Written by Susan G. Seller and Mariette P.H. MatosOn February 16, 2016, the Ontario Finance Minister announced a one-year delay in the launch of the Ontario Retirement Pension Plan (ORPP), in order to allow time for the federal government and the provinces to discuss enhancements to the Canada Pension Plan (CPP). As a result, ORPP enrolment will now begin in 2017 (one year later than the original start date) and the first stage of contributions to the ORPP will not start until 2018 (rather than 2017).
This means that, unless the provinces reach an agreement on expansion of the CPP over the next year or so, the ORPP will now be phased in for Ontario employers over a period of several years beginning in 2018. Once it has fully come into effect, the ORPP will require eligible Ontario employees without a comparable workplace pension plan to be covered by the ORPP. The ORPP is modelled on the Canada Pension Plan and is designed to strengthen retirement income security by extending workplace pension coverage to Ontario employees. Employers who employ employees at an establishment in Ontario will be required to contribute to the ORPP on their behalf, and to collect and remit the employee's contributions, unless they provide a comparable plan for such employees.
Contributions to the ORPP, once fully phased in, will be 1.9 percent of the employee's earnings above a minimum earnings threshold (expected to be $3,500) up to $90,000, on the part of both the employer and the employee (for a total of 3.8 percent of the employee's earnings). The ORPP, which will be administered by an arms' length administration corporation, will provide retirement benefits (including pre- and post-retirement death benefits) to plan members beginning in 2022.
The Ontario government recently announced that an individual will be considered employed in Ontario if he or she either reports to work, full-time or part-time, at an employer's Ontario establishment, or is paid by an Ontario-based employer but does not work at an employer's place of business but instead works from a home office. Individuals employed in Ontario must participate in the ORPP if they do not participate in a comparable workplace pension plan.
Group registered retirement savings plans, deferred profit sharing plans and group tax-free savings accounts are not comparable plans. The Ontario government has developed a comparability test that applies to all registered pension plans (RPPs) in order to determine whether they are comparable. Generally speaking, registered defined benefit pension plans with a minimum benefit accrual rate of 0.5 percent will be considered comparable, while registered defined contribution pension plans will not be considered comparable unless they provide for a minimum combined employer and employee contribution rate of 8 percent of earnings, with at least 4 percent contributed by the employer. The Ontario government has recently confirmed that this comparability test will apply at the level of a subset of employees, provided that the subset is clearly identified in the pension plan itself or a collective bargaining agreement. In the case of defined contribution RPPs, employee voluntary contributions will not apply in determining whether the plan is comparable to the ORPP; rather, defined contribution plans must provide for a mandatory contribution rate of 8 percent in order to meet the comparability test. Employers who participate in multi-employer pension plans (MEPPs) in respect of their Ontario employees may be exempt from the ORPP provided that they meet the comparability test applicable to either defined benefit or defined contribution RPPs. In addition, if an RPP has a waiting period for membership, contributions to the ORPP will be required during the waiting period.
What Actions Should Employers be Taking?
Employers (other than federally regulated employers) with employees working at or paid from establishments in Ontario, and in particular, those without comparable workplace pension plans, must consider what actions they need to take in order to prepare for implementation of the ORPP.
If your Ontario employees are covered by a registered pension plan that meets the comparability test, no action is required since they will be exempt from participation in the ORPP. However, for employers with a registered pension plan that does not currently meet the comparability test, employers must decide whether they will amend their plans in order to make them comparable “ or else they will be required to contribute the additional 1.9 percent of their employees' earnings to the ORPP once the plan is fully phased in.
Employers who currently sponsor a non-comparable plan, such as a Group RRSP or DPSP, must also consider whether they will continue to sponsor those plans or, perhaps, whether they can negotiate changes to their collective bargaining agreements, or amend the terms of their plans upon the provision of reasonable advance notice, to provide that the employer's contributions will be offset by the amount of contributions to the ORPP.
Please contact your Bennett Jones advisor if you require any advice on the application of the ORPP to your company's employees in Ontario, or on the actions that you can take in response.
Quick Facts About the ORPP
Employers with Ontario employees who do not participate in a comparable workplace pension plan:
- Will be required to participate in the ORPP beginning at the earliest on January 1, 2018 (for employers with 500 or more Ontario employees with no registered pension plan), and at the latest, beginning on January 1, 2020, depending on the number of Ontario employees and the type of workplace pension plan, if any, that the employer sponsors.
- Must contribute 1.9 percent of an employee's earnings between a minimum threshold (which is expected to be $3,500) and $90,000. Pensionable earnings will include all cash and non-cash earnings, including bonuses and commissions beyond an employee's base salary. Employees must also contribute 1.9 percent of their earnings to the ORPP. (Contributions will be phased in for some employers over a period of one to four years.)
- Can deduct their contributions to the ORPP.
- By 2020, every eligible worker in Ontario will be part of either the ORPP or a comparable workplace pension plan.
[Updated April 5, 2016, to reflect clarifications of the Ontario government's announcement].