Canada: The ORPP Is Taking Form – What The Introduction Of Bill 186 Means For Your Organization

The Ontario government continues to move forward with the Ontario Retirement Pension Plan (ORPP), with the framework for the ORPP being set out in Bill 186, An Act to establish the Ontario Retirement Pension Plan, introduced on April 14, 2016 (ORPP Act). The Ontario government has also issued a News Release and Backgrounder on the new ORPP Act.

Certain key aspects of the ORPP Act come as no surprise, as the Bill formalizes certain plan design details that the Ontario government  had previously announced in its releases on August 11, 2015, January 26, 2016 and February 16, 2016.

While there is still more to come, as many of the plan design details will be set out in accompanying regulations to follow, employers now have a clearer picture as to what their responsibilities (and potential liabilities) will be in respect of any of their employees who participate in the ORPP.  Below, we address several of the pressing questions the ORPP raises for private sector employers with employees in Ontario.

A. Participation in the ORPP

1. Are employees of my organization required to participate in the ORPP?

Subject to certain exceptions (see Q&A A3 below), all of your Ontario employees will be required to participate in the ORPP if they do not participate in a "workplace pension plan that is comparable to the ORPP." 

An employee will be considered to be employed in Ontario where:

• He or she is required to report for work at an establishment of the employer and the establishment is in Ontario; or
• He or she is not required to report for work at an establishment of the employer but the establishment from which the person's remuneration is paid is in Ontario.

This test is similar to that which is used to determine whether an employee is subject to the Pension Benefits Act (Ontario).  

2. Would directors of my organization be required to participate in the ORPP?

A person whose position entitled him or her to a fixed or ascertainable stipend or remuneration (which may include a director receiving a fixed fee for acting as a director) is considered to be an "employee" for the purposes of the ORPP, and the person who pays him or her the stipend or remuneration is considered that person's employer.

3. Are any Ontario employees who do not participate in a comparable workplace pension plan exempt from the requirement to participate in the ORPP?

The following employees are not permitted to participate in the ORPP:

• Employees under the age of 18 and employees age 70 and over;
• Employees who do no not have earnings that are included in computing income for the purposes of the Income Tax Act (Canada) as a result of a tax treaty that Canada has with another country.  There is, however, no general exemption for non-residents;
• On-reserve employment by First Nations (although such individuals are eligible to participate if both they and their employer have elected to contribute to the ORPP);
• A person who has applied for, and is granted, an exemption on religious grounds by the ORPP Administration Corporation;
• Employees on a qualifying leave of absence under Part XIV of the Employment Standards Act (Ontario), unless the employee elects to make contributions in respect of the period of leave (in which case the employer is likewise required to make contributions); and
• Employees in "prescribed employment" will not participate – it is not yet clear what employment will be prescribed in the regulations.

4. My organization has employees located in Ontario who are in federally regulated industries – would these employees be required to participate in the ORPP?

In the Backgrounder, which was released in conjunction with the ORPP Act, the Ministry of Finance indicated that non-crown federally regulated workers (e.g., individuals who work in industries such as banks, telecommunications, railway and air transportation) will not be able to participate in the ORPP at this time, due to the structure of federal income tax and pension rules.  However, these employees are not expressly exempt from participation in the ORPP under the ORPP Act. The Backgrounder indicates that the Ontario government is in discussions with the federal government to support the participation of these employees (and the self-employed) in the ORPP.

B. Comparable pension plan

1. My organization offers a workplace pension plan to employees. Would it be considered "comparable" such that plan members would not be required to participate in the ORPP?

For a defined benefit (DB) pension plan to be considered "comparable" to the ORPP, it must have an annual benefit accrual rate that is at least 0.5% of a member's annual remuneration.

For a defined contribution (DC) pension plan to be considered "comparable" to the ORPP, the mandatory contribution rate must be at least 8% of a member's annual remuneration (with the employer contributing at least 4% of the member's annual remuneration). Voluntary contributions and employer matching contributions on such voluntary contributions are not taken into account for the purposes of assessing comparability. 

A DB multi-employer pension plan will be considered comparable if it meets the standard for either a DB or DC pension plan, as described above.

The regulations will address comparability for certain other types of workplace pension plans (e.g., pooled registered pension plans and certain prescribed DB and DC pension plans).

The comparability requirements have not changed since the announcement made by the Ontario government on August 11, 2015.  For a more detailed discussion on comparability, please see our Osler Updates from August 12, 2015 and from March 11, 2016.

2. If the workplace pension plan provided by my organization provides a different benefit formula for different classes of members, will the plan as a whole be considered "comparable" if certain members meet the applicable comparability thresholds?

The ORPP Act provides that the regulations may provide for different subsets of members of the same workplace pension plan to be deemed to be members of different workplace pension plans if different annual benefit accrual rates apply with respect to those different subsets.

What this means is that certain members of your workplace pension plan may be considered to be in a workplace pension plan that is "comparable" to the ORPP, and therefore are not required to participate in ORPP, whereas others with a different benefit accrual rate may not be considered to be in a workplace pension plan that is "comparable" and would therefore be required to participate in the ORPP.

3. If my organization offers a comparable workplace pension plan, can our employees still participate in the ORPP?

Yes – an employer may elect to contribute to the ORPP in respect of all of its employees who participate in a comparable workplace pension plan (such employees would not otherwise be required to participate – see Q&A B1). An employer will be able to withdraw the election to opt-in to the ORPP in respect of such employees in accordance with the regulations.

C. Enrolment timetable; contributions

1. When will my organization be required to commence contributions in respect of employees that participate in the ORPP?

The ORPP Act indicates that large and medium sized employers will not be required to begin to contribute to the ORPP before January 1, 2018, whereas small employers will not be required to commence contributions to the ORPP until January 1, 2019. 

While the ORPP Act does not define how the size of an employer is to be determined, a prior announcement by the Ontario government indicated that a "large" employer will be one with 500+ employees; a "medium" employer will be one with 50 to 499 employees and a "small" employer will be one with 49 or fewer employees.   

The ORPP Act further provides that employers that provide a workplace pension plan and meet prescribed conditions will not be required to contribute to the ORPP until January 1, 2020. The regulations will clarify which employers with a workplace pension plan are eligible for this later enrolment date.

2. What will the employer contribution rate be in respect of employees that participate in the ORPP?

The contribution rate under the ORPP will be 1.9% of annual earnings for both employers and employees (subject to any changes that result from amendments to the ORPP relating to plan sustainability – see Q&A C3 below). However, a maximum earnings threshold will apply. This threshold is $90,000 for 2017 and may be adjusted for changes in the average wage in accordance with the regulations. 

It is contemplated that the 1.9% contribution rate will be phased-in.  The ORPP Act does not address phased-in contribution rates, but rather, allows the regulations to establish transitional contribution rules.  However, in the 2016 Ontario Budget, released on February 25, 2016, the following phase-in and contribution schedule was released:

The Ontario government has not to date announced any changes to this phase-in and contribution schedule.

3. Can an employer's contribution obligation under the ORPP in respect of an employee be increased above 1.9% annual earnings?

The ORPP Administration Corporation is required to have an actuary prepare a valuation report for the ORPP every three years to determine if the ORPP is funded on a sustainable basis.

If the valuation report indicates that there is a funding shortfall, the ORPP Act contains a prescriptive regime regarding the remedial action required by the ORPP Administration Corporation:

1. If there has previously been a reduction to the contribution rate as a result of a funding excess under the ORPP, the ORPP Administration Corporation is required to determine what increase in the contribution rate would be necessary to eliminate any such reduction.
2. The ORPP Act provides for adjustments to the maximum annual earnings threshold and adjustments for inflation indexing.  However, if step #1 does not result in the ORPP being funded on a sustainable basis, the ORPP Administration Corporation is required to identify (within certain specified parameters) what reductions to these adjustments would, together with step #1, result in the ORPP being funded on a sustainable basis.
3. If steps #1 and #2 would not result in the ORPP being funded on a sustainable basis, the ORPP Administration Corporation is able to increase the contribution rate for employers and employees by up to 0.1%.

If the remedial actions above are still not sufficient to ensure that the ORPP is funded on a sustainable basis, the Ontario government has discretion to determine what, if anything, it wishes to do to address the funding shortfall. Should the Ontario government not make a decision (or not provide the ORPP Administration Corporation with notice of its decision within a prescribed period of time), the ORPP Administration Corporation is required to amend the ORPP by further increasing the contribution rate by an amount which, together with the remedial actions identified above, would result in the ORPP being funded on a sustainable basis. 

4. Can an employer's contribution obligation under the ORPP in respect of an employee be reduced from 1.9% annual earnings?

If the valuation report identifies that the ORPP has a funding excess, the Ontario government has discretion to determine how to address any such funding excess.  If the Ontario government does not make a decision (or does not provide the ORPP Administration Corporation with notice of its decision within a prescribed period of time), the ORPP Administration Corporation may amend the ORPP to reduce the contribution rate.

However, if there have been prior reductions to the adjustments to the maximum annual earnings threshold or reductions to the adjustments for inflation indexing, the ORPP Administration Corporation is required to first determine what increases to these respective adjustments would be necessary to eliminate any previous reductions.

5. If the ORPP is amended to increase the contribution requirements in the event of a funding shortfall, can an employer be required to make additional contributions in respect of periods prior to the date of the amendment?

No – amendments to the ORPP as a result of a funding shortfall or funding excess  can only affect adjustments that would be made, or contributions that would be payable, after the amendment is made.

6. What happens if an employer makes an over-contribution or a contribution in error – can these amounts be reimbursed?

Yes – if an employer remits an amount to the ORPP Administration Corporation that exceeds the amount that the employer is required to remit or otherwise makes a payment on its own behalf in error to the ORPP Administration Corporation, the ORPP Administration Corporation is permitted to authorize a payment from the pension fund to reimburse the employer.

D. Employer Duties; Enforcement and Penalties

1. What will my duties be as an employer with employees that participate in the ORPP?

An employer that is required to contribute to the ORPP is required to:

• Remit the employer's contributions to the ORPP Administration Corporation;
• Deduct the contributions of each of the employees from the employee's remuneration and remit those contributions to the ORPP Administration Corporation; and
• Keep prescribed records and retain them for the prescribed period of time.

Employers may also be asked for information from the ORPP Administration Corporation for the purposes of carrying out its objects.  In such event, an employer must disclose the requested information to the ORPP Administration Corporation within 30 days after the request. 

2. What happens if an employer fails to remit employee and/or employer contributions to the ORPP Administration Corporation or does not comply with its other obligations?

An employer shall be deemed to hold in trust the full amount of any employee contributions that have been deducted and not remitted and any employer contributions  that are due and not yet paid.  The ORPP Administration Corporation has a lien and charge on the property of the employer in an amount equal to any amounts deemed to be held in trust. An employer is also required to pay interest on any employer contributions that have not been remitted when required, at a prescribed rate. 

The ORPP Administration Corporation has a number of mechanisms to ensure the payment of any contributions owing and compliance with the ORPP Act and its regulations:

• The ORPP Administration Corporation may issue a certificate stating that the employer is in default and file the certificate with the Superior Court of Justice or with the Small Claims Court and such certificate shall be enforceable as an order of such Court.
• An administrative penalty can be imposed on an employer for failing to remit required amounts in respect of employer and/or employee contributions – details concerning the amount of any such penalty are to be set out in the regulations. In addition, an administrative penalty of up to $10,000 can be levied on a person in certain circumstances, including the contravention of a prescribed provision of the ORPP Act or regulations.  However, we note that the ORPP Act provides that the purpose of an administrative penalty is to promote compliance with the ORPP Act and not to punish.
• It is an offence for an employer to fail to remit contributions or to fail to retain prescribed records for the prescribed period of time. A person may also be found guilty of an offence for actions including wilfully evading (or attempting to evade) any obligation of an employer under the ORPP Act (including remittances required), knowingly providing false or misleading information, or contravening an order made by the ORPP Administration Corporation. The maximum fine for a person guilty of an offence is $100,000 for the first conviction and not more than $200,000 for each subsequent conviction.

3. What is the potential liability of directors and officers of a company for non-compliance with the ORPP Act and its regulations?

Where there has been a failure to remit amounts required under the ORPP, a corporation and its directors at the time to remit occurred are jointly and severally liable.  This liability extends to the amount that is required to be remitted and to any interest or administrative penalties that are imposed for the failure to remit.  However, a director will not be liable for failure to remit in certain prescribed situations or if the director is able to demonstrate that he or she met the requisite standard of care set out in the ORPP Act.

Also, every director, officer, official or agent of a corporation and every person acting in a similar capacity or performing similar functions in an unincorporated association is guilty of an offence if the person:

• Causes, authorizes, permits, acquiesces or participates in the commission of an offence by the corporation or unincorporated association; or
• Fails to take all reasonable care in the circumstances to prevent the corporation or unincorporated association from committing an offence.

The maximum fine for any such person guilty of such an offence is $100,000 for the first conviction and $200,000 for each subsequent conviction, whether or not the corporation or unincorporated association has been prosecuted for or convicted of an offence arising from the same facts or circumstances.

4. Can my organization be responsible for any failure of a predecessor entity to make contributions to the ORPP?

Yes – the ORPP Act provides that an employer is considered a "successor employer" where it immediately succeeds another employer as a result of the formation or dissolution of a corporation or the acquisition of all or part of a business of a former employer. A successor employer is jointly and severally liable, together with the former employer, to pay all amounts owing under the ORPP Act by the former employer immediately before the succession. 

E. The Future of the ORPP

1. Is the ORPP likely to be replaced by Canada Pension Plan expansion?

The 2016 Federal Budget released on March 22, 2016 indicated that the Federal government intends to launch a public consultation in order to give Canadians an opportunity to share their views on enhancing the Canada Pension Plan (CPP). The Federal government has already commenced discussions on CPP enhancement with the provinces and territories in December 2015.

The announcement by the Federal government echoes the commitment by the Ontario government to cooperate with the Federal government to continue discussions on CPP enhancement.  However, in its News Release the Ontario government indicated that by "moving forward with legislation, Ontario is ensuring that, if no national consensus on CPP enhancement is reached, retirement security can be strengthened in Ontario through the ORPP."  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.