While the proposed Ontario Retirement Pension Plan (ORPP) is controversial for Ontario employers, the Ontario government has expended considerable effort to move it from concept to reality. While at various times over the past few years it has looked as though the ORPP would not see the light of day, it is no longer safe to assume that the ORPP will not be fully implemented and take off.
As a result, employers need to step back now and assess how they will adapt when the ORPP goes live. This means reviewing existing retirement arrangements to determine if the employer will be subject to the ORPP with respect to all or part of its workforce, and deciding whether it makes sense to make changes to its existing retirement arrangements. This might include changes to waiting periods, benefit levels, mandatory participation, and plan design. The implications of any changes need to take into account employment law considerations, including contractual and collective bargaining.
Ontario's 2014 budget gave us the first real glimpse of the proposed ORPP. The ORPP was conceived due to a perceived gap in retirement savings, attributed in part to the fact that two-thirds of Ontario's workers do not participate in a workplace pension plan. Since the release of the 2014 budget, the Ministry of Finance (Ontario) (MOF) has issued numerous statements with respect to the ORPP, and a better perspective has emerged as to what it will look like, when it will be introduced and what participation in the ORPP will cost participating employers.
The Ontario government has been clear that if an acceptable enhancement of the Canada Pension Plan (CPP) is obtained on a timely basis, Ontario may abandon the ORPP. A meeting of the federal and provincial finance ministers is scheduled to occur on June 19-20 to discuss CPP enhancement, and the federal government has indicated that it will work with the provinces with a view to same. But it is unlikely that changes to the CPP will come quickly – it would require the support of 7 of the 10 provinces representing 2/3 of the Canadian population, as well as the federal government.
The Ontario government is moving full speed ahead, including:
- the creation of the ORPP Administration Corporation, the appointment of its board of directors and CEO
- entering into an intergovernmental agreement with the federal government to ensure the efficient and cost-effective implementation/administration of the ORPP
- the June 9, 2016 proclamation of Bill 186 (ORPP Act, 2016), which establishes the ORPP.
Who will be covered by the ORPP?
Most employees who report to a workplace of an employer in Ontario will be covered by the ORPP. This includes: (a) individuals who report to work at an employer establishment in Ontario; and (b) individuals who do not report to such an establishment, but who are paid from such an establishment. The term "employee" includes directors of a corporation. Various exemptions (below) apply, including for employees who participate in a "Comparable Plan".
Will part-time employees be covered by the ORPP?
Yes. In fact, every Ontario employee of an eligible employer will be covered, if not enrolled in a Comparable Plan. So, for example, if a Comparable Plan has a waiting period, employees will have to be enrolled in the ORPP during the waiting period.
- federally regulated employees
- employees under age 18/over age 70
- employees who earn less than $3,500/year
- for now, the self-employed
- employees on a leave under Part XIV of the Employment Standards Act (Ontario), unless they elect to contribute in accordance with the regulations (not yet published). Where such an employee elects to contribute, the employer will have to contribute in respect of that employee
Other exemptions apply. Of course, the most important exclusion is employees who are covered by a Comparable Plan (below).
An employer that has a Comparable Plan may elect, in respect of its employees covered by that Comparable Plan, to participate in the ORPP and to make related contributions. Where the employer so elects (and until the election is revoked), the employer's employees who participate in the Comparable Plan will also be required to make contributions to the ORPP.
What is a Comparable Plan?
- Defined Benefit (DB) Pension Plans – an earnings-based DB registered pension plan that has an annual accrual rate of at least 0.5% of earnings will qualify as a Comparable Plan
- DC Registered Pension Plans – a DC registered pension plan which has mandatory contributions of at least 8% of base salary earnings will be considered a Comparable Plan if the employer funds at least 50% of the total minimum contribution. Neither employee voluntary contributions, nor any related employer matching contributions, will be taken into account in determining Comparable Plan status.
- Group RRSP/DPSP – no, they will not qualify as Comparable Plans, regardless of the benefit level.
- Flat-Benefit DB Plans; Flat-Dollar DC Plans; Hybrid DB/DC Plans – these registered pension plans will qualify as a Comparable Plan if they meet requirements prescribed by regulations (see ORPP Technical Bulletin).
- MEPPs – certain multi-employer registered pension plans will qualify where the benefit level or contribution level matches those for DB or DC registered pension plans (above)
- PRPPs – certain pooled registered pension plans will qualify, however the details will be set out in regulations.
What will it cost?
Ultimately, the employer contribution rate will be 1.9% of base salary earnings above $3,500 and below $90,000 (adjusted for changes in the average wage in accordance with the regulations since 2017), with a similar contribution being made by each covered employee.
When will this all happen?
Employers will be rolled into the ORPP in "waves."
- Medium employers (50-499 or more employees) and large employers (500+ employees) without registered workplace plans are scheduled to begin contributions to the ORPP effective January 1, 2018.
- Small employers (fewer than 49 employees) without registered workplace pension plans are scheduled to begin contributions to the ORPP effective January 1, 2019.
- Employers who have a registered workplace pension plan effective August 11, 2015 that either does not cover all employees or does not meet the requirements for a Comparable Plan are to begin contributions to the ORPP effective January 1, 2020.
If an employer who does not have a workplace pension plan establishes a Comparable Plan for all of its employees prior to its required enrolment date, that employer will not be required to enrol in the ORPP.
Numerous duties will fall upon participating employers, including the duty to remit employer contributions, deduct and remit employee contributions, and keep prescribed records, all in accordance with regulations to be prescribed. An employer will have personal liability if it fails to remit the required amounts, and interest will accrue on late contributions.
The ORPP is designed to provide lifetime benefits to covered employees. Benefits will be provided in the form of a 60% joint and survivor pension to the spouse of the covered employee on the date that the pension commences, provided that they are not living separate and apart on that date. If the pension paid is not a joint and survivor pension, it will have a 10 year guaranty. Normal retirement date is age 65, but an earlier pension can be paid from/after age 60 on an actuarially reduced basis. Pensions can begin as late as age 70, and will be actuarially increased from age 65. Lump sum pre-retirement death benefits are provided for. Benefits will accrue at the rate of 0.375% of the member's pensionable earnings for the year, as adjusted by regulation.
ORPP Plan Sustainability
The ORPP Act, 2016 contains detailed rules concerning plan sustainability, including requirements for triennial actuarial valuations. A funding shortfall may result in increased contribution rates and changes to benefits. A funding excess may result in benefit increases and contribution rate decreases.
The ORPP Act, 2016 contains detailed rules that would be expected in the context of such a plan, including with respect to the collection, use and disclosure of personal information and enforcement. Much will also be dealt with through regulations, which have not yet been published.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.