Ontario Retirement Pension Plan (ORPP) Update– How the proposed legislation framework could affect you and your employees

On September 2, 2014, Cowan Insurance Group provided information on the announcement of Ontario’s first mandatory pension plan, the Ontario Retirement Pension Plan (ORPP).  

Since then, the Government of Ontario has released its latest consultation paper outlining the parameters of the ORPP, which concentrate on three key areas: “Comparable” Workplace Pension Plans; a Minimum Earnings Threshold; and Supporting the Self-employed.  

Focusing on the “Comparable” Workplace Pension Plans portion of the paper, we want to highlight that while the government has not settled on defining “Comparable”, they have clearly showed preference to Defined Benefit (DB) and Target Benefit Multi-Employer Pension Plans by designing the ORPP in such a way that it echoes the Canada Pension Plan (CPP) with the following features:

  • Income for Life: “Provide members with a predictable stream of income that is paid for life.”
  • Indexing to Inflation: “ORPP benefits would be indexed to inflation, ensuring these benefits maintain their purchasing power through retirement.”
  • Mandatory Employer Contributions: Similar to the CPP, the ORPP would require equal contributions from the employer and employees, as the Government of Ontario believes the retirement security of workers should be a shared responsibility.
  • Pooling Investment Risk: Reduces the “impact of lower than expected market returns.”
  • Locked-In Funds: “Ensures savings are available in retirement.”

Not all DB and Target Benefit Multi-Employer Pension Plans have all of the features mentioned above; however, members of the plans who meet the criteria will be exempt from participating in the ORPP, and so will their employers. As it stands, no plan member (employee) or plan sponsor (employer) of a Capital Accumulation Plan (CAP)—Defined Contribution Pension Plan, Group Registered Retirement Savings Plan, or Deferred Profit Sharing Plan— will be exempt from participating in the ORPP.

Your Pension Consultant will respond to the Ontario Government’s request for comments by the February 13, 2015 deadline and urges CAP sponsors to review the consultation paper and do the same. 

If these ORPP parameters stay in place, they will result in the following negative effects on employers with CAPs in place and their plan members: 

  1. Employers and employees will be required to contribute 1.9% of salary into the proposed ORPP.
  2. Employer sponsored CAPs will be forced to bear this additional cost or reduce their existing contribution formula to offset it.
  3. Loss of flexibility to use your Retirement Savings Program as intended.

Your Pension Consultant believes that an employer who offers a CAP plan to all of their employees, with an appropriate level of contributions, should meet the definition of a “comparable” retirement plan, and thus be exempt from contributing to the ORPP.

If you agree, we encourage you to share your opinion by submitting comments to:  

AND

Ontario Retirement Pension Plan: Key Design Questions
Budget Secretariat
Ministry of Finance
95 Grosvenor Street
3rd Floor, Frost Building North
Toronto, ON M7A 1Z1

If you require assistance with a communication to the Government of Ontario, please contact your Pension Consultant.