by Leanne Standryk, Partner
The Ontario Retirement Pension Plan (ORPP) received Royal Assent on May 5, 2015. The ORPP is a mandatory pension plan for Ontario resident employees who don’t have a “comparable plan”. The stated goal of the ORPP is to ensure that every employee in Ontario will be part of either the ORPP or a comparable plan by the year 2020. “Comparable plan” is defined as a registered pension plan, subject to federal and provincial regulation that meets the minimum criteria that:
- Provides participants with a predictable stream of income in retirement for life;
- Provides some security that participants won’t outlive their savings;
- Requires contributions from employers to ensure fairness; and
- Aims to replace up to 15% of a person’s pre-retirement income.
Generally defined benefit or defined contribution plans will meet the comparability test provided that the benefits equal or exceed the benefits being offered under the ORPP. Group Registered Retirement Saving Plans and Deferred Profit Sharing Plans are not currently, nor is it expected that they will, be considered comparable plans.
What does all of this mean for Ontario Employers? Ontario Employers that do not currently offer a comparable plan will be required to enroll the employees. Ontario Employers that offer a registered workplace plan that does not meet the minimum criteria will have to enroll their employees in the ORPP or adjust existing plans to meet the minimum criteria.
Where all employees of an employer participate in a “comparable plan”, the employer will not be required to participate in the ORPP.
Enrollment in the ORPP is a phased in approach that will vary based on two key factors:
- The size of the employer; and
- Whether or not the employer maintains a registered pension plan as at August 11, 2015.
Originally, enrollment was to commence as early as January 1, 2017, however, effective February 16, 2016, the Ontario Finance Minister announced a delay in the staggered implementation dates as follows:
Phase I: Large Employers
Larger Employers (500+ employees) without a pension plan, contributions will commence January 1, 2018 at a contribution rate of .08% for both employers and employees. In 2019, the rate will be 1.6% and in 2020, 1.9%.
Phase II: Medium Employers
Medium Employers (50 – 499 employees) without a pension plan, contributions will commence January 1, 2018 at a contribution rate of .08% for both employers and employees. In 2019, the rate will be 1.6% and in 2020, 1.9%
Phase III: Small Employers
Small Employers (50 or fewer employees) without a pension plan, contributions will commence January 1, 2019 at a contribution rate of .8% for both employers and employees. In 2020, the rate will be 1.6% and in 2021, 1.9%.
Phase IV: Employers of any size with a workplace pension that does not meet the comparability criteria.
For this group of employers, contributions commence January 1, 2020 at the maximum contribution rate of 1.9% unless the workplace pension plan is modified or adjusted to meet the comparability test prior to January 1, 2020.
When fully phased in, the ORPP will require that employees and employers contribute an equal amount, capped at 1.9% each (3.8% combined) on an employee’s annual earnings up to $90,000.
The delay in implementation dates announced February 16, 2016, was intended to allow time for dialog on CPP reform. If provincial agreement on enhancements to the CPP is not reached, implementation of the ORPP will move forward.
Next steps for Employers
Employers who have existing retirement savings plans should assess current retirement income plans to determine whether they meet the criteria of a comparable workplace pension plan under the ORPP. Employers should also then consider whether, from a business perspective, it is advantageous for them to modify their existing pension plans or implement a comparable workplace pension plan rather than contribute to the ORPP. Modifications must be made prior to the deadline for amending existing pension plans on January 1, 2020 and implementations must be completed before the employer’s scheduled entrance into the ORPP.
Employers who do not have existing plans should incorporate the ORPP obligation into their current business and ensure that they properly communicate the obligation to their employees. There will be potential employment law considerations for all employers and where employees and pension plans are subject to a regime of collective bargaining, there will be additional complexities to consider.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
Leanne Standryk is a senior partner at Lancaster Brooks & Welch and she may be contacted for advice on any Labour and Employment matter at 905-641-1551.