Many employers haven’t yet figured out how they are going to respond. Some have indicated they will absorb the cost, some will make voluntary plans mandatory and waive waiting periods, while others have said they will eliminate or reduce other benefits to stay cost neutral and potentially hire fewer employees going forward. Others are looking at whether or not increasing contributions meets the comparability test.
ORPP – An Overview
The Ontario Retirement Pension Plan Act, 2015 (the “ORPP Act”) sets out certain “basic requirements” of the ORPP. Under the ORPP Act, the ORPP must:
- be mandatory for eligible employees and eligible employers in Ontario;
- have a maximum combined contribution rate of 3.8%, shared equally by employers and employees;
- apply to those employees who work in eligible employment in Ontario between 18 and 70 years of age who do not participate in a “comparable workplace pension plan” and whose annual salary and wages are above a yet-to-be-determined earnings threshold;
- have a maximum earnings threshold for 2017 of $90,000, as adjusted to reflect increases in the year’s maximum pensionable earnings under the federal Canada Pension Plan (“CPP”) between 2014 and 2017;
- pay indexed benefits, including survivor benefits, commencing at age 65, subject to the ability to elect to start benefits as early as age 60 and as late as age 70; and
- provide for transition rules concerning the phasing in of contribution rates.
The Comparable Plan Exemption
Of most interest to many employers will be the definition of a “comparable workplace pension plan” which will determine which employees do and don’t participate in the ORPP. Employees who participate in a comparable plan and their employers will not be required to contribute to the ORPP. Employees who do not participate in a comparable workplace plan, including employees serving a waiting period, employees who have chosen not to enroll in a voluntary pension plan, and employees who are not covered by a comparable plan, must be enrolled in the ORPP.
Only registered pension plans (“RPPs”) will be considered comparable, and only if they meet certain minimum thresholds (see implementation timelines below for further details). Group RRSPs and other types of savings plans, like Deferred Profit Sharing Plans and Tax-Free Savings Arrangements, will not be considered comparable and employees participating only in those plans will not be exempt from participating in the ORPP.
For employers who currently sponsor a RPP, a verification process will start in 2016. This process is expected to involve some form of employer confirmation of the terms of its RPP and an evaluation of its coverage. Details about how this verification process will be administered have not been provided.
The Basic Earnings Exemption
While the maximum ORPP earnings is set by legislation ($90,000), the basic earnings exemption has not been specified. In the ORPP Design Consultation Paper, the government considered whether the basic earnings exemption should mirror the annual exemption applicable to the CPP ($3,500). It is expected that more information about the basic earnings exemption will be announced in the near future.
The government has advised that the ORPP will be rolled out in four separate waves starting on January 1, 2017 as follows:
- The first wave will be comprised of large employers with 500 or more employees who do not, as of August 11, 2015, have a workplace RPP (whether it qualifies as a comparable plan or not). Partial contributions start January 1, 2017 and reach the full combined 3.8% contribution rate by 2019.
- The second wave is for medium employers of 50 to 499 employees who do not, as of August 11, 2015, have a workplace RPP. Partial contributions start January 1, 2018 and reach the full combined 3.8% contribution rate by 2020.
- The third wave is for small employers with 50 or fewer employees who do not, as of August 11, 2015, have a workplace RPP. Partial contributions start January 1, 2019 and reach the full combined 3.8% contribution rate by 2021.
- The fourth and final wave is for employers who, on August 11, 2015, offer a RPP, whether or not it is comparable at that time and whether or not it covers all employees. The full 3.8% combined employer-employee contribution rate will begin January 1, 2020 if the employer’s RPP does not by then meet the conditions to qualify as a comparable plan, or for any employees that are not covered by the employer’s comparable plan.
- The fourth wave gives employers who now sponsor a RPP time to modify it so that it meets the conditions for a comparable plan by 2020, if that employer wishes to do so. Employers who do not have a RPP on August 11, 2015 but who set up a comparable plan before their entrance wave will be exempted from the ORPP with respect to those employees participating in the comparable plan.
This schedule was designed so that by 2020, every employee in Ontario will be either participating in the ORPP or participating in a comparable workplace pension plan.
For More Information
We will continue to monitor the progress of the OPRR initiative in Ontario. If you have any questions about the impact of the ORPP on your existing retirement plans, please contact Sam Spada, Retirement Consultant at 647-207-9416.