August 14, 2015
The Ontario Retirement Pension Plan (“ORPP”): How the ORPP Could Affect Employers
On November 25, 2014 the Ontario government announced its intention to introduce the Ontario Retirement Pension Plan (“ORPP”). The ORPP, as currently proposed, and subject to legislative approval, would have the following key provisions:
Enrollment in the ORPP will be implemented in phases from January 1, 2017 to January 1, 2020. The effective date will depend on the size of the employer’s workforce and whether it offers a comparable plan (which would be defined by the ORPP).
Employers will be phased-in as follows:
- Wave 1: Large employers (500 or more employees) without registered workplace pension plans. Contributions to start January 1, 2017.
- Wave 2: Medium employers (50- 499 employees) without registered workplace pension plans. Contributions to start January 1, 2018.
- Wave 3: Small employers (50 or fewer employees) without workplace pension plans. Contributions to start January 1, 2019.
- Wave 4: Employers with a workplace pension plan that is not modified or adjusted to meet the comparability test (i.e. DB or DC pension plans), as well as employees who are not members of their workplace’s comparable plan. Contributions to start January 1, 2020.
Exemptions from the ORPP
The ORPP does not apply to employers that provide employees with a comparable workplace pension plan.
A ‘”comparable plan” is being defined as a registered pension plan that is:
a) subject to federal and provincial regulation; and
b) meets certain minimum thresholds, such as:
i. Predictable stream of income in retirement for life;
ii. Pooled longevity and investment risk to help ensure people do not outlive their savings and to lessen the impact of market volatility;
iii. Required contributions by employers;
iv. Target replacement rate of up to 15 percent (15%) of an individual’s earnings over their career;
v. Required “locked-in” contributions.
Qualifying plans that are exempt from the ORPP include:
- Defined Benefit (DB) Pension Plans: DB plans must equal or exceed the benefits being offered through the ORPP. A comparable DB plan will meet a minimum benefit accrual rate of 0.50 per cent (0.5%).
- Defined Contribution (DC) Plans: A comparable DC plan will have a minimum annual contribution rate of eight per cent (8%) and require employers to match at least fifty per cent (50%) of the minimum rate.
- Other Types of DB/DC Registered Plans: The Ontario Government will create a threshold test that will allow an exemption for employers who offer alternative plans such as DB-DC Hybrid plans, Flat-Benefit DB plans and Flat-Dollar DC plans.
It does not appear that under this definition, employers who provide an Employer Funded RRSP plan will be exempt from enrollment in the ORPP, as such a plan is not a Registered Pension Plan.
Both employers and employees will each be required to contribute up to 1.9 per cent (1.9%) on yearly maximum pensionable earnings up to $90,000 (in 2014 dollars). This means that by 2020, an employer will be required to pay a maximum of $4.50 per day for each employee.
Contribution amounts will be phased-in for each employer over a period of three years:
- Year one: 0.8 per cent (0.8%) of an employee’s yearly earning.
- Year two: 1.6 per cent (1.6%) of an employee’s yearly earnings.
- Year three: 1.9 per cent (1.9%) of an employee’s yearly earnings.
The ORPP Administration Corporation will begin contacting Ontario Employers in 2016 to verify existing pension plans and assess plan coverage.
The government’s news release detailing information about the ORPP can be found here (http://news.ontario.ca/opo/en/2015/08/premier-releases-details-of-ontario-retirement-pension-plan.html).
If you have any questions about this topic or any other questions relating to workplace law, please do not hesitate to contact a Mathews Dinsdale lawyer.
For more information on new developments in Workplace Law, please refer to our website at: https://mathewsdinsdale.com/news-events/in-a-flash/
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