSPAs which have been reported. It is designed to restore lost RRSP room. The PAR applies only to such terminations from 1997 onward. It does not apply if the Member transfers directly to another College.

Pension Benefits Act (PBA)

Provincial legislation, enforced by the Financial Services Commission of Ontario (FSCO), which regulates pension plans in Ontario and determines minimum standards for eligibility, funding and benefits.

Pensionable Service

Formerly Credited Service. The service in the CAAT Pension Plan that is used in calculating a pension benefit, calculated in years and months. If a Member has purchased service or Transferred in Service, that extra service is included in the calculation.

Pensioner

A Member or Former Member who is receiving a pension from the CAAT Pension Plan.

Plan Sponsor

The organization or individual that establishes and operates a pension plan.

Portability

The ability to transfer vested pension benefits from a registered pension plan to another registered pension plan or locked-in retirement vehicle upon termination of employment or plan wind-up.

Proof of Age

The CAAT Pension Plan will accept as proof of age a legible photocopy of one of the following:

• birth certificate
• baptismal certificate
• Canadian passport
• driver's license
• citizenship card
• marriage certificate that shows date of birth

Proof of Date of Death

The CAAT Pension Plan will accept as proof of date of death a legible photocopy of one of the following:

• provincial death certificate
• funeral home certificate

Purchasable Service

Members' periods of employment that they may be able to purchase as Pensionable Service. These include eligible previous full-time service, pre-enrolment full-time service at a College, a leave of absence without pay, a layoff period with recall rights, parental, pregnancy or adoption leave, a work stoppage, and a reinstatement following a grievance.

Reciprocal Agreement

An agreement between Canadian pension plans that permits the transfer of pension monies from the previous plan to purchase service in the subsequent plan. The CAAT Pension Plan cancelled its participation in all reciprocal agreements effective September 30, 2013 and now relies on the Pension Benefits Act transfer methodology to transfer benefits into and out of the Plan.

Registered Retirement Income Fund (RRIF)

A savings arrangement available from most major financial institutions that accumulates contributions and investment earnings on a tax sheltered basis.

Registered Retirement Savings Plan (RRSP)

A savings arrangement available from most major financial institutions that accumulates contributions and investment earnings on a tax sheltered basis.

Retirement

Departure from the workforce, normally upon reaching a specific age.

Spouse

At the time of the retirement or death, a person who is the legally married Spouse or the qualifying common-law Spouse of a Member, Former Member or Pensioner, provided that person and the Member, Former Member or Pensioner are not living separate and apart.

Statement of marriage or common-law relationship

If the Member is shown as married/common-law at time of retirement, or wishes to be recorded as such, the Member should complete the Spousal Declaration on the TRD Pension Claim.

For a deceased Pensioner, the Spousal Information/Declaration section of the Deferred/Survivor Pension Claim should be completed.

Surplus

A surplus exists in a pension plan when the actuarial valuation determines that the assets available exceed the accrued benefit payments (liabilities) to be paid out.

Survivor Benefits

The benefit payable to a surviving Spouse and/or Child(ren) at the time of death of the Member or Pensioner.

Termination

The end of an employment relationship for any reason other than death or retirement. Members who terminate employment may be eligible to receive an immediate pension, a deferred pension, a Commuted Value transfer or a refund of their contributions and interest, depending on their age and years of Pensionable Service.

Transferred in Service

A part of a Member's period of pensionable employment with certain employers that do not participate in the CAAT Pension Plan for which pension credits were transferred into the CAAT Plan through a transfer agreement.

Vested

The point at which a Member becomes entitled to a pension benefit. This occurs at the earliest of:

• age 65, regardless of length of Pensionable Service or Plan Membership or
• once 2 years of Pensionable Service or Plan Membership are completed.

Year's Basic Exemption (YBE)

The Earnings below which Members do not contribute to the Canada Pension Plan. The YBE is set by CRA at a constant amount of $3,500.

Year's Maximum Pensionable Earnings (YMPE)

Set for the Canada Pension Plan (CPP) by CRA, effective January 1 each year. It is the maximum amount of earnings on which the member contributes to the CPP. For 2011, the amount is $48,300.

60 Months Pension Guarantee

Pensioners are paid for the life of the Pensioner and the Spouse. The CAAT Pension Plan guarantees that Pensioners and their survivors will receive pension payments of at least 60 months of the Lifetime Pension amount at time of retirement (i.e., the first monthly payment a Pensioner receives). This is a minimum. If the Pensioner and survivor pass away before receiving a total of 60 months worth of payments, the balance is paid to the person designated in writing to the CAAT Pension Plan by the last recipient as the Beneficiary. If there is no Beneficiary, it is paid to the estate of the last recipient.

Example: Retires at age 60

Lifetime Pension: $12,000 per year or $1,000 per month
Bridge Benefit to age 65: $6,000 per year or $500 per month.
Total Pension to age 65: $18,000 per year or $1,500 per month.
Guarantee = 60 x $1,000 = $60,000
(the guarantee is 60 months of the Lifetime Pension, excluding the Bridge Benefit)

If the Pensioner dies at age 63, they will have received $54,000
(36 months x $1,500, assuming no indexation increases).
If there are no survivors and no children under age 18, $6,000 will be paid to the Pensioner's designated Beneficiary, or if there is no Beneficiary, to the estate.

60/20 Rule

A Member of the CAAT Plan who is at least 60 years of age and has at least 20 years of Pensionable Service may retire with an unreduced Early Retirement Pension.

75% Optional Survivor Pension

Upon retirement, a Member receives 100% of the Lifetime Pension amount until death. After that, he surviving Spouse will receive 60% of the Member's Lifetime Pension for the rest of the Spouse's lifetime.

Alternately, Members who have a Spouse at time of retirement may choose a higher survivor pension (75%) for the Spouse in exchange for a lower pension for themselves. The CAAT Pension Plan will calculate the required actuarial reduction to the Member's pension.

Example:

Member's Lifetime Pension: $1,000
The required actuarial reduction in their pension is 5%.
The Member's pension would be: 95% x $1,000 = $950.
Upon the Member's death, the surviving Spouse would receive a survivor pension of
75% x $950 = $712.50.
The survivor pension woudl be $600.00 if the 75% option was not chosen.

The option can only be chosen at the time of retirement and only if the Member has a Spouse at that time. The CAAT Pension Plan Retirement Option Document outlines the benefit and offers this option as one of the choices. Once this option is chosen, it is irrevocable. If the Spouse predeceases the Pensioner, the Pensioner's pension will not be adjusted to the unreduced amount.

Note also that these provisions may vary if the retired Member's pension has previously been subject to pension credit splitting arising from marriage breakdown.

85 Factor

A Member of the CAAT Plan whose age plus Pensionable Service totals at least 85 may retire with an unreduced Early Retirement Pension.