As we reported in 2015, the Ontario government intends to introduce the Ontario Retirement Pension Plan (ORPP) as a supplement to the Canada Pension Plan. On January 26, 2016, the Ontario government released further information on the ORPP and renewed its commitment to implement the ORPP, beginning on January 1, 2017.
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, 2017 and January 1, 2020. Participating employees and employers 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, 2020, contribution rates will be phased in.
In the January 2016 announcement, the Ontario government released additional design details on the ORPP that will be of interest to employers, including the following:
- Employees will be considered to be employed in Ontario if they report to work at an employer’s establishment that is located in Ontario. If they do not report to work at an establishment of their employer (e.g., employees who work from home), they will be considered to be employed in Ontario if they are paid from an Ontario based establishment. As a result, employees located in other provinces may be subject to the ORPP.
- Pensionable earnings for the purposes of the ORPP will include both cash and non-cash earnings.
- The question of whether or not a plan is “comparable” will be assessed at the “level of a subset of employees.” As a result, if a plan provides different benefits to different groups of employees, the question of whether or not the benefits are comparable will be assessed against each group of employees. For employers that participate in a multi-employer pension plan (a plan with more than one unaffiliated employer), the comparability test will be applied to the employer’s collective bargaining or employee agreements. A plan may, therefore, have both comparable and non-comparable elements at the same time.
- If an employee is eligible to participate in a comparable plan after completion of a waiting period, the employee, and the employer on behalf of the employee, will be required to contribute to the ORPP, during that waiting period.
- A defined contribution registered pension plan will not be considered comparable if contributions are voluntary. Only defined contribution registered pension plans with a mandatory 8% contribution formula, 4% of which must be employer contributions, will be considered comparable.
- Employers with comparable workplace plans will be able to opt-in to the ORPP as of January 1, 2020 or anytime thereafter.
- Unless an employee is exempt from tax under a tax treaty, the ORPP will include non-resident workers who earn above the minimum threshold ($3,500) and have taxable income for Ontario and Canadian tax purposes.
As a reminder, the start date for contributions to the ORPP will vary depending on the size of the employer’s workforce and whether the employer had a registered workplace pension plan in place (it does not have to be a “comparable” workplace pension plan for these purposes) as of August 11, 2015. Large employers (defined as employers with 500 or more employees) without a registered workplace pension plan will be required to contribute to the ORPP as of January 1, 2017.
What should employers do now?
In light of the Ontario government’s most recent announcement, it appears that the ORPP will soon be a reality for Ontario employers and employees. As discussed previously, in anticipation of the roll-out of the ORPP, employers should review existing retirement savings arrangements sooner rather than later. Will your plan be considered a “comparable” workplace pension plan or will you be required to contribute to the ORPP?
If an employer’s plan is not a “comparable” workplace pension plan or has elements that are not “comparable” (i.e., a waiting period for eligibility), employers would be well advised to take time now to consider the impact of the ORPP on their overall compensation and benefits package and whether any changes should be made. Employers in unionized sectors should also consider discussing the ORPP in current or upcoming negotiations in order to ensure that the ORPP is properly addressed in any collective agreement.