Employers and employees in Ontario could be subject to the new Ontario Retirement Pension Plan ("ORPP") as early as January 2017. The ORPP will be a provincially managed pension plan for residents of Ontario designed to mimic the Canada Pension Plan ("CPP"). All employees in Ontario (excluding those in federally regulated sectors and the self-employed) who are not currently members of comparable workplace pension plans will be members of the ORPP. An estimated 3.5 million workers are anticipated to be enrolled in the ORPP by 2020.
How Will It Work?
The ORPP will mimic the CPP with mandatory employee contributions through payroll deductions matched by employers. The benefits paid out in retirement will vary depending on how many years an employee contributes to the plan and their salary.
Employers will be enrolled in the ORPP in stages beginning in January 2017. Contribution rates for employers and employees will be phased in over three years until the maximum 1.9% contribution rate is met on the first $90,000 of employee earnings. Contributions by employers and employees will not be required on employee earnings below the minimum threshold of $3,500 in earnings per year from that specific employer. Payouts from the ORPP may begin as early as 2022.
The stages of employer enrollment in the ORPP will be based on two key factors: (a) the size of the employer; and (b) whether or not the employer has a registered pension plan ("RPP") or has begun the process of registering a pension plan as of August 11, 2015. The stages of enrollment will be as follows:
- Large employers (500 or more employees) without registered workplace pension plans: For these employers, contributions will commence on January 1, 2017 at a rate of 0.8% for both the employer and employees. This contribution rate will increase to 1.6% in 2018, and then to the maximum of 1.9% in 2019 for both the employer and employees.
- Medium employers (50-499 employees) without registered workplace pension plans: For these employers, contributions will commence on January 1, 2018 at a rate of 0.8% for both the employer and employees. This contribution rate will increase to 1.6% in 2019, and then to the maximum of 1.9% in 2020 for both the employer and employees.
- Small employers (50 or fewer employees) without registered workplace pension plans: For these employers, contributions will commence on January 1, 2019 at a rate of 0.8% for both the employer and employees. This contribution rate will increase to 1.6% in 2020, and then to the maximum of 1.9% in 2021 for both the employer and employees.
- Employers of any size with a workplace pension plan that does not currently meet the applicable comparability test, or who have employees that are not members of the comparable workplace plan: For these employers, contributions will commence on January 1, 2020 at the maximum contribution rate of 1.9% unless they modify their workplace pension plan to meet the comparability test or to include all employees by January 1, 2020.
Comparable Pension Plans
Employers and employees who participate in comparable pension plans will not be required to participate in the ORPP. A "comparable plan" is defined as a RRP that meets all of the minimum thresholds as set out in the comparability test. A technical bulletin has been released by the Ministry of Finance ("MoF") that identifies the comparability test for different types of benefit plans, set out below:
- Defined Benefit (DB) Plans: The annual benefit accrual rate must be at least 0.5% for the plan to be comparable. For flat-benefit DB plans, they must also meet the minimum 0.5% threshold.
- Defined contribution (DC) pension plans: The annual minimum total contribution must be 8% of base salary earnings, with the employer contributing at least half of the total minimum contribution (at least 4%).
- Other Types of Plans: Group registered retirement savings plans, or deferred profit sharing plans will not be considered comparable. The Ontario government is still formulating an appropriate comparability threshold for multi-employer pension plans and pooled registered pension plans.
What Should Employers Be Doing Now?
Employers should carefully review any existing RPP's and retirement savings plans to determine if they will be subject to the ORPP. Employers who will be subject to the ORPP should give consideration to whether or not it makes sense for them to modify their pension plans or implement new comparable pension plans.
Legal counsel should be consulted in order to anticipate any employment law or collective bargaining ramifications of changes to existing pension plans prior to the deadline for amending existing plans on January 1, 2020.
For those employers who do not currently have a RPP and wish to be exempted from the ORPP, a comparable plan must be set up before the employers' scheduled entrance in 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.