In less than a year, the new Ontario Retirement Pension Plan (ORPP) is set to be in place for certain employers. If you are an employer with Ontario workers, now is the time to consider the impact the ORPP will have on your business and decide whether changes to existing retirement savings plans should be made.
The federal and provincial finance ministers met in late December 2015, and discussed enhancements to the Canada Pension Plan (CPP); however, changes to the CPP are unlikely to be made in the near future. As a result, the Ontario government continues to move forward with establishing the ORPP by January 1, 2017, while keeping the door open for potential integration with a CPP enhancement in the future.
Background on the ORPP
Ontario’s goal in creating the ORPP is to strengthen retirement security for Ontario workers. Subject to legislative approval, the ORPP would provide Ontario workers with a predictable stream of income in retirement, for life. If the ORPP is established as proposed, every Ontario worker between the ages of 18 and 70 will be entitled to a pension from either the ORPP or a comparable workplace pension plan by 2020. Benefits from the ORPP would be paid beginning in 2022.
What does this mean for your organization?
Depending on the size of your workforce and the company retirement plans you offer, your organization could be required to contribute to the ORPP beginning next year. Contributions to the ORPP will be shared, with employers and employees contributing equal amounts up to 1.9 percent each (total 3.8 percent combined). Unless an employer establishes a pension plan that is comparable to the ORPP (as described below) by the enrolment date set out below, it will be required to enroll in and contribute to the ORPP on a phased-in basis, as follows:
- Wave 1: Large employers with 500 or more employees, without a pension plan of any kind as of August 11, 2015, will be required to participate in the ORPP starting January 1, 2017. Contributions will start at 0.8 percent each for both employees and employers in 2017, increase to 1.6 percent in 2018, and reach the maximum contribution rate of 1.9 percent in 2019.
- Wave 2: Medium employers with 50 to 499 employees, without a pension plan of any kind as of August 11, 2015, will be required to participate in the ORPP starting January 1, 2018. Contributions will start at 0.8 percent each for both employees and employers in 2018, increase to 1.6 percent in 2019, and then reach the maximum contribution rate of 1.9 percent in 2020.
- Wave 3: Small employers with 50 or fewer employees, without a pension plan of any kind as of August 11, 2015, will be required to participate in the ORPP starting January 1, 2019. Contributions will start at 0.8 percent each for both employees and employers in 2019, increase to 1.6 percent in 2020, and then reach the maximum contribution rate of 1.9 percent in 2021.
- Wave 4: Employers with a pension plan as of August 11, 2015 will be required to participate in the ORPP starting January 1, 2020 if their pension plan does not meet the comparability test as described below, or for any Ontario employees who do not participate in that pension plan. Contributions will be 1.9 percent each for both the employer and employees starting on the enrolment date.
Employers and employees who participate in a pension plan that is comparable to the ORPP (as described below) by the enrolment date will not be required to participate in the ORPP.
Is your pension plan comparable?
In order for your organization’s pension plan to be considered “comparable” to the ORPP, such that you do not have to participate in the ORPP, it must be a registered pension plan that satisfies certain requirements. Defined benefit pension plans will be considered comparable if they provide an annual benefit accrual rate of at least 0.5 percent of an employee’s earnings. Defined contribution pension plans must have annual contributions of at least 8 percent of an employee’s earnings, with at least 4 percent being contributed by the employer, to be considered comparable.
Other types of pension plans, such as combination plans with defined contribution and defined benefit components, multi-employer pension plans, and pooled registered pension plans, will also be comparable if they meet certain criteria.
Group registered retirement savings plans (Group RRSP), and deferred profit sharing plans (DPSP), will not be considered comparable to the ORPP. If your organization only offers employees a Group RRSP and/or DPSP, you will be required to participate in the ORPP unless a comparable plan is provided to employees before your scheduled enrolment date.
What can you do to prepare for the ORPP?
Employers with Ontario employees should review and assess their existing retirement savings plans and determine whether changes should be made in light of the ORPP. The first step is to confirm whether your organization will be required to participate in the ORPP and, if so, when. This will be based on the size of your current workforce and the retirement savings plans you offer. If your organization will be required to participate in the ORPP, the next step is to determine whether it makes sense to amend existing plans and/or establish new comparable plans to become exempt from the ORPP.
Before making changes, employers need to decide if participation in the ORPP is desirable for some or all of their Ontario employees and, if it is, whether participation will be an alternative, or in addition, to the current retirement savings plans that are offered.
What can employers expect in the coming months?
Your organization will be contacted in the coming months by the ORPP Administration Corporation to verify your existing pension plans and assess the coverage offered to employees. The federal and provincial finance ministers plan to meet again in June 2016, and will review options for enhancing the CPP at that time. Finally, we expect further information and legislation regarding the ORPP to be released later this year.