The Ontario Ministry of Finance released more information on the key features of the Ontario Retirement Pension Plan (ORPP) on August 11, 2015. By 2020, everyone employed in Ontario (other than certain "exempted" employees) will accrue pension benefits under either a "comparable workplace pension plan" or the ORPP. Many details of the ORPP remain unknown (e.g., what is "exempted" employment). The ORPP Administration Corporation, the administrator of the ORPP, will start contacting all Ontario employers in early 2016 to verify whether there is an existing pension plan and assess the coverage offered to employees.
Our Pension and Benefits Group will issue a series of ORPP updates on developments. This first update focuses on the key features of the ORPP. Our next update will be issued after the federal election in October 2015 to discuss the impact of the federal election on the ORPP and the options available to employers.
Key Features of the ORPP
Are You and Your Employees Required to Contribute to the ORPP? Generally speaking, an employer with employees "employed" in Ontario is required to contribute to the ORPP, irrespective of where the employer was established or where its head office is located. The contribution obligation applies only to employees "employed" in Ontario. The rules for determining whether an individual is "employed" in Ontario are not yet known. There are two key exceptions: if the employment is "exempted" employment (the meaning of "exempted" is not yet known but federal employment will likely be "exempted") or if the employee participates in a "comparable workplace pension plan".
What is a "Comparable Workplace Pension Plan"? "Comparable workplace pension plan" is a key factor in determining whether an employer and its employees are required to contribute to the ORPP.
A "comparable workplace pension plan" is a "registered pension plan" which meets a certain comparability threshold test. It can be a defined benefit (DB) pension plan or a defined contribution (DC) pension plan. In order to be considered "comparable", a DB pension plan must meet a minimum annual benefit accrual rate of 0.5% while a DC pension plan must have a minimum total contribution rate of 8% of base earnings with at least 50% matching of the minimum rate from the employer. These comparability tests are modified for different plan designs of DB/DC pension plans such as a hybrid plan, a flat-benefit DB plan or a flat-dollar DC plan.
A multi-employer pension plan and a pooled registered pension plan can also be "comparable workplace pension plans" if they meet the applicable comparability threshold tests which are yet to be determined.
Other types of retirement savings/income plans (e.g., group RRSP, TFSA, DPSP) are not "comparable workplace pension plans". If an employer offers a retirement savings arrangement which is not a "comparable workplace pension plan", it will be required to contribute to the ORPP.
Which Employees are Required to Contribute to the ORPP? The contribution obligation applies to all your "eligible employees" in Ontario. One important factor in determining whether an employee is an "eligible employee" is whether that employee "participates" in a "comparable workplace pension plan".
If an employer has a "comparable workplace pension plan" which has a membership eligibility requirement (e.g., not immediately eligible on date of hire) or where membership is not compulsory, contributions to the ORPP are required in respect of an employee during his/her membership eligibility waiting period or in respect of the period during which the employee has chosen not to join the optional "comparable workplace pension plan", as the case may be.
When are Contributions to the ORPP Required to Start? Compulsory enrolment and contributions will be staged in 4 waves between 2017 and 2020, determined by the number of employees and the existence or non-existence of a registered workplace pension plan. It is not yet clear whether only employees employed in Ontario will be included for this determination.
An employer which has a registered pension plan (irrespective of whether or not it is "comparable") as at August 11, 2015 will not be required to contribute to the ORPP before January 1, 2020. In other words, an employer with a pension plan which is not "comparable" will have slightly more than four years to structure its pension plan arrangement to become a "comparable workplace pension plan", if it does not want to contribute to the ORPP. If an employer does not have a registered pension plan, it has one to three years to set up a "comparable workplace pension plan" for its employees in Ontario, if it does not want to contribute to the ORPP
What are the Contribution Rates under the ORPP? The combined contribution rate for an employer and an employee who are required to start contributing before January 1, 2020 is progressive from 1.6% (1st year), 3.2% (2nd year) to 3.8% (3rd year onwards) of the portion of the employee's base earnings between the minimum and maximum thresholds (with 50/50 share between the employer and the employee) while the combined contribution rate for an employer and an employee who are required to start contributing on or after January 1, 2020 is 3.8%, also on a 50/50 basis. The minimum threshold is not yet known. The maximum threshold for 2017 is $90,000 as adjusted to reflect the percentage increase to the Year's Maximum Pensionable Earnings under the Canada Pension Plan.