At long last, Bill 186 – the Ontario Retirement Pension Plan Act (Strengthening Retirement Security for Ontarians), 2016 (ORPPA) – was released on April 14, 2016.
The ORPPA confirms a number of details that had already been publicized by the Government of Ontario. Further missing details will be provided in eventual regulations. The ORPPA also confirms that the Ontario Retirement Pension Plan (ORPP) will be a type of target-benefit plan, since it will provide for a potential increase in contribution rates, as well as a reduction of adjustments to the “maximum annual earnings threshold” discussed below and indexing, should the ORPP become unsustainable.
Below is a summary of the details of the ORPP, as set out in Bill 186, and how they compare to requirements of the Canada Pension Plan (CPP), the Pension Benefits Act of Ontario (PBA) and other statutes, and what issues these details may present. The legislative comparison is particularly interesting as it highlights the extent to which the Government was motivated to produce a structure that could be folded into the CPP.
We have also included a short checklist of considerations for employers contemplating the advent of the ORPP.
Main ORPP Features
The ORPP’s main features are as follows.
1. Comparable Workplace Pension Plan
An employer must enrol its employees in the ORPP except if they participate in a “comparable workplace pension plan” (CWPP), which is:
- Except as prescribed, a defined benefit (DB) plan with an annual benefit accrual rate of at least 0.5% of the member’s annual remuneration
- Except as prescribed, a defined contribution (DC) plan with a total mandatory contribution rate of 8% of the member’s annual remuneration, with at least 4% being the mandatory employer contribution rate
- As prescribed, a hybrid pension plan (i.e., one with both a DB and DC provision)
A DB multi-employer pension plan (MEPP) will qualify as a CWPP if it meets the minimum annual benefit accrual or the DC contribution tests.
2. Timing of Initial Enrolment
Large and medium employers must begin to contribute on January 1, 2018 and small employers on January 1, 2019 (the meaning of large, medium and small to be prescribed but expected to be 500 or more employees for large employers, 50 to 499 employees for medium employers, and fewer than 50 employees for small employers). For an employer who participates in a workplace pension plan that is not a CWPP, the participation date may be pushed back to January 1, 2020 (as prescribed).
3. Contribution Rates
Employees will contribute 1.9% (which is equivalent to the CPP 1987 contribution rate) of “pensionable earnings” (the meaning of which is to be prescribed) exceeding the minimum earnings threshold of $3,500 (which is equivalent to the CPP’s Year’s Basic Exemption) up to the maximum annual earnings threshold of $90,000 (adjusted for changes in the average wage) per pay period, and employers will contribute the same.
The contribution rate may be lower for different years and for different employers (as prescribed).
4. Benefit Accrual Rate
An ORPP member’s pension will be determined by multiplying the member’s pensionable earnings for each year by a benefit accrual rate of 0.375%, and it will be indexed (as prescribed).
Except as prescribed, the ORPP will pay nothing before January 1, 2022.
The benefit accrual rate may be lower for different years and for different employers (as prescribed).
Other ORPP Features
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Employer Duties and Liabilities
The ORPPA provides the following employer duties and liabilities.
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Employers with employees in Ontario have a variety of things to consider in determining whether and to what extent they will be subject to the ORPP.
1. Employers Who Offer Workplace Pension Plans
An employer with a workplace pension plan will have to consider the following:
- Will its pension plan qualify as a CWPP?
- If not, assuming that it wishes its pension plan to qualify as a CWPP, what has to be done to the DB benefit accrual rate or DC mandatory contribution rates to ensure that the pension plan qualifies and what are the impediments to (e.g., collective bargaining) and cost and other implications of doing so?
- If the CWPP has a waiting period, should such period be eliminated – for full-time employees only or for part-time and full-time employees - and what are the cost and other implications of doing so?
- If plan membership is voluntary for some or all employees, should it be made mandatory?
- In respect of how many employees is the employer likely to have to contribute to the ORPP even if it has a CWPP?
Certainly, as discussed above, the major challenge for an employer with a CWPP will be how to deal with waiting periods and employees who are not eligible for the CWPP.
2. Employers who Participate in a DB Multi-employer Pension Plan
Employers who participate in a MEPP should think of the following:
- They should determine how and when to seek assurances from the MEPP administrator that it is a DB plan that qualifies as a CWPP.
- If the MEPP is a DB plan that qualifies as a CWPP, they should think of establishing a protocol with the MEPP administrator to confirm an employee’s ongoing participation in the MEPP, and the MEPP’s continued CWPP status.
3. Employers Without Workplace Pension Plans
An employer that does not participate in a workplace pension plan but which offers a group registered retirement savings plan (GRRSP), with or without a deferred profit sharing plan (DPSP), will have to decide as follows:
- If it sponsors a DPSP, will it retain such plan for ORPP-eligible employees and, if so, what are the cost and other implications of doing so?
- Does it wish instead for the DPSP to no longer be available to ORPP-eligible employees and what are the impediments (e.g., collective bargaining) to doing so?
- If so, will it terminate the DPSP or will it retain it for non ORPP-eligible employees?
- How and when will it amend or terminate the DPSP?
- If it sponsors a GRRSP to which it “contributes”, does it wish such plan to no longer be available to ORPP-eligible employees and, if so, to what extent?
- If its GRRSP contributions exceed minimum employer ORPP contributions, does it wish to reduce these GRRSP contributions by its ORPP contributions?
- If it wishes to cease contributing to the GRRSP, what does it have to do in order to cease such contributions, when will it do so and what are the impediments (e.g., collective bargaining) to doing so?
- If it sponsors a GRRSP to which it does not “contribute”, will it retain such plan for both ORPP-eligible employees and non ORPP-eligible employees?
Employers who offer or otherwise participate in a retirement arrangement which is not a workplace pension plan (and will not qualify as a CWIPP), as well as employers without any sort of retirement arrangement, may wish to consider whether to establish a CWPP and avoid the ORPP. An employer may be tempted to do so if it fears that the ORPP will prove to be unsustainable and that the contribution rates will increase as a result.
Given the issues raised above, employers with employees in Ontario should view the ORPP as a universal plan, much like the CPP, with the possibility of an opt-out in certain circumstances (i.e., those who accrue benefits under or contribute to a CWPP, or are otherwise exempted from having to participate in the ORPP).