Voice of Retail is heard! Ontario Government heeds RCC advice on pension comparability...but ORPP still needs major improvements on age and dollar thresholds.
The Ontario Government today announced some long-awaited decisions on timelines for implementation of the new Ontario Retirement Pension Plan (ORPP) and on the definition of “comparability” for existing workplace pension plans that will be substitutable for the ORPP.
Retail Council of Canada (RCC) has been extensively engaged in advocacy efforts to ensure that existing workplace plans of comparable or greater generosity are not displaced by the new ORPP. We have also pushed for longer timelines for implementation of the plan, especially for small businesses. In both respects, today’s announcement contains some significant improvements over the policy that was originally announced during the Ontario election of 2014.
For all companies without a current pension plan in place, the ORPP will be phased-in over three years, with the start date varying depending upon the size of a business’ workforce. See the chart at the bottom of this note for greater detail.
Year One will require a contribution of 1.6% (0.8% employer/0.8% employee). Year Two will require a contribution of 3.2% (1.6% employer/1.6% employee). Year Three and all subsequent years will require a contribution of 3.8% (1.9% employer/1.9% employee).
The government will require companies with 500 or more employees in Ontario to begin Year One on January 1, 2017. Companies with 50-499 employees in Ontario will begin Year One on January 1, 2018. Companies with fewer than 50 employees in Ontario will begin Year One on January 1, 2019.
Companies with a current pension plan in place are not subject to the phase-in and will be required to ensure a contribution of 3.8% (1.9% employer/1.9% employee), effective January 1, 2020 or that their employees be enrolled in a “comparable” plan (see below). This is irrespective of the size of the company’s workforce or the percentage of employees currently covered by their workplace pension plan(s).
The government has shifted its stance away from “every employee must have the benefit of either the ORPP or an indexed, defined benefit (DB) pension” to “every employee must be ensured of benefits at least as generous as those under the ORPP”. The government has retained actuarial advisers to establish comparable levels.
For a defined benefit plan, the accrual rate must be at least 0.5% annually. This is calculated in order to provide a benefit of 15% of income after 30 years’ service.
For defined contribution (DC) plans, the joint contribution must be at least 8% of income, with the employer required to contribute at least 4% of income.
Deferred profit sharing plans (DPSPs) and Group RRSPs would need to undergo a conversion in order to ensure that contributions are both mandatory and locked-in until retirement, in effect making them like DC plans and subject to the same 8% contribution requirement, of which at least 4% must come from the employer.
Levels of comparability have yet to be established for multiple employer pension plans (MEPPs) and RCC will be working with affected members to ensure a fair set of rules for MEPPs.
All employers with existing workplace pension plans are subject to the rules stated in this section, irrespective of whether they have a number of different plans or whether some (or even a majority) of their employees are not covered by any of those plans. In essence, the government is providing employers with time to revise those plans to ensure full coverage by January 1, 2020.
It is entirely open to employers to offer a mix of plans from among DB, DC and ORPP, as long as each plan meets the conditions described above by January 1, 2020. There are no exemptions from the ORPP minimum for part-time, temporary or new employees.
The ORPP’s ceiling for coverage is annual income of $90,000, so significantly higher than the current CPP maximum annual pensionable earnings of $53,600. Unlike the ceiling, the amount of the floor is still under discussion. RCC has been advocating a significant increase over the existing CPP annual basic exemption of $3500, an amount that has been unchanged for 20 years.
Aside from RCC’s work on comparability, we continue to advocate for an age threshold for entry into the ORPP (we are asking for age 25) to exempt jobs for students and youth, who will have other pressing priorities and will still have ample time after age 25 to save for retirement. RCC is also looking for an exemption for those already receiving CPP pension income/aged 65+ to allow for semi-retirees to find work more easily. RCC anticipates that any announcement on age exemptions would be made later in the year at the time when legislation is introduced.
RCC will be organizing a webinar on this topic in order to address member questions in greater detail.
If you have any questions or concerns, please don’t hesitate to contact: Karl Littler, Vice President, Public Affairs at: [email protected] or 416-467-3783
Source: Provided by Ontario Ministry of Finance, August 11, 2015