On April 14, 2016, the Ontario government introduced the Ontario Retirement Pension Plan Act (Strengthening Retirement Security for Ontarians), 2016, as Bill 186 (Bill or Act) in the Ontario legislature.
The Bill, news release and Plan Design Details are a culmination of several years of Ontario government news releases regarding the Ontario Retirement Pension Plan (ORPP), which have been the subject of past Blakes Bulletins and Blakes Alerts. Please see the past Ontario government publications and corresponding Blakes publications for government releases on February 16, 2016 (February 2016 Blakes Alert: ORPP Phase-In of Contributions Delayed Until January 2018), January 26, 2016 (January 2016 Blakes Bulletin: Ontario Government Releases Additional ORPP Design Details), and August 11, 2015 (August 2015 Blakes Alert: Ontario Government Releases Further Details about the Ontario Retirement Pension Plan), and a government backgrounder released on August 11, 2015.
Furthermore, some details of the ORPP were released in the Ontario budgets for 2014 and 2015. Please see our April 2015 Blakes Bulletin: 2015 Ontario Budget Affecting Pensions and other Retirement Savings Plans, and May 2014 Blakes Bulletin: Ontario Government’s 2014 Budget Provisions Affecting Pensions.
Please see also the relevant portions of the 2015 Ontario Economic Outlook and Fiscal Review (and corresponding November 2015 Blakes Bulletin: 2015 Ontario Economic Outlook and Fiscal Review Provisions Affecting the Retirement Income System).
The information found in the above referenced Blakes Bulletins and Blakes Alerts, as well as the information provided here, will be the subject of a comprehensive ORPP review at our upcoming May 5, 2016, client seminar, Recent Developments in Pension and Employee Benefits Law.
The main features of the Bill are as follows:
- Repeals the Ontario Retirement Pension Plan Act, 2015
- Ontario Retirement Pension Plan Administration Corporation Act, 2015, as amended by the Act, continues to also govern the ORPP Administration Corporation (ORPP AC)
Contribution requirements have been widened to apply not only with respect to employees who do not participate in a “comparable workplace pension plan” but also where an employer has opted into the ORPP.
EMPLOYMENT IN ONTARIO, “EMPLOYER” DEFINITIONS
The definition of employment in Ontario has not substantially changed from the January 26, 2016, government bulletin (which we covered in our corresponding Blakes Bulletin). A person will be considered employed in Ontario under the ORPP, as follows:
- If a person is required to report for work at an establishment of the person’s employer, the person is deemed to be employed in Ontario if that establishment is in Ontario
- If a person is not required to report for work at an establishment of the person’s employer, the person is deemed to be employed in Ontario if the establishment of the person’s employer from which the person’s remuneration is paid is in Ontario
However, the definition of “employer” in the Bill is new and more complicated. It states that an employer is a person who:
- Pays remuneration to an employee;
- Is an employer as provided in the regulations; or
- Is the employer of a holder of an office under subsection 1(4), which states that a holder of an office is an employee, and the person who pays the holder a stipend or remuneration (as per subsection 1(5)) is the employer. Subsection 1(5) goes on to say the holder of an office is a person whose position entitles him or her to a fixed or ascertainable stipend or remuneration, and includes corporate directors, holders of judicial office, and elected officials.
Self-Employed and Non-Crown Federally Regulated Workers
According to the Plan Design Details, employees in federally regulated industries (such as banks, telecommunications, railways and air transportation) cannot participate in the ORPP due to the structure of federal income tax and pension rules, although discussions with the federal government are ongoing. The Bill does not, however, exclude the participation of such employees from the ORPP.
Discussions with the federal government are ongoing regarding the future participation of the self-employed in the ORPP. This suggests that, for now, the self-employed are excluded. The Bill does, however, provide for regulation making power to include self-employed individuals, but imposes limitations on regulations that would cause the ORPP to become deregistered under the Income Tax Act (Canada).
The Bill specifically excludes employees of the federal government (which includes a department, agency, board, commission, official or other body of the Government of Canada), judges appointed by the Governor General, members of the House of Commons and the Senate, the Governor General, the Lieutenant Governor and their staff.
The Bill also reserves the ability to exclude other prescribed employment.
Non-Resident Workers with Tax Treaty Exempt Income
The Bill states that the requirement to contribute to the ORPP does not apply in respect of employment if, under a tax treaty, earnings from that employment are not included in income for purposes of the Income Tax Act (Canada). As expected, there is no general exemption for non-residents.
First Nations employees are excluded from participating in the ORPP, but can participate if both employer and employee elect to do so.
Persons may be excluded from participation on religious grounds if the requirements in the regulations are satisfied.
Employees on Leave
Employees on leave under the Employment Standards Act do not participate in the ORPP unless they elect to do so, subject to compliance with the regulations. If the employee elects to continue contributions during a period of leave, the employer must also contribute the employer’s portion. The regulations may provide for retroactive elections by the employee.
The comparability requirements have not changed since the August 2015 government bulletin, which was covered in our corresponding Blakes Bulletin: comparable defined benefit plans must meet a minimum benefit accrual rate of at least 0.5 per cent of a member’s annual remuneration, for a pension at normal retirement (DB Standard). For a defined contribution plan to be considered comparable, it must have a minimum total annual contribution rate of eight per cent and require at least four per cent be paid by the employer (DC Standard). There have been added provisions that appear to allow certain types of defined benefit and defined contribution pension plans to be prescribed to have different comparable workplace pension plan requirements.
For defined contribution plans, voluntary contributions and employer matching thereof shall not be included in determining comparability as previously announced.
Defined benefit multi-employer pension plans (MEPPs) must meet either the DB Standard or the DC Standard.
The regulations will set out the comparability standard for hybrid pension plans and pooled registered pension plans.
The regulations may provide for comparability to be tested at the member level.
The regulations may also provide for foreign pension plans and other prescribed plans to be eligible for recognition as a comparable workplace pension plan.
BENEFIT ACCRUAL RATE, CONTRIBUTION RATES, MAXIMUM AND MINIMUM EARNINGS AND EMPLOYER DUTIES
The benefit accrual rate is 0.375 per cent of the member’s pensionable earnings with specified adjustments as set out in the regulations, including in respect of inflation.
A member’s pension is a 60-per-cent joint and survivor pension if the member has a spouse on the day the pension begins, unless a waiver is signed. The Bill states that if a member is living separate and apart from a person who would otherwise be a spouse on the day the pension commences, the person will not be a spouse for the purpose of the joint and survivor pension.
If a member’s pension begins before or after age 65 it will be adjusted in accordance with the regulations.
Employees under 18 and over 70 are not permitted to contribute to the ORPP.
Employees receiving benefits, other than joint and survivor benefits, are not permitted to contribute to the ORPP.
Pensions will not begin to be paid until January 1, 2022, except as provided in the regulations.
There are a number of special rules that have been added, as follows:
- An employee can suspend an ORPP pension in order to make further ORPP contributions
- A pension that is not a joint and survivor pension is guaranteed for 10 years with a lump sum being paid to the member’s designated beneficiary or estate, as applicable, if the employee dies before receiving a pension for 10 years
- Additional lump sums will be paid for small pensions, if a member dies before commencing a pension or if a member has a shortened life expectancy
Beneficiaries may be designated in accordance with the regulations.
The contribution rate is 1.9 per cent for both employers and employees or such other rate provided for in amendments to the ORPP text relating to plan sustainability.
The amount of an employer’s contribution to the ORPP concerning an employee shall be equal to the amount of the employee’s contribution in respect of pensionable earnings from the employer.
The maximum annual earnings threshold for 2018 is C$90,000, adjusted by the regulations to reflect changes in the average wage since 2017. The minimum earnings threshold is C$3,500.
The regulations may provide that where an employee has earnings from two or more related employers, the employee’s maximum contribution is based on his or her combined earnings from the related employers.
Employers must remit the required contributions and keep the prescribed records.
PROTECTION OF FUNDS
No refunds of ORPP contributions are permitted, except as provided in the Act, and money payable from the ORPP is exempt from creditors, except for 50 per cent of money payable in satisfaction of specified support orders.
The regulations may provide for the division and reallocation of contributions, but not before January 1, 2022.
The ORPP AC must have an actuarial valuation prepared every three years by an independent actuary in order to determine if the ORPP is funded on a sustainable basis. The valuation report is to be provided to the Minister of Finance within 15 days, and published within 30 days, after receipt by the ORPP AC.
There is a detailed formula for adjusting prior benefit improvements, the inflation and threshold adjustments and increasing contributions by 0.1 per cent. However, if those measures are not sufficient to make the ORPP sustainable, the ORPP AC shall (unless the Minister of Finance first determines how to address the funding shortfall) determine the additional contribution increases which, in addition to the above described benefit adjustments, would make the ORPP sustainable.
The Bill also sets out a process for dealing with funding excesses.
Any amendments to the ORPP text due to funding shortfalls or excesses will only affect adjustments that would be made, or contributions that would be payable, after the amendment is made.
PHASE-IN OF CONTRIBUTIONS
The transitional contribution rules are to be set out in the regulations. Large and medium employers are to begin contributing no earlier than January 1, 2018; small employers no earlier than January 1, 2019. The regulations will define large and medium employers and all other employers will be “small employers” for ORPP purposes.
Employers with a workplace pension plan in place begin contributing on January 1, 2020. However, the pension plan and employer must meet prescribed conditions.
USE, COLLECTION, AND DISCLOSURE OF PERSONAL INFORMATION
The Bill contains a significant number of provisions governing collection, use, and disclosure of members’ personal information, including age and gender, class of employment and annual salary.
Employers can be asked for information regarding their employees and have 30 days to comply with a request. Extensions to the time limits may be granted. This request can come from either the ORPP AC or the Minister of Finance. It is an offence to fail to comply or give false or misleading information when responding to such a request.
ORPP AC ENFORCEMENT
The ORPP AC has the power to enter a business and make examinations regarding anything related to the ORPP or any workplace pension plan. The ORPP AC may apply for an inspection order in this regard if they are denied access.
Late employer contributions are subject to interest at a rate to be prescribed in the regulations.
For any unpaid contributions, penalties, or interest owing by an employer, the ORPP AC has several enforcement mechanisms at its disposal:
- Filing a certificate of default in the courts and enforcing that certificate as an order of the court
- Subject to certain administrative requirements, the ORPP AC has a lien against all employer property for the value of the unpaid amounts
- Joint and several liability between the employer and its directors for the unpaid amounts, unless the director acted in accordance with the standard of care, as set out in the Bill
- The ORPP AC can impose an administrative penalty for non-payment of any amount owing
The ORPP AC can impose administrative penalties for a number of contraventions of the Act, including contravening prescribed provisions of the Act or regulations, failing to provide a document, failing to provide required information, making false or misleading statements or receiving payments to which they were not entitled, the penalty for which is a fine up to C$10,000.
Administrative penalties and fines under the Act shall be paid to the ORPP AC and either deposited into the ORPP (if that would not result in a registration issue under the Income Tax Act (Canada)) or be used to pay fees and expenses relating to the administration and investment of the ORPP.
An appeal process, as prescribed by regulation, will provide for an appeal of an administrative penalty.
Furthermore, failing to pay required ORPP contributions is an offence. Other offences include evading ORPP contributions, making false or misleading statements on forms required to be completed under the Act, or contravening an order made by the ORPP AC. Corporate directors and officers commit offences if they cause, permit, authorize, acquiesce or participate in the commission of an offence or fail to take all reasonable care in the circumstances to prevent the commission of the offence.
The maximum fine for an offence under the Act is C$100,000 for the first conviction and C$200,000 for each subsequent conviction. Directors and officers of corporations are also liable to the same fines.
- No payment is permitted from the Consolidated Revenue Fund for the purposes of funding the ORPP. Therefore, contribution increases and/or benefit reductions will be required where shortfalls occur.
- There are provisions that allow returns of overpayments, but otherwise, contributions to the ORPP cannot be refunded.
- There are provisions that cause successor employers to stand in the place of predecessor employers.
- The ORPP AC can require communications be in electronic format.
- There are provisions to deal with conflicting statutory provisions.
- The ORPP shall be reviewed every 10 years. The first review is to be initiated before January 1, 2025.
- The ORPP text must be registered as a pension plan under the Income Tax Act (Canada) and all amendments thereto must be filed for acceptance under the Income Tax Act (Canada).
- The Lieutenant Governor in Council is authorized to make regulations governing the ORPP. A regulation may incorporate by reference the registered text of the ORPP. The Minister of Finance is authorized to make regulations setting out the registered text of the ORPP.
- The regulations will provide for the contribution commencement transition provisions, (i.e., large and medium employers to contribute commencing no earlier than January 1, 2018; small employers no earlier than January 1, 2019; and employers with workplace pension plans that meet prescribed conditions to contribute commencing January 1, 2020) and transitional contribution and accrual rates.
- The ORPP AC is to establish a trust into which the contributions made under the ORPP are made and any accruals from the investment of those contributions shall be held for the beneficiaries of the ORPP.
- There are a number of provisions protecting members of the ORPP AC from liability, providing that they are managing the ORPP assets in the best interests of the ORPP beneficiaries.
The Bill received first reading on April 14, 2016, and will come into force on proclamation.