The Ontario Retirement Pension Plan (ORPP) seemed like a sure
thing—until it wasn't.
Yesterday, Bill Morneau, the federal Minister of Finance, and
eight of ten provincial finance ministers did what many to this
point thought was impossible: reach an agreement in principle to expand the Canada
Pension Plan (CPP).
The agreement represents the first significant increase to CPP
benefits since the program's creation in 1965. It will affect
almost all employers in Canada with employees outside Quebec.
While it looks likely that the agreement in principle will
translate to formal finalization, many details remain to be
released publicly. We are continuing to monitor.
Here is what we know so far—and what this means for the
future of the ORPP.
Proposed CPP Expansion
CPP benefits will be increased, with an aim to replace an
individual's pre-retirement income from one-quarter to
one-third of pensionable earnings (likely subject to a limit).
Employer and employee contributions will be increased, by about
$7 per month in 2019 for an average worker earning $55,000, and
thereafter according to a schedule that has yet to be finalized
(B.C. has published a summary schedule here).
The Year's Maximum Pensionable Earnings (YMPE), which is
the maximum annual income subject to CPP contributions and
accruals, will be increased by 14% to approximately $82,700 by 2025
(from the current $54,900 in 2016).
These CPP changes are proposed to come into effect on January 1,
2019 and phased in gradually over seven years. The increase to
employer and employee CPP contributions will be phased in over five
years, beginning January 2019. The increase to the YMPE will be
phased in over two years, presumably beginning in January 2024.
As well, in conjunction with the CPP changes, the federal
government announced the following two tax changes:
an increase to the Working Income Tax Benefit, a refundable tax
credit for eligible low-income working individuals and their
a new tax deduction for employee contributions associated with
the enhanced portion of CPP (a tax credit—but not a
deduction—is currently available for employee CPP
Although it did not sign the agreement in principle, Quebec
publicly supported the CPP enhancements and announced that it will
consider enhancing the Quebec Pension Plan. Manitoba also did not
sign the agreement in principle, but will be bound by the result if
the other provinces agree.
Doubtful Future of the ORPP
The Ontario government developed the ORPP in response to the
prior Conservative federal government's public statements that
it would not support changes to the CPP.
However, since the ORPP's inception, the Ontario government
consistently hinted that it would abandon the ORPP if CPP reform
became realistic in the future. We are now living in that future.
In a joint federal-Ontario release, federal Finance
Minister Bill Morneau and Ontario Finance Minister Charles Sousa
committed that the agreement in principle must be approved by all
signatories no later than July 15, 2016. This statement, as well as
other comments, strongly suggest that, provided the CPP
enhancements are finalized by July 15, Ontario will scrap the ORPP
Employers should now consider how to address the increased
payroll costs of an expanded CPP and whether amendments to their
own pension and other retirement plans will be required to
accommodate the more generous CPP benefit.
Many private pension plans provide offsets against CPP
contributions and benefits, but the wording of these plans may not
automatically track changes to the CPP like the ones just
announced. If amendments are needed, employers should consider
their powers of amendment under their plans as well as common law
and contractual advance notice requirements.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
A former teacher at Bodwell High School has learned a valuable lesson from the B.C. Human Rights Tribunal— it is not discriminatory for an employer to offer child-related benefits to only employees with children.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
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