Employer-Sponsored Pension Plans



IPP Individual Pension Plan

LIF Life Income Fund.

NRA Normal Retirement Age

RPP Registered Pension Plan



Best-earnings Plan: a defined-benefit plan that relates the amount of pension benefit payable at retirement to the best-earnings of an employee’s career (usually over a three to five consecutive year period), as well as his number of years of credited service.


Career-average Plan: a defined benefit plan that relates the amount of pension benefit payable at retirement to average earnings during an employee’s career, as well as his number of years of credited service.

Contributory Earnings: all employment earnings above a basic exemption level up to a yearly maximum, upon which Canada Pension Plan premiums are payable.

CPP Supplement: for employees who retire before age 65 a CPP supplement is added to the employer pension until age 65 to provide a 2% benefit.


Defined-benefit Pension Plan: any plan that defines the amount of the pension benefit payable at retirement, usually by way of a formula that relates the value of the pension benefits to earning levels and years of service.

Defined-contribution Pension Plan: a plan in which the contribution required from the employer and the employee is known up-front, but for which the ultimate benefits are not known. The value of the pension will depend on what can be purchased by the total accumulation of contributions plus interest – hence the alternate term of money-purchase plan.


Final-earnings Plan: a defined-benefit plan that relates the amount of pension benefit payable at retirement to the average final earnings of an employee’s career (usually over the last three to five years), as well as his number of years of credited service.

Flat-benefit Plans: a defined-benefit plan where retiring members receive a flat rate benefit, regardless of their earnings.


Guaranteed Annuity: a pension that is payable for life, with a provision that payments are guaranteed to continue for a minimum number of years (such as five years), even if death occurs before the end of the guaranteed period.


Individual Pension Plan (IPP): an employer-sponsored, defined-benefit registered pension plan specifically established for the benefit of significant connected individuals or other highly-paid employees. Also called executive pension plan.


Joint and Last Survivor Annuity: a pension that is payable to two annuitants, and that includes a provision that payments will continue for the life of the survivor after the first annuitant dies.


Life Income Fund (LIF): essentially a RRIF that receives funds from a locked-in retirement account that provides for a life income by restricting both the minimum and maximum withdrawals from the plan. Furthermore, property held within a LIF must be used to purchase a life annuity by age 80. Also called as locked-in PRIF.

Locked-in: refers to pension contributions that can no longer be taken out of the pension fund, but that instead must be used to provide a lifetime retirement income. While provincial pension legislation specifies that the funds must be used to provide a retirement income, the Income Tax Act specifies that the pension must begin no later than the end of year in which the annuitant attains 69 years of age (ITR 8502e).

Locked-in RRSP: see Locked-in retirement Account.


Money-purchase Limit: the maximum annual contribution permitted to a defined-contribution pension plan. The limit is $15,500 in 2004, increased thereafter.

Money-purchase Plan: a common name for defined-contribution pension plan.


Normal Pension: defined within the pension contract, in terms of the form that the standard pension benefits will take and what benefits, if any, a member’s beneficiary or estate will receive if the member dies after retirement.

Normal Retirement Age (NRA): the age specified in a pension plan, at which time the member has the right to retire and receive a full, unreduced pension.


Portability: the ability to transfer pension credits to another pension plan or to a locked-in RRSP when employee changes job.

Profit-sharing Pension Plan: a form of defined-contribution pension plan, where the contributions made by the employer reflect the profits from the year.


Qualifying Factor: the combination of age and years that must be achieved by an employee to qualify for an unreduced early retirement.


Registered Pension Plan (RPP): an employer-sponsored pension plan registered under the Income Tax Act and regulated by provincial of federal legislation. There two types: defined benefit plans and defined contributions plans.


Stepped Contributions: where a lower contribution rate applies to earnings up to the Yearly Maximum Pensionable Earnings (YMPE), while a higher rate applies to earnings above the YMPE, while a higher rate applies to earnings above YMPE. Stepped contributions are designed to provide some financial relief for those earnings that are already subject to CPP/QPP contributions.

Straight-life Annuity: a pension that is payable as an annuity for the life time of the member, with no further benefit after the member dies.


Variable Annuity: a contract under which the annuitant receives a periodic payment for a term or for life and the amount of the payment fluctuates in accordance with the earnings of an invested amount.

Vesting: refers to the point in time when the employer’s contributions become the property of the employee, such that the employee has the right to receive the benefit for those contributions, even following termination of employment prior to retirement.

Vested Benefits: benefits that have vested with the employee, such that they legally belong to the employee and must be used to provide him with a retirement income.