Now that the 2014-2015 Ontario budget has been passed by the Ontario legislature, Ontario employers should think about how the new Ontario Retirement Pension Plan (ORPP) could affect them.
The ORPP is part of the Ontario government’s solution to help individuals save for retirement. It’s a new “made-in-Ontario” solution to the federal government’s inaction on expanding the CPP. The ORPP will be a defined benefit pension plan, similar to the CPP, that will be publicly administered at arm’s length from the Ontario government.
Mandatory participation in the ORPP is set to begin in 2017, with enrolment occurring in stages starting with the largest employers. Contributions will be split equally between employers and employees, up to 1.9% each (3.8% total) on an employee’s earnings above a yet-to-be-determined minimum threshold and up to a maximum annual earnings threshold of $90,000. The ORPP aims to provide individuals with retirement benefits that replace 15% of the individual’s pre-retirement earnings (up to $90,000).
The question that employers should be asking is simple: Will I have to participate in the ORPP? The answer, however, is not so simple.
The Ontario government has stated that employers with a “comparable workplace pension plan” will be exempt from participating in the ORPP. But what does “comparable” mean? Does it mean a registered defined benefit pension plan? Probably. What about a registered defined contribution pension plan (DCPP)? Maybe. How about a group Registered Retirement Savings Plan (group RRSP) or a Pooled Registered Pension Plan or even a Tax-Free Savings Account? I don’t know.
To date, the government has not offered any details on what would constitute a “comparable” plan.
If the intent is to require employers to help contribute to their employees’ retirement savings, offering a group RRSP where employer contributions are optional may not suffice. It also might not be enough for an employer to provide a DCPP to its employees since the minimum employer contribution in a DCPP is 1% of an employee’s earnings, almost half of the maximum 1.9% required under the ORPP.
Employers need to start thinking about how the ORPP could affect their business. Employers who aren’t exempt will certainly have increased payroll costs. In addition to that fact, an employer offering a comparable pension plan to its employees may want to consider whether to integrate its current plans with the ORPP, to offload some responsibility, costs and future risk. An employer wishing to wind up a registered pension plan and replace it with a group RRSP in order to save costs may want to wait and see if a group RRSP counts as a comparable pension plan before making changes. Until more details about the ORPP are released, any Ontario employer who doesn’t have a defined benefit pension plan should be monitoring this since we can’t be sure how the ORPP will affect them.