As promised in its March 2016 budget, on April 14th, the Ontario government introduced Bill 186, the Ontario Retirement Pension Plan Act (Strengthening Retirement Security for Ontarians), 2016 (the “Bill” or the “Act”). The Bill sets out the key requirements of plan design, including participation, contributions, benefit types and plan sustainability. Many questions remain, however, as additional plan design details are to be addressed in regulations and future legislation.
In this communiqué, we provide an overview of some of the key elements of the Bill. For background information on the Ontario Retirement Pension Plan (the “ORPP”) please refer to our January communiqué on The Ontario Retirement Pension Plan – An Update and our March communiqué on the 2016 Ontario Budget – Impact on Registered Pension Plans. We will also be discussing the Bill in further detail at our A.M. Pension session on May 31st.
The ORPP will apply to every Ontario employee who is not a member of a “comparable” workplace pension plan and will be phased in between January 1, 2018 and January 1, 2020. Employers who are otherwise not required to participate may also elect to “opt-in” to the ORPP. Participating employers and employees will be required to contribute an equal amount to the ORPP. The required contribution rate for both employees and employers will be 1.9% of an employee’s annual earnings up to $90,000, subject to a minimum earnings threshold of $3,500. Prior to January 1, 2021, contributions will be phased in.
The Bill confirms much of what had previously been communicated by the Ontario government on the ORPP and provides further details on other matters, including:
Application of the ORPP: The ORPP will apply only in respect of “employment in Ontario.” The Bill confirms that an employee will be considered to be employed in Ontario if: (a) the employee is required to report to work at an employer’s establishment that is located in Ontario; or (b) if the employee is not required to report to work at an employer’s establishment but the employee is paid from an Ontario based establishment.
Due to current federal income tax and pension rules, employees in federally regulated industries (e.g., banks, telecommunications, railways and air transportation) cannot participate in the ORPP. However, the Ontario government has indicated that it is in discussions with the federal government to include federally regulated employees as well as the self-employed in the ORPP. The Bill expressly excludes federal government employees from participation.
Individuals who object to participating in the ORPP on religious grounds will be entitled to apply to the ORPP Administration Corporation (the “ORPP AC”), the organization responsible for administering the ORPP, for an exemption from participation.
Employees under age 18 and employees over the age of 70 will not be permitted to contribute to the ORPP. Employees who are receiving a pension under the ORPP will also not be permitted to contribute to the ORPP.
Employees who are on a leave that is protected under the Employment Standards Act, 2000 (e.g., maternity leave) will not be permitted to contribute to the ORPP unless they elect otherwise.
Comparable Plan: The Bill confirms the definition of “comparable plan” which was initially proposed by the Ontario government in August 2015. A defined benefit registered pension plan will be a “comparable” plan if it has a minimum accrual rate of 0.5% of a member’s annual remuneration. A defined contribution registered pension plan will be a “comparable” plan if it provides a minimum total contribution of 8% of a member’s annual remuneration, at least 4% of which must be employer contributions. An employee’s voluntary contributions or employer’s matching contributions to a defined contribution plan will not be taken into account in determining whether or not the plan is comparable. Other retirement savings plans commonly offered by employers, such as Group RRSPs or DPSPs, will not be considered comparable plans.
ORPP Pensions: ORPP members will be entitled to be paid a lifetime pension from the ORPP in equal monthly instalments. Members will accrue benefits under the ORPP at the rate of 0.375% of the member’s pensionable earnings subject to prescribed indexing adjustments. Consistent with pension standards legislation, if a member has a spouse on the date of pension commencement, the pension will be paid as a 60% joint and survivor pension unless the member and spouse waive that entitlement. Also consistent with pension standards legislation, the Act allows a pension to be paid as a lump sum if a member has a shortened life expectancy or the pension is a “small” pension.
Money paid under the ORPP will be exempt from execution, seizure and attachment subject to some exceptions such as money payable in satisfaction of certain support orders, up to the limits set out under the Act. Provisions on division of payments under the ORPP on breakdown of a spousal relationship may be addressed in the regulations.
Employer duties: Employers will be required to deduct and remit contributions to the ORPP AC and to keep prescribed records. Employers may be subject to penalty for failure to remit contributions and other contraventions of the Act. The maximum penalty under the Act is a fine of $100,000 for the first conviction and a fine of $200,000 for each subsequent conviction. Directors and officers of corporations may be subject to the same penalties.
Plan Sustainability: The ORPP AC will be required to ensure that valuation reports for the ORPP are prepared by an independent actuary every three years. The Bill sets out a process for dealing with a funding excess or shortfall in the ORPP.