To be phased in between 2017 and 2021
mployers looking for more details on Ontario’s proposed pension plan now have a clearer picture of what will be required, but other questions about the Ontario Retirement Pension Plan (ORPP) remain.
Premier Kathleen Wynne first proposed the ORPP last year, saying it was necessary to help residents save more for retirement since the federal government has so far refused to enhance the Canada Pension Plan (CPP).
The ORPP would be structured much like the CPP, with
mandatory contributions from employers and employees. The plan would operate in addition to the CPP, meaning employers and employees required to contribute to the ORPP would have to pay into both plans.
Participation would be mandatory for employees and their employers if they 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.
During the winter and the spring, the government held consultations on key design issues for the plan, including how it should define "comparable" when determining whether an employer’s pension plan would exempt the employer and its employees from contributing to the ORPP.
In August, the government announced that "comparable" plans would include defined benefit (DB) pension plans, as well as defined contribution (DC) pension plans if they are subject to federal and provincial regulation and meet the following minimum thresholds:
•provide a predictable stream of income in retirement for life
•have pooled longevity and investment risk to help ensure people do not outlive their savings and to reduce the impact of market volatility
•have required contributions from employers
•have a target replacement rate of up to 15 per cent of an individual’s earnings over their career
•have required "locked-in" contributions.
In addition, the plans must have contribution levels that ensure similar benefit levels to ORPP benefits. For the government to consider a DB pension plan to be comparable, the plan must have a minimum benefit accrual rate of 0.50 per cent.
For a DC pension plan to be comparable, the government said it must have a minimum annual contribution rate of eight per cent and require at least 50 per cent matching of the minimum rate from employers. The government says DC plans have different criteria than DB plans because they operate differently. For example, DC plans do not require employers to match employee contributions and do not allow for pooled longevity and investment risk.
For other types of plans, such as DB-DC hybrids, flat-benefit DB plans and flat-dollar DC plans, the government says it has developed a method to convert the ORPP’s comparable threshold tests to determine if they would qualify.
Business groups, such as the Ontario Chamber of Commerce (OCC), said they are encouraged by the government’s decision to expand the definition of comparable to include some DC plans.
"This means that employers who already provide certain DC pension plans for their employees will be exempt from contributing to the new ORPP," said Allan O’Dette, the OCC’s president and CEO, in a news release.
O’Dette noted, however, that, "We remain concerned that the ORPP in its current form will have a negative impact on business competitiveness," adding it would raise costs for most businesses that operate in Ontario.
Labour groups, however, said they were disappointed the government expanded the definition of "comparable." The Ontario Federation of Labour and Unifor both say the ORPP should be mandatory for everyone in the province.
"A universal and mandatory plan is the best solution for all working people in this province," said Unifor Ontario regional director Katha Fortier. "This new Ontario pension should model the successful Canada Pension Plan."
When it comes to implementing the ORPP, the government says it will phase in enrolment and contribution rates in four waves. Enrolment for large employers (500 or more employees) that do not have a registered workplace pension plan would begin next year, with contributions starting Jan. 1, 2017.
For medium-size employers (50 to 499 employees) that do not have a registered workplace pension plan, enrolment would begin in 2017, with contributions starting on Jan. 1, 2018. Small employers (with up to 50 employees) without a registered workplace pension plan would begin to enrol in 2018 and begin to pay contributions the following year.
The final group to enrol would be employers with registered pension plans that do not meet the test for being comparable or who have employees who are not members of their comparable plan. They would enrol beginning in 2019 and start contributing on Jan. 1, 2020.
To administer the plan, the government has set up an independent body called the Ontario Retirement Pension Plan Administration Corporation. It will begin contacting employers early next year to verify their existing pension plans and assess the coverage they offer to employees to determine if they need to enrol in the ORPP.
The contribution rate for the ORPP would be 1.9 per cent for employers and employees, for a combined rate of 3.8 per cent. However, the government says it would phase in the rate over three years for employers in the first three enrolment waves.
This would mean that for large employers, the contribution rate for 2017 would be 0.8 per cent for both employers and employees, for a combined rate of 1.6 per cent. The rates would rise to 1.6 per cent in 2018, for a combined rate of 3.2 per cent. Full rates would apply in 2019.
Medium-size employers and their employees would each pay a contribution rate of 0.8 per cent (combined rate of 1.6 per cent) in 2018. The rates would rise to 1.6 per cent (combined rate of 3.2 per cent) in 2019 and full rates would apply in 2020.
The contribution rate for small employers and their employees would be 0.8 per cent (combined rate of 1.6 per cent) in 2019. The rate would rise to 1.6 per cent (combined rate of 3.2 per cent) in 2020. Full rates would apply in 2021.
Employers in the final enrolment wave (meaning those with registered pension plans that do not meet the comparability test) would, along with their employees, pay the full rate in 2020, their first year of contributions.
Employers would be required to deduct the ORPP contribution from employees’ salary or wages and remit it, along with the employer’s share of ORPP contributions. The annual maximum earnings threshold for the ORPP would be $90,000, adjusted to reflect the percentage increase in the annual maximum pensionable earnings for the CPP between 2014 and 2017.
The government has not yet announced a minimum earnings threshold for the plan. In a consultation paper last year, it said it favoured a $3,500 threshold, which is the same as the annual basic exemption for the CPP.
"An ORPP payroll deduction approach that is consistent with that of CPP would make it easier for employers to integrate ORPP contribution deductions with their existing business practices," the paper said, adding that, "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."
Another question not addressed in the new ORPP details is where employers will send the remittances. Ontario Finance Minister Charles Sousa said he hoped to have the Canada Revenue Agency (CRA) collect employer and employee contributions, as it does for the CPP. Using CRA infrastructure to help administer the ORPP would reduce the costs of running it, he noted.
The federal government, however, has so far refused, calling the ORPP a "job-killing tax" it will not support.
