Terms in italics are defined elsewhere in the glossary.
Actuarial Valuation: Pension plan administrators must submit an actuarial valuation to the regulator — normally every three years — disclosing the plan's financial status and establishing the level of contributions necessary to maintain its solvency. In Ontario, this report must be based on both going concern and solvency assumptions and be prepared by an actuary.
Actuary: Under the PBA, an actuary must be a Fellow of the Canadian Institute of Actuaries to be eligible to prepare all actuarial reports, as well as other calculations necessary for the administration of pension plans.
Administrators: Administrators ensure that the plan is properly funded, manage the plan's investments and disburse benefits to retirees. Administrators may seek advice from professionals (actuaries, lawyers and accountants) and engage service providers (insurance companies and financial institutions). They also appoint custodial trustees to hold pension funds separately from any other funds. In many SEPPs, the administrator is a committee appointed by the employer-sponsor; however, in other SEPPs, as well as in JSPPs and in MEPPs, active (and occasionally retired) members, may be represented on these bodies, and in some instances actually control them. While MEPP boards of trustees must act as plan administrators themselves, the governing bodies of SEPPs and JSPPS may appoint an administrator to administer the plan on their behalf.
Annuity: An annuity is a contract purchased from and guaranteed by an insurance company to provide pension payments to someone for their lifetime. When future pension commitments are covered by such a contract, they are said to be “annuitized.”
Ancillary Benefits: DB plans, in addition to lifetime pension benefits, may provide ancillary benefits such as bridging benefits and enhanced early retirement benefits.
Commuted Value: Members who leave a plan before reaching the age at which they would be entitled to a pension may receive instead a one-time payment based on its commuted value — the current value of anticipated future payments according to approved actuarial assumptions.
Contributions: Contributions to a DB plan are payments made in accordance with an actuarial valuation in an amount sufficient to ensure that the plan can provide the promised benefits. Contributions are often the sole obligation of the employer or sponsor. However, some “contributory plans” provide that members pay a fixed percentage of their wages or a set amount per hour worked, while the employer pays any residual amounts required to maintain the solvency of the plan (but never less than 50% of its cost). In JSPPs, the contributions required of all parties may fluctuate according to the funding needs of the plan.
Contribution Holiday: If an ongoing plan is in surplus, with more assets than liabilities, excess assets may be used to offset contributions for the current service costs of funding ongoing pension accruals. When a plan is using surplus to reduce or suspend such contributions, it is taking a contribution holiday.
Current Service Cost: The current service cost or normal cost of current pension accruals is based on a pension plan's going concern valuation and must be paid into the pension fund each year.
Deficiency: Plans are in deficiency or under-funded if they have insufficient assets to meet their anticipated obligations. Generally, when a plan is under-funded, the sponsor must eliminate the deficiency by making special payments, which are spread (amortized) over a period of years. (Plans with fixed contributions may take other measures to address under-funding.)
Defined benefit (DB) pension plans: DB plans promise to provide employees upon retirement with a pension calculated according to some specified formula: a percentage of their career average earnings (CAE plans), or of their average earnings during their final years of service (FAE plans); or a fixed sum per month for each month or year worked (flat benefit plans).
Defined contribution (DC) pension plans: DC plans promise to provide employees upon retirement with a sum representing fixed monthly contributions by their employer (and sometimes by the employees as well), plus any return on the investment of these contributions achieved prior to retirement. In many DB plans, employees either select from a limited range of investment options or manage the investment of the fund themselves.
Discount Rate: The discount rate is the interest rate used to determine the present value of a future stream of pension payments.
Financial Services Commission of Ontario (FSCO): FSCO is responsible for administering a number of the statutes that regulate the financial sector, including the PBA. FSCO's chief executive officer and primary regulator is “the Superintendent.” FSCO is established under the Financial Services Commission of Ontario Act.
Financial Services Tribunal (FST): The FST, established under the Financial Services Commission of Ontario Act, is an adjudicative body that hears appeals from the Superintendent and decides other pension disputes.
Fully Funded: A plan is fully funded if it has sufficient assets to provide for all accrued benefits.
Going Concern Valuation: This method of pension valuation assumes that the plan will be ongoing and that its assets must be sufficient to meet its liabilities (the pension benefits promised) when they come due in the future. If a plan is under-funded on a going concern basis, it has an “unfunded liability” which must be “amortized” over 15 years. If a plan is over-funded, it has a surplus.
Indexation: Pension plans may provide for periodic adjustments to pension benefits (usually post-retirement) according to a formula based on a recognized index such as the Consumer Price Index.
Jointly Sponsored Pension Plan (JSPP): JSPPs are DB plans in which the employer or employer representatives and the members share responsibility for its funding and governance. JSPPs may be either MEPPs or SEPPs.
Members: The members of pension plans are “active” if they are accruing benefits on a current service basis and “deferred” if they have ceased to be employed and cannot accrue future benefits, but will nonetheless be entitled to a pension on reaching their normal retirement age. Under the PBA, members who have retired and are receiving pensions are referred to as “former members.” Often the active, deferred and retired members of a plan are collectively identified as “beneficiaries.”
Multi-employer Pension Plan (MEPP): MEPPs are pension plans covering workers employed by a number of employers, usually in the same economic sector. They are customarily funded by fixed contributions; in the event these contributions are insufficient to pay for the benefits provided, the benefits may have to be reduced. MEPPs are administered by boards of trustees at least 50% of whom must represent the active members of the plan. MEPPs in which funding and governance are both shared with the members may qualify as JSPPs.
Minister of Finance: The Minister of Finance is the minister responsible for pension policy and regulation in Ontario.
Occupational pension plans: Occupational or workplace pensions are provided by employers to their employees either pursuant to a collective bargaining agreement, or because the employer believes that having a pension plan will assist it in attracting or retaining workers. However, employers are not required by law in Ontario to provide such pensions. By contrast, all workers and employers must contribute to and are covered by the Canada / Quebec Pension Plan. The two main models of occupational pension plans are DB plans and DC plans. Many variants and hybrids also exist.
Pension Benefits Act (PBA): The PBA is the legislation governing pension plans for members employed in workplaces that come under Ontario's legislative jurisdiction. Workers under federal jurisdiction or the jurisdiction of other provinces are covered by different statutes.
Present Value: The present value is the value today of an amount that is to be paid in the future. In relation to DB plans, it is used in the context of valuing future promised benefits for funding purposes or portability options.
Single-employer Pension Plan (SEPP): SEPPs are pension plans sponsored — and often administered — by a single employer. SEPPs in which funding and governance are both shared with the members may qualify as JSPPs.
Solvency Valuation: This method of pension valuation assumes that the plan is about to be wound up so that its assets will have to be used immediately to meet its existing liabilities. If there are more liabilities than assets, the plan has a “solvency deficiency” which must be paid over five years. If a plan has greater assets than liabilities on a solvency basis, it has a surplus.
Special Payments: Special payments are required for unfunded liabilities and solvency deficiencies, as opposed to current service costs.
Sponsor: The sponsor of a pension plan offers the plan to employees and is responsible for ensuring that the promised benefits are paid for. In SEPPs, the sponsor is the employer while in JSPPs, the employer or employers and members are both sponsors.
Surplus: Plans are in surplus or over-funded if they have more assets than required to meet their anticipated obligations.
Target Benefit Pension Plans: Target benefit pension plans aim to provide a defined benefit but are funded through fixed contributions. If the fixed contributions are insufficient to provide the target benefits, the benefits may be reduced. MEPPs are typically target benefit plans.
Wind-up: Under the PBA, a pension plan wind-up occurs when the plan is terminated and all assets are distributed. A “partial wind-up” may occur when a significant element of the workforce is terminated, or a particular function or workplace is abandoned.