Canada: Should I Stay Or Should I Go?

Last Updated: May 9 2016
Article by Lorraine Allard

Most Read Contributor in Canada, September 2018

At long last, Bill 186 – the Ontario Retirement Pension Plan Act (Strengthening Retirement Security for Ontarians), 2016 (ORPPA) – was released on April 14, 2016.

The ORPPA confirms a number of details that had already been publicized by the Government of Ontario. Further missing details will be provided in eventual regulations. The ORPPA also confirms that the Ontario Retirement Pension Plan (ORPP) will be a type of target-benefit plan, since it will provide for a potential increase in contribution rates, as well as a reduction of adjustments to the "maximum annual earnings threshold" discussed below and indexing, should the ORPP become unsustainable.

Below is a summary of the details of the ORPP, as set out in Bill 186, and how they compare to requirements of the Canada Pension Plan (CPP), the Pension Benefits Act of Ontario (PBA) and other statutes, and what issues these details may present. The legislative comparison is particularly interesting as it highlights the extent to which the Government was motivated to produce a structure that could be folded into the CPP.

We have also included a short checklist of considerations for employers contemplating the advent of the ORPP.

Main ORPP Features

The ORPP's main features are as follows.

1. Comparable Workplace Pension Plan

An employer must enrol its employees in the ORPP except if they participate in a "comparable workplace pension plan" (CWPP), which is:

  • Except as prescribed1, a defined benefit (DB) plan with an annual benefit accrual rate of at least 0.5% of the member's annual remuneration
  • Except as prescribed, a defined contribution (DC) plan with a total mandatory contribution rate of 8% of the member's annual remuneration, with at least 4% being the mandatory employer contribution rate2
  • As prescribed, a hybrid pension plan (i.e., one with both a DB and DC provision)

A DB multi-employer pension plan (MEPP) will qualify as a CWPP if it meets the minimum annual benefit accrual or the DC contribution tests.

2. Timing of Initial Enrolment

Large and medium employers must begin to contribute on January 1, 2018 and small employers on January 1, 2019 (the meaning of large, medium and small to be prescribed but expected to be 500 or more employees for large employers, 50 to 499 employees for medium employers, and fewer than 50 employees for small employers)3. For an employer who participates in a workplace pension plan that is not a CWPP, the participation date may be pushed back to January 1, 2020 (as prescribed).

3. Contribution Rates

Employees will contribute 1.9% (which is equivalent to the CPP 1987 contribution rate) of "pensionable earnings" (the meaning of which is to be prescribed4) exceeding the minimum earnings threshold of $3,500 (which is equivalent to the CPP's Year's Basic Exemption) up to the maximum annual earnings threshold of $90,000 (adjusted for changes in the average wage) per pay period, and employers will contribute the same.

The contribution rate may be lower for different years and for different employers (as prescribed).

4. Benefit Accrual Rate

An ORPP member's pension will be determined by multiplying the member's pensionable earnings for each year by a benefit accrual rate of 0.375%, and it will be indexed (as prescribed).

Except as prescribed, the ORPP will pay nothing before January 1, 2022.5

The benefit accrual rate may be lower for different years and for different employers (as prescribed).

Other ORPP Features

ORPP requirements Legislative Comparisons Of Note
Membership Employee (and employer) required to contribute in respect of employment in Ontario for which employee does not participate in a CWPP, except if:

  • employed by federal government6 or is in prescribed employment7
  • earnings from employment are not taxed under the Income Tax Act because they are in respect of employment of an Indian or pursuant to a tax treaty
  • employee is exempted on religious grounds
Exemptions roughly equivalent to CPP

PBA allows for waiting period of up to 2 years
If CWPP excepts certain employees such as temporary employees, such employees and employer must contribute to ORPP if minimum earnings threshold is exceeded

If there is a waiting period before CWPP contributions begin, employee and employer must contribute to ORPP during such waiting period
Employment in Ontario Employee is employed in Ontario if required to report to work at, or is paid from, an establishment in Ontario Same as in PBA
Minimum / Maximum Ages Employee who is less than 18 and more than 70 years of age may not contribute Minimum age consistent with CPP and Human Rights Code of Ontario, and maximum age with tax rules
Leaves Employer must also contribute, where member elects to contribute based on prescribed amount, during leaves identified in Part XIV of the Employment Standards Act. 2000 (ESA)8 Same as in ESA Not clear how employer will know of member's election

Not applicable to other leaves (so no other employer contribution obligation if no pensionable earnings)
Pensionable Ages Pension can begin no earlier than age 60 and no later than age 70

Pension cannot be paid if member employed in ORPP-able employment, unless has reached age 70

Pension commencing before or after age 65 is actuarially adjusted
Pensionable ages are comparable to CPP, but not prohibition on receipt of pension while still employed ORPP does not provide for benefit earlier than age 60 even if disability or shortened life expectancy, or phased retirement
Forms of Pension If member has no spouse, pension guaranteed for 10 years with remainder, if member dies before end of guarantee, paid in lump sum to designated beneficiary, or to personal representative if no designated beneficiary

If member has a spouse, and they are not living separate and apart and have not waived rights, pension paid in actuarially adjusted 60% j&s form
60% joint & survivor (j&s) pension similar to spousal benefit in PBA and CPP, but CPP does not disentitle separated spouses
Pre-retirement Death Benefit If member dies before pension commences to be paid, lump sum equal to greater of actuarial equivalent of pension, and member contributions plus interest, is paid to spouse if they were not living separate and apart, designated beneficiary if no spouse, or personal representative if no designated beneficiary Death benefit similar under PBA. CPP death benefit calculated differently No pre-retirement death benefit waiver as under PBA
Suspension of Pension Member in receipt of pension may not contribute to ORPP but may elect to suspend pension in order to resume making ORPP contributions

When pension resumes, is paid in same form as before (even if spouse has died)

If member dies during suspension, pension is paid as per form
Lump Sum Payments If member's life expectancy is less than 2 years, lump sum paid:
  • if pension has not commenced, equal to greater of actuarial equivalent of pension and member contributions plus interest (as prescribed)
  • if pension has commenced (as prescribed)
If amount of pension payable to member or spouse below prescribed threshold, lump sum paid equal to greater of actuarial equivalent of pension and member contributions plus interest (as prescribed)
PBA provides for commutation in cases of shortened life expectancy, small pension and financial hardship Small pension amount likely to be similar to that in PBA - annual benefit not more than 4% of "Year's Maximum Pensionable Earnings" under CPP (YMPE) or commuted value less than 20% of YMPE
Relationship Breakdown To be prescribed

Employer Duties and Liabilities

The ORPPA provides the following employer duties and liabilities.

ORPP Requirements Legislative Comparisons
Contributions Every pay period, employer must deduct member contributions and remit member and employer contributions Similar to CPP
Records Employer must keep records (as prescribed) Similar to CPP
Trust and Lien Employee contributions deducted from employee remuneration deemed to be held in trust

ORPP has lien and charge on employer property in deemed trust amount
Trust and lien similar to PBA

Trust similar to CPP
Liability for Contributions Employer liable for:
  • amounts not deducted and remitted
  • interest (as prescribed) on amounts not remitted
Director jointly and severally liable with employer to remit contributions, interest and administrative penalty
Similar to CPP

Similar to CPP
Successor Employers Successor employer:
  • jointly and severally liable with former employer to pay amounts required
  • may take into account former employer's contributions
Similar to CPP
Administrative Penalties Administrative penalty of no more than $10,000 may be imposed by order on:
  • employer having failed to remit contributions
  • person having committed an enumerated contravention9
Similar to CPP
Offences Employer having failed to remit contributions and person having committed an enumerated contravention, including director who authorizes or acquiesces, is liable for a fine of $100,000 on first conviction and $200,000 on second Similar to PBA

ORPP Planning

Employers with employees in Ontario have a variety of things to consider in determining whether and to what extent they will be subject to the ORPP.

1. Employers Who Offer Workplace Pension Plans

An employer with a workplace pension plan will have to consider the following:

  • Will its pension plan qualify as a CWPP?
  • If not, assuming that it wishes its pension plan to qualify as a CWPP, what has to be done to the DB benefit accrual rate or DC mandatory contribution rates to ensure that the pension plan qualifies and what are the impediments to (e.g., collective bargaining) and cost and other implications of doing so?
  • If the CWPP has a waiting period, should such period be eliminated – for full-time employees only or for part-time and full-time employees - and what are the cost and other implications of doing so?
  • If plan membership is voluntary for some or all employees, should it be made mandatory?
  • In respect of how many employees is the employer likely to have to contribute to the ORPP even if it has a CWPP?

Certainly, as discussed above, the major challenge for an employer with a CWPP will be how to deal with waiting periods and employees who are not eligible for the CWPP.

2. Employers who Participate in a DB Multi-employer Pension Plan

Employers who participate in a MEPP should think of the following:

  • They should determine how and when to seek assurances from the MEPP administrator that it is a DB plan that qualifies as a CWPP.
  • If the MEPP is a DB plan that qualifies as a CWPP, they should think of establishing a protocol with the MEPP administrator to confirm an employee's ongoing participation in the MEPP, and the MEPP's continued CWPP status.

3. Employers Without Workplace Pension Plans

An employer that does not participate in a workplace pension plan but which offers a group registered retirement savings plan (GRRSP), with or without a deferred profit sharing plan (DPSP), will have to decide as follows:

  • If it sponsors a DPSP, will it retain such plan for ORPP-eligible employees and, if so, what are the cost and other implications of doing so?
  • Does it wish instead for the DPSP to no longer be available to ORPP-eligible employees and what are the impediments (e.g., collective bargaining) to doing so?
  • If so, will it terminate the DPSP or will it retain it for non ORPP-eligible employees?
  • How and when will it amend or terminate the DPSP?
  • If it sponsors a GRRSP to which it "contributes", does it wish such plan to no longer be available to ORPP-eligible employees and, if so, to what extent?
  • If its GRRSP contributions exceed minimum employer ORPP contributions, does it wish to reduce these GRRSP contributions by its ORPP contributions?
  • If it wishes to cease contributing to the GRRSP, what does it have to do in order to cease such contributions, when will it do so and what are the impediments (e.g., collective bargaining) to doing so?
  • If it sponsors a GRRSP to which it does not "contribute", will it retain such plan for both ORPP-eligible employees and non ORPP-eligible employees?

*****

Employers who offer or otherwise participate in a retirement arrangement which is not a workplace pension plan (and will not qualify as a CWIPP), as well as employers without any sort of retirement arrangement, may wish to consider whether to establish a CWPP and avoid the ORPP. An employer may be tempted to do so if it fears that the ORPP will prove to be unsustainable and that the contribution rates will increase as a result.

Given the issues raised above, employers with employees in Ontario should view the ORPP as a universal plan, much like the CPP, with the possibility of an opt-out in certain circumstances (i.e., those who accrue benefits under or contribute to a CWPP, or are otherwise exempted from having to participate in the ORPP).

Footnotes

[1] Wherever the word "prescribed" appears, it means as prescribed by eventual regulations.

[2] It is not clear whether there will be a requirement that "annual remuneration" include at least a minimum of employment earnings.

[3] It remains to be seen whether "employee" for these purposes will include only those who are ORPP-eligible and when this determination is to be made.

[4] It is expected that pensionable earnings will be similar to the salary and wages with respect to which CPP contributions are made. (CPP [15])

[5] Presumably, then, any ORPP member having terminated employment after having reached a pensionable age before January 1, 2022 and electing to receive a pension will have to wait until then to receive what will likely be a lump sum.

[6] The ORPPA also excludes employment as (i) a judge appointed by the Governor General, (ii) a member of the Senate or the House of Commons, or (iii) the Governor General, the Lieutenant General or an employee of either.

[7] It remains to be seen whether prescribed employment will consist of "included employment" for purposes of the federal Pension Benefits Standards Act, 1985.

[8] Such leaves being pregnancy, parental, family medical, organ donor, family caregiver, critically ill child care, crime-related child death or disappearance, personal emergency, and declared emergency leaves.

[9] The purpose of the penalty, as with the CPP administrative penalty, being to "promote compliance with the ORRPA and not to punish".

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