On January 26, 2016, the Ontario government released additional design details about the Ontario Retirement Pension Plan (ORPP) as well as a technical bulletin, which provide additional information about the ORPP that will be relevant to employers with workers employed in Ontario, including:
- Comparability Test: Employers and employees who participate in a comparable workplace pension plan (Comparable Plan) will not be required to participate in the ORPP, which was previously discussed in our August 2015 Blakes Alert: Ontario Government Releases Further Details about the Ontario Retirement Pension Plan. The Ontario government has further indicated that the comparability test for determining whether a workplace pension plan is a Comparable Plan (Comparability Test) will apply at the level of a subset of employees. A subset must be clearly identifiable in the terms of the employer’s registered pension plan or collective bargaining agreement in order to be recognized. A subset of members could exist where a pension plan provides for differences in contribution rates or benefit structures based on:
- The nature of the member’s employment
- The terms of employment, years of service
- Whether or not the member belonged to a union
- Other objective distinctions
Members who belong to a subset will be subject to the same contribution or benefit structure.?
- Comparability Test for Multi-Employer Pension Plans (MEPPs): For employers participating in a MEPP, the Comparability Test will apply to the employer’s collective bargaining and/or employee agreements at the subset level, as defined by plan governing documents. Employers will have the option to assess the pension benefit comparability using either the defined benefit accrual or defined contribution rate threshold as set out in the Comparability Test.
- Voluntary Contributions under Defined Contribution Pension Plans:Voluntary employee contributions under defined contribution pension plans will not be applicable in calculating the defined contribution rate for the Comparability Test.
- Definition of Employment in Ontario: A person will be considered employed in Ontario under the ORPP if he or she:
- Is required to report to work at an establishment of the employer in Ontario
- Is not required to report to work at an establishment of the employer in Ontario but is paid by the employing establishment in Ontario (e.g. an employee whose employment contract states that he or she works from a home office and the location of the payroll department or records is in Ontario)
- Waiting Periods:Workers will have to be enrolled in the ORPP during a Comparable Plan’s waiting period.
- Pensionable Earnings: Pensionable earnings for the ORPP will include both cash and non-cash earnings, including amounts beyond base salary such as bonuses and commissions.
- Non-resident Workers:The ORPP will include non-resident workers (who earn above the minimum earnings threshold of C$3,500 and have income that is taxable for the purposes of Canadian and Ontario income tax). Non-resident workers who are exempt from Canadian income tax under a tax treaty will also be exempt from contributing to the ORPP.
- ORPP Funding and Changes:A funding policy for the ORPP has been established that provides for appropriate adjustments to be made to benefits and/or contributions in the event that the ORPP becomes underfunded. The ORPP Administration Corporation (ORPP AC), which is responsible for administering the ORPP, will be required to file an actuarial valuation of the ORPP with the Canada Revenue Agency every three years, and make the valuation public and subject to peer review. Where there is a funding shortfall, the ORPP AC will operate within a prescribed set of actions, including reversing any previous actions taken during a funding excess and reducing benefit indexation up to a certain limit. If these actions do not remedy the shortfall, the ORPP AC may increase contribution rates by up to 0.2 per cent. Where a “fundamental change is proposed to the nature of the ORPP that would impact plan members’ benefits substantially and that is not a direct result of funding policy adjustments, the consent of at least 60 per cent of ORPP members would be required in order to implement such a change.”
- Age and Contribution Limits:The minimum age of participation is 18 years old and the maximum age of participation is 70 years of age. The maximum period during which a member could contribute to the ORPP will be 52 years. Actuarially adjusted benefits will be available to members as early as age 60 and as late as the end of the year the member turns 71.
- Indexation: Pre-retirement benefits are to be indexed according to the average growth of wages and salaries as outlined by Statistics Canada to account for the effects of wage growth. Post-retirement benefits are to be indexed according to the Consumer Price Index to account for inflation.
- Benefit Formula: The benefit accrual rate for the ORPP will be 0.375 per cent per year. A retired member’s pension benefit will be calculated using the member’s average earnings over his or her career.
- Survivor Benefits:Survivor benefits under the ORPP will be payable to the surviving spouse of a member or his or her beneficiary or estate where the member’s death occurs pre-retirement. A member without a spouse will receive a pension with a 10-year guarantee. This 10-year guarantee period means that if the member dies within the 10 years after retirement, the remaining value of the pension will be paid to his or her beneficiary or estate as an actuarially equivalent lump sum. Where a member with a spouse begins receiving a pension from the ORPP, he or she will receive a joint and survivor pension (60 per cent survivor benefit to his or her spouse), subject to a waiver.
- Appeals: The ORPP AC will develop an appeal process for employers and members who wish to dispute a decision made by the ORPP AC. If the dispute cannot be resolved by the ORPP AC, an employer or member will have the right to a formal appeal with an independent adjudicative tribunal.
- Information Disclosure and Plan Review:The ORPP AC will publish an annual report that will be submitted to the Ontario government and made available to members and employers and the general public. The ORPP will be reviewed five years after its full implementation and subsequently every 10 years.
- Other details about the ORPP, including opting into the ORPP for employers with Comparable Plans, leaves of absence, workplace injury or illness, religious exemptions, First Nations participation, the definition of “spouse”, marriage breakdown, small benefit commutation and shortened life expectancy have also been made available.
The Ontario government has indicated that the ORPP’s design details have now been shared with the Canada Revenue Agency.