Consultation paper asks for feedback on design of ORPP
The Ontario government is moving ahead with its proposal to implement a mandatory pension plan in the province in 2017. In December, it tabled the first of its planned bills to set up the Ontario Retirement Pension Plan (ORPP). In January, it began consultations on the plan.
In February, feedback on a recently released consultation paper is due.
The government announced its intention to establish the ORPP in last year’s budget, saying the plan is necessary to help provincial residents save more for their retirement since the federal government has so far refused enhancements to the Canada Pension Plan (CPP). In 2012, 34 per cent of all Ontario workers were covered by a workplace pension plan, down from 40 per cent in 1985. In the private sector, only 28 per cent had a workplace pension plan, according to the Ontario government.
Participation in the ORPP would be obligatory for employees and their employers if the individuals are employed in eligible employment in Ontario, are 18 to 70 years old and do not take part in a comparable workplace pension plan. All employment in the province (excluding federally regulated workplaces) would be eligible unless exempted.
The ORPP would be structured much like the CPP, with mandatory contributions from employers and employees. Employers would be responsible for remitting the contributions to an administrative body set up to manage the plan. The plan would operate in addition to the CPP, meaning that employers and employees required to contribute to the ORPP would have to pay into both plans.
The consultation paper, called ORPP: Key Design Questions, asks for public comments on issues such as how to define a "comparable" workplace pension plan. The definition of "comparable" is a key part of the ORPP and one that is proving to be contentious. Since the plan would only be mandatory for employees and employers who do not have a similar workplace pension plan, a narrower definition of ‘comparable’ would pull in more employers and employees, while a broader one would limit that number.
The consultation paper says the government wants the ORPP to mirror key features of the CPP, including providing a predictable stream of retirement income for life, indexed benefits, locked-in funds, pooling of the investment risk and mandatory employer contributions.
Workplace pension plans would have to include these features. As a result, the government is considering restricting the definition of "comparable" to only two types of plans: defined benefit (DB) pension plans and target benefit (TB) multi-employer pension plans.
The consultation paper asks for feedback on whether there would be circumstances under which defined contribution (DC) plans would be comparable, such as if a DC plan had a minimum employee/employer contribution rate that would provide for similar benefits to the proposed ORPP. The paper also asks for comments on how employers with non-comparable plans would expect their plans to work alongside the ORPP.
Stakeholders say the way the government defines ‘comparable’ will have a big impact on the plan. The definition could "make or break" the vision behind the ORPP, says the Canadian Association of Retired Persons (CARP).
"An exemption for employers and employees with DB and TB plans wouldn’t necessarily undermine the goal of a new pension plan providing more coverage, since DB and TB plans generally provide solid, predictable and dependable benefits in retirement," it says.
"But if the definition of ‘comparable’ is allowed to be interpreted to include defined contribution plans or pooled registered pension plans (PRPPs), the core goal of the ORPP may indeed be undermined."
Labour groups have called for the government to make the plan mandatory for all employers. Some, such as the Canadian Union of Public Employees (CUPE) for Ontario, have criticized the province for planning to allow exemptions for comparable plans. By not making the ORPP mandatory for all workers and employers in the province, the government is hurting the chances of future integration with the CPP, says CUPE Ontario President Fred Hahn.
"It would be sad if the Liberals took a great idea like a universal public pension that benefits everyone and turned it into something narrow that could actually hamper expanded public pensions for all Canadians."
Other groups would like the government to broaden the definition of "comparable" to include other types of plans. The Canadian Payroll Association (CPA) says that besides DB plans, the government should add group RRSPs to the definition to ensure fairness for employers and to keep the payroll compliance burden to a minimum.
"When initiating any payroll or pension changes, the government should avoid regulatory and administrative complexities that hinder an employer’s compliance," says Rachel De Grâce, manager of advocacy and legislative content at the CPA. She says the association plans to make a submission to the government on its ORPP proposals, although it would prefer the focus be on improving the CPP.
"While efficiencies and fairness will help reduce administrative burden on employers, utilizing an existing structure, like the Canada Pension Plan, to enhance mandatory retirement savings would create less of a strain on employers overall," De Grâce adds.
The Ontario Chamber of Commerce (OCC) would also like a broader definition of comparable. The OCC is concerned that the government is considering excluding DC and similar plans from the definition since these plans are becoming more common than DB plans, says Liam McGuinty, the OCC’s manager of policy and government relations.
"The issue is that fewer and fewer companies that establish themselves offer pensions. Even fewer than that would offer a defined benefit plan."
"The unforeseen consequences of not making DC plans comparable raises the question, ‘What’s going to happen to employer behaviour as it pertains to contributing to existing plans?’ If I’m a DC provider and now I’m forced to contribute into the ORPP, how’s that going to affect how much I am putting into my existing DC plan?"
The OCC does not understand why the government would table ORPP legislation at the same time it introduced a bill to allow for PRPPs in the province, he says.
"There’s some cognitive dissonance there that they are moving ahead with an ORPP and then moving ahead with a non-comparable PRPP at the same time, because it significantly reduces the incentive for an employer to invest in a non-comparable plan when they already have a mandatory cost in the ORPP."
The OCC has asked the government to defer the ORPP until it addresses questions about how much it will cost to administer a stand-alone plan and how the plan will impact the economy.
"We just don’t understand the full economic impact of the ORPP in terms of job creation, investment, impact on our competitiveness. Our biggest concern is if this was CPP enhancement, that’s still a new cost on employers, but it’s a level cost on employers across Canada. This is a brand new cost exclusively on Ontario employers to the advantage of businesses and the business environment in other provinces," says McGuinty.
The OCC also wants the government to address more specific questions. Will there be exemptions for small businesses that cannot afford to match mandatory contributions? What would happen to employer and employee ORPP contributions if an employee moves out of the province or if a worker changes jobs and goes to an employer with a comparable pension plan?
The consultation paper also asks for feedback on a minimum earnings threshold for the ORPP. It says the government favours a minimum earnings threshold of $3,500, which is the same as the annual basic exemption for the CPP. The Ontario government says its preference is to mirror the CPP threshold because that would reduce administrative work for employers.
"An ORPP payroll deduction approach that is consistent with that of CPP would make it easier for employers to integrate ORPP contribution deductions," the paper says. "An ORPP minimum earnings threshold that parallels the CPP could also make potential integration of the ORPP with the CPP easier if the CPP is enhanced in the future."
The paper also notes that a $3,500 exemption threshold would benefit individuals working in non-standard employment and those who experience temporary periods of low earnings, such as young people and recent immigrants.
While the paper acknowledges that a much higher minimum threshold, such as $15,000, would reduce contributions for low-income workers, it says the higher threshold would also reduce the number of workers who would benefit from an ORPP pension.
It asks for feedback on a number of issues related to the earnings threshold, including how employers might be affected if the CPP and ORPP exemptions are not the same.
The consultation paper does not ask for feedback on a maximum earnings threshold or on contribution rates. The ORPP bill currently before the Legislative Assembly proposes that the annual maximum earnings threshold would be $90,000. It would be adjusted to reflect the percentage increase in the annual maximum pensionable earnings for the CPP between 2014 and 2017.
The government has also already determined the contribution rate will be no more than 1.9 per cent for employees and employers, for a combined rate of 3.8 per cent. The ORPP bill proposes that the government phase-in contribution rates. The phase-in rules are expected to be part of future legislation the government brings forward to implement the ORPP.
To learn more, go to www.ontario.ca/government/ontario-retirement-pension-plan-key-design-questions.
The deadline for submitting comments is Feb. 13.
