What's a CBCA, an FAE5 or a 401(k)?

401(k) plan – A U.S. pension plan established by employers, funded with contributions from employees. Employers may make contributions to the plan or add a profit-sharing feature. Income in the plan is sheltered from tax.

A

Annuity – A contract provided by an insurance company to provide guaranteed payments for life to a purchaser.

B

Bridge payment – An early retirement pension benefit provided to workers under some employer plans, especially in the public sector. Bridge payments give workers extra money as a “bridge” until they can begin collecting full Canada Pension Plan payments at age 65. The payments are intended to approximate the amount of CPP benefit an employee will be entitled to earn at 65.

C

CBCA – The Canada Business Corporations Act is an act applying to federally incorporated companies. It outlines the basic rules and requirements to operate a corporation in Canada. Provincially incorporated companies operate under similar provincial legislation, such as the Ontario Business Corporations Act.

CCAA – The Companies’ Creditors Arrangement Act is federal legislation providing a system for distressed companies to operate under court protection from creditors while they restructure their operations and negotiate terms with lenders. It is often referred to as “bankruptcy protection,” but companies operating under CCAA are not bankrupt and are normally expected to continue operating following a restructuring.

Commuted value – The current value of a worker’s pension. It is typically calculated in order to provide employees with a one-time payout if they are leaving a plan before retirement age. It is the estimated amount of money that would have to be invested today to provide a future benefit equal to the pension a worker has earned to date.

Contribution holiday – A period of time during which an employer makes no contributions to a defined benefit pension plan, typically because the plan is in a surplus position.

CPI – The consumer price index is an index of prices used to measure the change in the cost of basic goods and services. It is also called a cost-of-living index. The CPI is used to measure inflation, or the extent to which consumers’ basic living costs are increasing.

CPP/QPP – The Canada Pension Plan and Quebec Pension Plan, created in the mid-1960s, provide an income to retirees based on mandatory contributions made during their working careers. The benefits are not universal – they are only paid to individuals who contributed to the plans through paid work during their lives in Canada. The payments vary depending on the length of time worked and an employee’s salary level. Workers can collect full benefits at age 65, but reduced benefits are available as early as age 60.

D

Defined benefit (DB) pension plan – A traditional retirement plan in which a company and its employees typically contribute to a pooled investment fund. The company oversees management of the investments and provides a defined level of income to workers when they retire. Payouts are normally based on a worker’s years of service and salary level. The pension payments are guaranteed, and the employer must make up investment shortfalls to ensure the pension plan can meet its promised obligations. In the public sector, many DB pension plans include early retirement benefits such as bridge payments, and many are fully or partially indexed to the rate of inflation. Private-sector DB plans typically do not include these features.

Defined contribution (DC) pension plan – A retirement plan in which a company and its employees contribute a percentage of workers’ salaries into individual investment accounts. Employees typically decide themselves how to invest the money based on a menu of investment options provided by the employer. The amount of pension paid in retirement depends on the returns earned by the investments. There is no guaranteed level of pension payout, and the employer typically does not make up shortfalls or compensate workers for investment losses.

Disc rate (Pension discount rate) – A rate of interest used to determine the amount of a pension plan’s liability or obligation to fund pensions for workers.

F

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