On August 11, the Ontario Government announced certain details regarding the Ontario Retirement Pension Plan (ORPP).
Firstly, the government confirmed that the ORPP will require employees and employers to each contribute 1.9 per cent (or 3.8 per cent combined) of an employee’s annual earnings up to $90,000 (indexed from 2014 forward), for a combined maximum total of $3,420 per year (also indexed from 2014 forward). Click here for further details regarding ORPP contribution rates.
Secondly, employers that sponsor a “comparable plan” will not be required to take part in the ORPP. Both defined benefit (DB) and defined contributions (DC) “registered pension plans” will be considered “comparable” plans; provided, however, that DC plans must provide an annual contribution rate of at least 8 per cent (with at least 50 per cent employer matching of the minimum rate), and DB plans must meet an annual benefit accrual rate of at least 0.5 per cent of the employee’s salary. Group registered retirement savings plans (RRSP) and deferred profit sharing plans (DPSP) will not be considered comparable. Click here for further details regarding the proposed comparability tests.
Employers who currently sponsor a DC registered pension plan may wish to review their plan to determine if it would be considered a “comparable plan” and to amend it to meet that definition if not. Employers who sponsor a group RRSP and/or DPSP may also wish to revisit their plan to determine if making a change to a DC registered pension plan would be more efficient. As the similarities between DC registered pension plans and group RRSPs and DPSPs are substantial, for some employers, making the switch to a DC registered pension plan may result in significant cost savings without too much additional effort.
Thirdly, there will be four stages of enrolment in the ORPP, starting in January 1, 2017. The proposed enrolment process will be as follows:
- 2017: Employers with 500 or more employees, without a registered workplace pension plan, will be required to begin contributing to the ORPP;
- 2018: Employers with between 50 and 499 employees, without a registered workplace pension plan, will be required to begin contributing to the ORPP;
- 2019: Employers with fewer than 50 workers, without a registered workplace pension plan, will be required to begin contributing to the ORPP; and,
- 2020: Employers that do not sponsor a “comparable” plan (as outlined above), will be required to begin contributing to the ORPP.
Contributions will also be phased-in, reaching the 1.9 per cent threshold from employers and employees by 2021.
Click here for further detail regarding the phase-in schedule.
As it stands, the self-employed, employees who participate in a “comparable plan” and Ontario employees who work in federally regulated sectors will not be required to participate in the ORPP.