The following are common terms that you will see used throughout the website.
Actuary – Actuaries are professionals who use mathematics and finance to study and calculate the economic value of uncertain future events. For example, actuaries calculate the value of a pension using probability theory to reflect the uncertainty of a person’s lifespan.
Under the law there are many roles that must be filled by an actuary. For example, the amount of money that an employer contributes to its pension plan must be determined by an actuarial valuation prepared by an actuary. In Canada, actuaries are governed by the Canadian Institute of Actuaries.
Collaborative family law – The following definition is from the Collaborative Practice Toronto website. Collaborative Practice is an out-of-court alternative for divorcing couples that has been gaining momentum across North America since its creation in 1990. Separation and divorce can be one of the most stressful and expensive transitions in life. Separating couples suddenly find themselves dealing with a series of unfamiliar social, legal and financial issues triggered by separation.
The Collaborative Practice approach brings together specially trained legal, family and financial experts to assist parties to work toward a separation agreement that is realistic, workable, confidential and meets the interests of both spouses and their children. A collaborative divorce is usually much less expensive than a traditional divorce because it eliminates the need for time consuming, expensive court appearances.
At the start of the process all parties must sign a contract agreeing to adhere to the three guiding principles of collaborative practice, which are;
- A pledge not to go to court
- An honest exchange of information by both spouses
- A solution that takes into account the highest priorities of both spouses and children.
Collaborative Practice is a client-centered, solutions-oriented process. Both the parties and their lawyers make a commitment that negotiations will be principled, dignified and respectful. Issues are resolved without the threat of going to court, after a wide variety of options for settlement are explored. Often, the couple decides to make use of the expertise of other collaboratively-trained professionals. A neutral child specialist can provide insight into concerns of the children and help craft parenting plans. A neutral financial specialist can help gather and explain financial information and create future projections for settlement options. Family professionals help couples improve communication and manage conflict.
Defined benefit pension plan (DB) – A defined benefit (DB) pension plan provides a pre-determined retirement pension for employees for as long as they live. The employer’s contribution to the pension plan is determined by an actuary and varies based on plan experience, including investment performance and mortality experience (how long plan members live after retirement).
A DB plan might provide a pension at retirement of $40 per month for each year of service earned in the plan. If you have a DB pension plan, your annual pension statement will provide you with information about the pension payments that you will be entitled to on retirement.
Defined contribution pension plan (DC) – In a defined contribution (DC) pension plan, the employer contributes an amount every year into an investment account for each employee, and the accumulated account balance including investment income at retirement is used to provide retirement income. In a DC plan, the member’s pension amount at retirement is not pre-determined and will vary based on the investment performance of the plan assets (investment performance doesn’t affect the employer’s required contribution), and as a result the investment risk in a DC plan is borne by the employee. In addition, it is possible for an employee in a DC plan to run out of money if they live longer than expected.
A DC plan might require the employer to contribute 5% of your earnings into a DC account. If you have a DC pension plan, your annual pension statement will provide you with information about contributions to your account, and the balance of your account including investment income.
Life annuity – A life annuity will provide you with regular payments for as long as you live. For example, a monthly life annuity of $500 would provide you with a payment of $500 for every month until you die.
LIRA – A LIRA or Locked-In Retirement Account is basically a locked-in RRSP. You have investment control over your funds just as you do with a regular RRSP. However, since the account is locked-in you cannot withdraw money prior to retirement and it must be converted to either a LIF, LRIF or a life annuity in order to begin withdrawing money.
When a member terminates membership in an employer pension plan prior to retirement, they can transfer the value of their pension entitlements out of the plan and into a LIRA. These funds generally cannot be transferred into a regular RRSP. A LIRA is locked-in because the funds came from a pension plan where the member’s pension entitlements were locked-in. The funds in a LIRA can be from either a defined benefit or defined contribution pension plan.
LIF – A LIF or Life Income Fund allows you to withdraw money from the fund beginning at retirement. Maximum and minimum withdrawals are specified; you cannot withdraw your account as one lump sum.
Locked-In – When money is locked-in, this means that you cannot withdraw this money as a lump sum, and withdrawals must be used to provide retirement income.
LRIF – A LRIF or Life Income Retirement Fund is similar to a LIF except that there is no requirement to convert the account to a life annuity by age 80.
Provincially Regulated Pension Plans – Pension plans which are governed by provincial pension benefits legislation (i.e. the Pension Benefits Act of Ontario) are considered to be provincially regulated. The majority of pension plans are provincially regulated. However, the pension plans for any companies in industries that are under federal jurisdiction such as banks, airlines and railways are governed by the federal pension benefits legislation (i.e. the federal Pension Benefits Standards Act). In addition, the federal public service pension plans are established by their own federal legislation and are not regulated by any pension benefits standards regulations.