On December 8, 2014, Mitzie Hunter, the Ontario Associate Minister of Finance tasked with developing the Wynne government’s promise of the Ontario Registered Pension Plan (ORPP), tabled Bill 56 for first reading.

Bill 56 does not establish the ORPP but rather describes some of the main features that it is expected to have. It is therefore tellingly entitled An Act to require the establishment of the Ontario Retirement Pension Plan.[1]

On December 17, the government issued a consultation paper entitled Ontario Retirement Pension Plan: Key Design Questions (Consultation Paper). Public consultation on the ORPP began earlier this year, and submissions must be received by the end of next week, February 13, 2015. The eventual enacting legislation, in fleshing out the ORPP, will take its cue in part from the results of this consultation.

The ORPP is slated to come into effect on January 1, 2017.

The ORPP Framework

Bill 56 sets out a number of ORPP features, while the Consultation Paper describes the government’s preferences with respect to other ORPP features. Here is what Bill 56 tells us about the ORPP’s framework:

  • Employees who are between the ages of 18 and 69 and employed in Ontario will be eligible to contribute to the ORPP if their “salary and wages” are above a prescribed threshold.
  • Employees who are in exempted employment — similar in nature to excepted employment under the Canada Pension Plan (CPP) — and those participating in a “comparable workplace pension plan” will not be required to participate in the ORPP.
  • Eligible employees will contribute up to 1.9% of the portion of their salary and wages below $90,000, and their employer will contribute the same amount, for a maximum rate of 3.8%.
  • The contribution rate will be phased in, and the $90,000 maximum threshold will be adjusted to reflect increases in the year’s maximum pensionable earnings under the CPP between 2014 and 2017.
  • The ORPP will pay lifetime benefits which will begin at age 65 but may begin as early as age 60 and as late as age 70, subject to prescribed actuarial adjustments.
  • The benefits payable will be indexed to inflation and will include survivor benefits to surviving spouses.
  • An administrative entity to be established will provide for the ORPP’s administration and investment.
  • The Ministry of Finance will be authorized to collect information, including personal information, from public bodies and the federal government, as well as from employers.

Here are the Ontario government’s preferences, as set out in the Consultation Paper:

  • Comparable workplace pension plans would be limited to registered pension plans (RPPs) that are defined benefit (DB) plans or target benefit (TB) multi-employer pension plans (MEPPs).
  • The minimum contribution threshold would mirror the CPP’s Year’s Basic Exemption of $3,500.

Planning

Since fewer and fewer employees are covered by DB RPPs, and TB MEPPs apply only to unionized employees, the key issue for most employers during the consultation phase will be whether the definition of comparable workplace pension plans should be expanded to include other retirement programs.[2]

One of the main drivers behind the Consultation Paper is clearly the desire to design the ORPP so that it can later be integrated with an enhanced CPP. Since the CPP is, in fact, a TB plan, comparable workplace pension plans should presumably consist of retirement arrangements that the government believes Ontarians need. According to the Consultation Paper, these would, or have the capacity to, manage longevity risk, protect against inflation, mandate employer contributions, pool investment risk and lock in savings. The only retirement arrangements other than DB RPPs and TB MEPPs which could include some of these requirements would be defined contribution (DC) plans with a combined contribution rate of at least 3.8% of salary and wages. Because of the ORPP’s indexing feature and given the higher cost of delivering pensions through a DC arrangement, it is likely the minimum DC contribution rate would be set higher than that applicable to DB arrangements.[3]

It may be too early to do much planning with respect to the ORPP, but it is not too early to keep the ORPP in mind when planning new retirement programs or changing existing programs, particularly in the context of collective bargaining. Employers who wish to be exempted may wish to review their retirement programs now in order to determine whether they cover all employees who would otherwise be eligible for the ORPP and are likely to meet the minimum thresholds for exemption. They might also want to ensure that any new or changed plans can be revised to integrate with the ORPP.

Employers also know that they will be asked to provide information in order to benefit from the exemption, and may start gathering such information, which will include information about their employees employed in Ontario and their RPPs, their membership requirements, the level of benefits they provide and the contribution rates.

Finally, employers who wish to have the Ontario government expand its notion of comparable workplace pension plans should consider having their voices heard by making a submission before the February 13 deadline.