Postponement gives employers more time to adjust and government time to reach an agreement to enhance CPP
Large employers are going to have an extra year to prepare for Ontario’s new pension plan, provincial Finance Minister Charles Sousa says.
Responding to calls from a number of organizations, including the Canadian Payroll Association (CPA), to delay the implementation of the Ontario Retirement Pension Plan (ORPP), Sousa announced that employers with 500 or more employees that do not have registered workplace pension plans will not have to start paying ORPP contributions until Jan. 1, 2018. Contributions were supposed to start next January.
“We are giving employers more time to prepare and about 400 companies involved will have the extra time they have asked for,” Sousa said.
“This is fantastic news,” said Rachel De Grâce, manager of advocacy and legislative content at the CPA.
She added that the CPA has been advising the government for months that it was not giving employers enough time to make changes to payroll systems to incorporate ORPP contributions for next January.
“The CPA really sees this as a big advocacy win because we have been working with staff from the Ministry of Finance of Ontario for a year and we have been telling them that based on market research we polled all of the payroll service providers and software developers and they were the ones who said, consistently, that they needed 18 months in order to fully implement this brand new program,” De Grâce said.
“That 18-month clock doesn’t start ticking until all of the final details have been released by the government.”
The Ontario Chamber of Commerce (OCC) also applauded the government’s decision, with president and CEO Allan O’Dette saying the announcement “shows that government is listening to the business community.”
Once implemented, the ORPP will run much like the Canada Pension Plan (CPP), with mandatory contributions from employers and employees.
Participation in the plan will be mandatory for employers and employees aged 18 to 70 if they do not take part in a workplace pension plan that the ORPP Administration Corporation considers comparable to the ORPP.
The plan will operate in addition to the CPP, meaning employers and employees required to contribute to the ORPP will have to pay into both plans.
The contribution rate for the ORPP will be up to 1.9 per cent for both employers and employees, for a combined rate of 3.8 per cent on pensionable earnings, up to an annual maximum earnings threshold of $90,000. The government recently confirmed the minimum earnings threshold for contributions would be $3,500, the same as it is for the CPP.
The government is phasing in participation in the plan. Initially, large employers were to be the first to take part. With the delay, it is now expected both large and medium-sized employers (50 to 499 employees) without registered workplace pension plans will begin contributing to the ORPP in 2018.
The contribution rate for the first year is expected to be 0.8 per cent, rising to 1.6 per cent in 2019 and to 1.9 per cent in 2020.
Small employers (with no more than 49 employees) without registered workplace pension plans will begin paying contributions in 2019, at a rate of 0.8 per cent. The rate will rise to 1.6 per cent in 2020 and to 1.9 per cent in 2021 and later years.
Employers with registered workplace pension plans that do not meet a test for being comparable to the ORPP or those that have employees who are not members of their comparable plan will have to start contributing on Jan. 1, 2020, at a rate of 1.9 per cent.
Delay not enough
Some business and labour groups say a delay is not enough. They want the ORPP scrapped. The Canadian Federation of Independent Business (CFIB) says the plan will hurt Ontario’s economy. It estimates the plan will raise the province’s unemployment rate by 0.5 per cent by 2020 and reduce wages in the long run.
Plamen Petkov, the CFIB’s Ontario vice-president, said 90 per cent of business owners surveyed oppose the plan.
“Seven in 10 said it would force them to freeze salaries, while more than half reported they would have to eliminate positions to deal with the added costs,” he said in a news release.
The Canadian Union of Public Employees (CUPE) says it wants the Ontario government to focus on improvements to the CPP rather than create a new plan that leaves out many workers.
“(Premier) Kathleen Wynne needs to be honest that the ORPP is not equivalent to the CPP. It isn’t universal, it isn’t portable and it isn’t a social program like the CPP,” Fred Hahn, president of CUPE Ontario, said in a news release.
“It’s a workplace pension plan and for those who don’t have any plan, it is better than nothing. But it isn’t the CPP.
In fact, by promoting the ORPP as equivalent, Kathleen Wynne is doing damage to the CPP, a cherished, cornerstone, universal, Canadian social program,” he added.
During consultations into the plan last year, CUPE Ontario said it recommended to the government that any provincial plan should be a universal, mandatory, defined-benefit plan that could be rolled into any future CPP expansion.
“By moving forward with their non-universal ORPP, the Ontario Liberal government is abandoning the push to expand the CPP, which benefits all Canadians,” Hahn said.
In response to criticisms that an enhanced CPP should be the priority, Sousa said the delay in implementing the ORPP would also give the federal and provincial/territorial governments more time to try to reach an agreement on CPP improvements.
“We have agreed to enter into a national dialogue to enhance the Canada Pension Plan,” he said.
“It is also an agreement that will allow us to look at ways to meet goals of the ORPP within an enhanced CPP framework and should provincial agreements on CPP enhancements not be realized, then this will still preserve our ability to implement the ORPP. In either case, more Ontarians will experience a more secure retirement,” Sousa added.
De Grâce said the Ontario government’s plan to continue to work to improve the CPP could be good news for the province’s employers. If governments agree to enhance the CPP in a way that meets the Ontario government’s retirement income goals, she said it is possible Ontario could cancel the ORPP.
“We are hoping that that will happen before the 2018 implementation date and before payroll systems start implementing the ORPP,” she said.
Details still needed
In the meantime, De Grâce said the CPA will continue to encourage the government to quickly announce all of the ORPP details that employers need before they can start making changes to their payroll systems. Despite all of the information the government has released on the ORPP, there are still a number of payroll-related details that have not been announced.
Employers may know the contribution rates, the annual maximum pensionable earnings amount and the yearly exemption, but there are still questions around remitting contributions.
The federal government has said it will help Ontario with collecting employee and employer contributions, but it has not said whether the Canada Revenue Agency will collect the contributions under its payroll deductions program.
If it does, will the schedule for remitting the contributions be the same one that employers use for sending in their CPP, employment insurance and income tax remittances?
Another detail yet to be announced is how pension adjustments will be calculated and reported, said De Grâce.
“Those are very specific details that are formula-based and the Ontario government still has to work through that to enable employers and possibly third parties to perform these calculations. Then, together, the CRA and Ontario will have to confirm where these PAs are reported. I am assuming and hoping that they would simply be reported on the existing PA box on the T4.”
To help employers better prepare, the OCC said the government now needs to provide businesses with a more detailed implementation plan.
“A critical next step is for government to establish a clear communications timeline that outlines how and when employers will receive information relating to the ORPP and any obligations they or their employees may have,” said O’Dette.
In the coming months, employers across the province will be looking to the Ontario government for information on the ORPP, while also watching its progress in CPP enhancement negotiations.