Now that the 2014-2015 Ontario budget has been passed by the
Ontario legislature, Ontario employers should think about how the
new Ontario Retirement Pension Plan (ORPP) could affect them.
The ORPP is part of the Ontario government's solution to
help individuals save for retirement. It's a new
"made-in-Ontario" solution to the federal
government's inaction on expanding the CPP. The ORPP will be a
defined benefit pension plan, similar to the CPP, that will be
publicly administered at arm's length from the Ontario
Mandatory participation in the ORPP is set to begin in 2017,
with enrolment occurring in stages starting with the largest
employers. Contributions will be split equally between employers
and employees, up to 1.9% each (3.8% total) on an employee's
earnings above a yet-to-be-determined minimum threshold and up to a
maximum annual earnings threshold of $90,000. The ORPP aims to
provide individuals with retirement benefits that replace 15% of
the individual's pre-retirement earnings (up to $90,000).
The question that employers should be asking is simple: Will I
have to participate in the ORPP? The answer, however, is not so
The Ontario government has stated that employers with a
"comparable workplace pension plan" will be exempt from
participating in the ORPP. But what does "comparable"
mean? Does it mean a registered defined benefit pension plan?
Probably. What about a registered defined contribution pension plan
(DCPP)? Maybe. How about a group Registered Retirement Savings Plan
(group RRSP) or a Pooled Registered Pension Plan or even a Tax-Free
Savings Account? I don't know.
To date, the government has not offered any details on what
would constitute a "comparable" plan.
If the intent is to require employers to help contribute to their
employees' retirement savings, offering a group RRSP where
employer contributions are optional may not suffice. It also might
not be enough for an employer to provide a DCPP to its employees
since the minimum employer contribution in a DCPP is 1% of an
employee's earnings, almost half of the maximum 1.9% required
under the ORPP.
Employers need to start thinking about how the ORPP could affect
their business. Employers who aren't exempt will certainly have
increased payroll costs. In addition to that fact, an employer
offering a comparable pension plan to its employees may want to
consider whether to integrate its current plans with the ORPP, to
offload some responsibility, costs and future risk. An employer
wishing to wind up a registered pension plan and replace it with a
group RRSP in order to save costs may want to wait and see if a
group RRSP counts as a comparable pension plan before making
changes. Until more details about the ORPP are released, any
Ontario employer who doesn't have a defined benefit pension
plan should be monitoring this since we can't be sure how the
ORPP will affect them.
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