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Glossary of Terms

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A B C D E F G H I L M N O P Q R S T U V Y

Active Management: A management style whereby a manager selects individual investments with the goal of earning a higher return than its comparative benchmark.

Actuary: An independent professional who calculates pension plan liabilities and compares them to pension plan assets in order to determine the financial status of a pension plan.

Additional Voluntary Contributions (AVCs): Contributions made by members of the Pension Plan in additional to regular contributions which receive an immediate tax relief at source. Members can elect to make AVCs online through Minerva for Faculty & Staff. It is important to note that the University does not match AVCs.

Annualized Rate of Return: A rate of return expressed over one year, although the actual rates of return being annualized are for periods longer or shorter than one year.

Annuity: When you buy an annuity, you exchange a lump sum of money for a series of payments of a fixed amount for a specified period of time. Various optional forms of life annuity allow you to provide continuing payments after your death to a spouse or other beneficiary.

Asset Allocation: The proportion of assets invested in different asset classes such as cash and equivalents, fixed-income securities and equities.

Balanced Account: The investment option established by the Pension Administration Committee and which consists of allocations to the Equity and Fixed Income Pools in such proportions as shall be determined from time to time by the Committee.

Basis Point: One-hundredth of a percentage point. The difference between 5.25% and 5.50% is 25 basis points.

Benchmark: A standard against which rates of return can be measured, such as stock and bond market indices.

Beneficiary: Any person, other than the member, who is entitled to a benefit under a pension plan, that is, any person who is entitled to a benefit at the member’s death. As a rule, this person is the member’s spouse or the person the member has designated. Under the Supplemental Pension Plans Act (Quebec), the appointment of any beneficiary is subject to the prior rights of your spouse, should you have one at the date of your death.

Bonds: Evidence of a debt on which the issuer promises to pay the holder a specified amount of interest for a specified length of time and to repay the indebtedness at maturity.

CRA: Canada Revenue Agency (formerly Canada Customs and Revenue Agency).

Common Shares: Securities representing ownership in a company, usually carrying voting privileges. Common shareholders share in growth through capital appreciation and may also be entitled to dividends, at the company’s discretion.

Consumer Price Index (CPI): An inflationary indicator provided by Statistics Canada that measures the change in the price of a fixed basket of goods and services. The basket is supposed to reflect the average needs of a family.

Custodian: An independent organization, usually a trust company, entrusted with holding investments on behalf of the owner. The custodian maintains financial records for the investments and may perform other services for the owner as well.

Defined Benefit: In a defined benefit plan, the pension received is based on a formula (usually tied to service and pay). You do not have a “pension account” because your pension is paid based on the formula. It is your employer’s responsibility to ensure that contributions and investment earnings are sufficient to provide your pension.

Defined Benefit Minimum Provision: Based on a formula that takes into account the plan member’s credited service and highest 60-consecutive months of earnings and applicable to members of the Plan including members eligible to join the Plan prior to January 1, 2009.

Defined Contribution Plan: For those employees who became eligible to join the McGill Pension Plan on or after January 1, 2009, the Pension Plan is a defined contribution plan. You and the University each contribute a certain amount to the plan every month. You choose how you wish to invest these contributions from a range of investment options provided through the plan. When the time comes to retire, you use your pension account balances to “buy” a pension. In a defined contribution plan, the amount of contribution is known in advance, but the amount of pension isn’t. The amount of pension you receive depends on the size of your “pension accounts” at retirement, your age and market conditions when you convert these savings into a retirement income.

DEX 30 or 91-day Treasury Bills Index: Measures the performance attributable to 30 or 91-day Treasury Bills of the provincial and federal governments.

DEX Real-Return Bond Index: Measures the performance of Canadian real-return bonds.

DEX Universe Bond Index: Designed to be a broad measure of the Canadian investment-grade fixed income market. The Universe Index is divided into a variety of sub-indices (e.g. Short, Mid, Long) according to term and credit and also consists of four main credit or borrower categories: bonds issued by the Government of Canada (including Crown Corporations), Provincial bonds (including provincially-guaranteed securities), Municipal Bonds, and Corporate Bonds.

Diversification: A strategy to spread investment risk among different asset classes, different types of assets, among securities, among economic sectors, and among different countries.

Duration: A measure of the interest rate sensitivity of a bond’s market price taking into consideration its coupon and maturity date.

Emerging Markets: Markets in developing countries as defined by the International Finance Corporation (IFC) on the basis of Gross National Product (GNP) per capita. Countries classified as low or middle-income by the World Bank are considered developing or emerging countries.

Enhanced Index Mandate: A form of activemanagement whereby an investment manager aims to outperform the index by investing in securities included in the index, subject to investment restrictions, such as weighting limits of holdings in the portfolio.

Equity Pool: Those holdings of common and preferred shares and other such holdings which are generally considered to be equity securities. The Equity Pool may hold cash and cash equivalents from time to time.

Fixed Income Pool: Those holdings of bonds, debentures, mortgage loans, notes and other such holdings which are considered to be debt instruments. The Fixed Income Pool may hold cash and cash equivalents from time to time.

Going-Concern Actuarial Surplus: Means the amount, if any, by which the sum of the going-concern assets exceed the going-concern liabilities; going-concern valuation: assumes that the Plan will remain in effect indefinitely and is, therefore, based on long-term actuarial assumptions and methods.

GPR 250 Net Index: A real estate benchmark consisting of the 250 most liquid property companies worldwide, and uses the tradable market capitalization of these companies as index weights.

Gross Rate of Return: Rate of return of a portfolio before deducting investment management fees.

High-Yield Bonds: A corporate bond that has been assigned a rating below investment grade by a rating agency reflecting lower credit quality of the issue.

Hybrid Plan: If you joined or were eligible to join the McGill Pension Plan prior to January 1, 2009, the Pension Plan is a hybrid plan. First, it’s a defined contribution plan. You and the University each contribute a certain amount to the plan every month. You choose how you wish to invest these contributions from a range of investment options provided through the plan. When the time comes to retire, you use your pension account balances to “buy” a pension. But to protect against the investment risks inherent in a straight defined contribution plan, the McGill Pension Plan includes a defined benefit minimumIf your minimum pension using the defined benefit formula is higher than the pension you can buy with the value of your pension accounts (based on the performance of the default investment option – Balanced Account), the University will contribute an extra amount to your pension account to make up the difference. Conversely, if your pension accounts flourish as a result of strong market performance, you get the full value of your defined contribution pension. (For more information please refer to p.8 of the Hybrid Plan Brochure).

Index Funds: An investment fund that closely replicates the composition of a particular market index (e.g. S&P 400 MidCap Index Fund).

Inflation: The term used to describe rising prices of goods and services within an economy. The purchasing power of the monetary unit declines when inflation is present.

Investment Objective – Balanced Account: To optimize capital accumulation over the long-term through allocations to the Equity and Fixed Income Pools with a target asset mix of 60% equity securities and 40% fixed income securities.

Investment Objective – Equity Pool: To provide long-term capital appreciation and dividend income by investing in a diversified portfolio of Canadian and foreign equity securities.

Investment Objective – Fixed Income Pool: To provide a predictable source of interest income, reduced volatility of investment returns and a hedge against deflation, by investing in a diversified portfolio of primarily Canadian fixed income securities. An allocation to real-return bonds will provide a hedge against inflation.

Investment Objective – Money Market Pool: To preserve capital, provide stable retrns and maintain liquidity.

Investment Objective – Socially-Responsible Investment (SRI) Pool: To optimize capital accumulation over the long-term in a "socially responsible" manner through allocations to equity and fixed income investments with a target asset mix of 65% equity securities and 35% fixed income securities including a maximum cash limit of 10%.

Life-Income Fund (LIF): A transfer option for a LIRA much as a RRIF is a transfer option for an RRSP. A LIF allows you to continue to tax shelter your savings and maintain control over the investment of funds. It operates the same way as a RRIF except that instead of having only a minimum annual withdrawal limit, a LIF has both minimum and maximum annual withdrawal limits.

Locked-In Retirement Account (LIRA): Works the same way as an RRSP, except that amounts in a LIRA are locked-in and must be used to provide a retirement income. All funds in a LIRA must be used to buy an annuity or be transferred to a LIF by the end of the year in which you reach age 71.

Liquidity: The ability to buy or sell an asset quickly.

Market Value: The price at which an investment can be bought or sold.

Merrill Lynch Global High Yield (Hedged) Index: Measures the performance of below investment grade Canadian and US dollardenominated bonds (i.e. rated BBB and lower) of Canadian domiciled corporate issuers. The index is fully hedged to eliminate the impact of the US dollar on US dollar-denominated issues.

MSCI EAFE: The Morgan Stanley Capital Inc. EAFE® Index (Europe, Australasia, Far East) is a free floatadjusted (i.e. the equity of a company available to international investors) market value weighted index (stock price times the number of shares outstanding) that is designed to measure the market equity performance of 21 developed markets, excluding the US & Canada.

Money Market Pool: Those holdings of cash, short-term investments and other such securities with maturities less than a year which are generally considered to be money market instruments.

New Pool: Represents eligible plan members who purchased their pensions on the “new” rate basis from January 1, 2000 on.

Non-North American Investments: Investments made in securities of companies generally domiciled outside of Canada or the United States.

Old Pool: Represents plan members who purchased their pensions on the “old” rate basis prior to January 1, 2000.

Normal Retirement Date: The last day of the month in which you reach age 65. This is the date used as the benchmark for calculating your minimum pension, as applicable.

Pension Adjustment (PA): The value of your membership in the McGill Pension Plan for the year (reported on your T4). To determine how much you may contribute to an RRSP, you must subtract your PA from your current year’s RRSP contribution limit. To find out how much you may contribute to your RRSP, check your annual federal income tax notice of assessment.

Pension Adjustment Reversal (PAR): A mechanism for restoring RRSP contribution room lost due to overstated PAs. The PA generated by the CRA formula for defined benefit plans may actually overstate the value of your membership in the McGill Pension Plan, and may not apply at all if your minimum pension is less than your defined contribution pension. When you leave, retire or reach age 65, any RRSP contribution room lost due to overstated PAs will be restored by a pension adjustment reversal (PAR).

Pension Fund: Consists of employee and employer contributions into the Pension Plan plus the income, gains and/or losses derived from fund investments. In addition, the pension fund disburses all benefits provided by the Pension Plan and pays Pension Plan administration expenses.

Pension Plan: Shall mean the McGill University Pension Plan as described in the Plan Document, as amended from time to time. The Pension Plan has been established for the purpose of providing retirement, death and termination benefits for employees and their beneficiaries.

Plan Document: The text of the McGill University Pension Plan as amended to January 1, 2009 and which is available for viewing by members online or at the offices of the Pension Administration Committee.

Private Equity: Equity capital invested in a private company and which may include investments in venture capital, corporate buyouts and mezzanine financing.

Quebec Pension Plan (QPP) earnings limit: Also known as the “Year’s Maximum Pensionable Earnings” (YMPE), this is the maximum earnings on which you make contributions to the QPP each year. It is adjusted each year by the QPP to reflect changes in the average wage index and is roughly equal to the average industrial wage.

Rate of Return: The income earned (i.e. yield) plus/minus any realized and unrealized capital gains/losses for a particular period, usually expressed as a percentage.

Realized Gains/Losses: Capital gains/losses that result when an appreciated/depreciated asset is sold.

Real Estate Investment Trust (REIT): A corporation or trust that uses the pooled capital of many investors to purchase and manage income property.

Real-Return Bonds: Evidence of a debt on which the issuer promises to pay the holder a periodic amount of interest for a specified length of time based on a real rate of interest and actual inflation. The bond’s principal or indebtedness is repaid on maturity.

Rebalancing: An investment approach by which the investor or manager maintains an investment mix by reallocating funds periodically over time.

Registered Retirement Income Fund (RRIF): One of the options for tax-free transfer of funds from an RRSP or other pension account (not locked-in). You maintain control over investment of funds and timing of withdrawals, but you must make a minimum annual withdrawal. No maximum withdrawal applies.

Registered Retirement Savings Plan (RRSP): A retirement savings plan registered under the Income Tax Act that allows you to put aside a portion of income on a tax-sheltered basis. Investment earnings on an RRSP are also tax-sheltered Cash withdrawals are permitted at any time, but amounts withdrawn are taxed as income. Funds in an RRSP must be withdrawn, used to buy an annuity, or transferred to a RRIF by the end of the year in which you reach age 71.

RRSP Contribution Room : The Canada Revenue Agency (CRA – formerly Canada Customs and Revenue Agency) currently limits the amount you may contribute to an RRSP to 18% of your previous year’s “earned income” to a maximum dollar limit (see table below). Because you are a member of a registered pension plan, this limit is reduced each year by a pension adjustment (PA), which reflects the value of your membership in the McGill Pension Plan. The PA for your defined contribution pension is simply the total contributions (employee, University and AVCs) made during the year. To find out how much you may contribute to your RRSP; check your annual federal income tax notice of assessment.

S&P 1500 (or SuperComposite 1500): An index combining the S&P 500, S&P 400 MidCap, and S&P 600 SmallCap indices to efficiently create a broad market portfolio representing approximately 90%of the market value of US publicly-traded equities.

S&P 500 LargeCap: A US index consisting of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index (stock price times number of shares outstanding), with each stock’s weight in the Index proportionate to its market value.

S&P 400 MidCap: A US index consisting of 400 domestic stocks chosen for market size, liquidity, and industry group representation. Like the S&P 500 index, it is also a market value weighted index. It is considered a proxy for measuring performance of the mid-size company segment of the US market.

S&P 1000 Small/MidCap: A combination of the S&P 600 SmallCap and S&P 400 MidCap indices, where the S&P 600 SmallCap represents approximately 30% and the S&P 400 MidCap represents approximately 70%.

S&P/IFCI: A market capitalization-weighted index measuring the equity performance of 27 emerging markets.

S&P/TSX Canadian SmallCap: An index of smaller Canadian companies that have been included in the S&P/TSX Composite index, but are not members of the S&P/TSX 60 or the S&P/TSX Canadian MidCap Indices.

S&P/TSX Capped Energy Trust: A sector-based index of income trusts in the Energy sector. The individual constituent Energy income trusts will have their relative weights capped at 25%.

S&P/TSX Composite: The principal broad market measure for Canadian equity markets including common stocks and income trust units.

Socially-Responsible Investment (SRI) Pool: Those equity and fixed income holdings and other such securities which are managed within a socially responsible investment framework. The SRI Pool may hold cash and cash equivalents from time to time.

Solvency Deficiency: Means the amount by which the sum of the solvency liabilities exceeds the sum of the solvency assets. A solvency valuation is based on the assumption that the Plan is being terminated.

Spouse: Under Quebec pension law, your “spouse” is defined as the person who, at the time you start your pension or the day preceding your death:

  1. is married to or in civil union with you, or
    • at least one child is born, or to be born, of your union;
    • you have adopted jointly at least one child while living together in a conjugal relationship, or;
    • one of you has adopted at least one child of the other, while living together in a conjugal relationship.
  2. has been living in a conjugal relationship with you and you are neither married nor in a civil union, whether the person is of the opposite or the same sex, for a period of not less than three years, or for a period of not less than one year if

For the purpose of item (2), the birth or adoption of a child prior to a period of conjugal relationship existing on the day preceding your death may qualify a person as a spouse.

Supplementary Pension: When you “settle” your pension accounts, the value of the minimum pension you have earned using the defined benefit formula, if applicable, is compared to the total value that you would have accumulated in your Employee and University Contribution Accounts if you had always invested 100% in the Balanced Account. If your defined benefit minimum pension is worth more, the University will contribute an extra amount to your pension accounts to make up the difference. This extra amount represents the value of the “supplementary pension”.

Tax-Free Savings Account (TFSA): A TFSA allows Canadians aged 18 and older to set up to $5,000/year aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. Contributions to a TFSA will not be deductible for income tax purposes but investment income, including capital gains, earned in a TFSA will not be taxed, even when withdrawn. Unused TFSA contribution room can be carried forward to future years. You can withdraw funds from the TFSA at any time for any purpose.

T-Bills: Treasury bills are short-term government debt, which do not pay interest but are sold at a discount to reflect short-term interest rates and mature at par value. The difference between the purchase price and the proceeds at maturity represents investment income.

Transfer Value: Also known as the “commuted value” or “value”. This is the lump-sum value of the minimum pension you have earned, if applicable, and would be entitled to at age 65 if you left your pension benefits in the McGill Pension Plan.

Trust Units: Investments in business trusts, royalty trusts (oil and gas), or real estate investment trusts (REITs).

Unit Value: The value/cost of each unit in a particular investment pool. Unit values for all the pools are calculated on a market-value basis on the last business day of each month with a one-month lag. (e.g. the December unit values were based on the market values in effect on November 30th). Unit values are net of all investment and administrative expenses and fluctuate (subject to increase or decrease) on a monthly basis in accordance with prevailing market conditions. Consequently, unit values can be quite different from the market performance returns, which are reported gross of fees and on a calendar basis.

Venture Capital: Financing provided to start-up companies and early and later stage businesses with high growth potential.

Yield: A ratio obtained by dividing the annual income (dividends, interest, rent) by the current market price of an investment, generally expressed as a percentage.