The Ontario Retirement Pension Plan

September 28, 2015

The Ontario government is moving forward on its plan for the Ontario Retirement Pension Plan (“ORPP”). The ORPP will be mandatory for Ontario employers and employees, except for employees who fall under one of a few exemptions.

The stated goal of the ORPP is to provide an age 65 retirement income replacement rate of 15 per cent of an individual’s earnings – up to a maximum annual earnings threshold of $90,000. This assumes 40 years of participation in the ORPP. Benefits would be indexed to inflation.
 

ORPP quick facts

  • Scheduled to start for some employers January 1, 2017, and be fully phased in by 2020
  • Exemption for employees already in a “comparable plan” – DB or DC plan that meets certain minimum thresholds
  • Designed to replace about 15 per cent of an individual’s annual earnings in retirement, but up to a higher annual earnings threshold than CPP ($90,000)
  • Combined employer/employee contributions of no more than 3.8 per cent of annual earnings

 

ORPP overview
The ORPP is a mandatory plan for all workers employed in Ontario, with some key exceptions. As currently proposed, ORPP enrolment would not be required for:

  • Employees with annual earnings of less than $3,500
  • Employees under age 18 or who have reached age 70
  • Ontario-based employees who work for federally regulated businesses, such as those in the telecommunications, transportation and banking industries
  • The self-employed (due to Income Tax Act restrictions, although the government may provide the ability to “opt-in” to the ORPP if desired)
  • Employees who currently participate in a “comparable” workplace plan.

For a workplace plan to be considered comparable, it must be a registered pension plan that meets the following criteria:

  • Defined Contribution (DC) plans must have a minimum total contribution of 8% of base salary earnings. Employers will be required to contribute at least 50% of the total minimum contribution — or at least 4%.
  • Defined benefit (DB) plans must match or exceed the benefit being offered through the ORPP. For earnings-based DB plans, the annual benefit accrual rate must be at least 0.5%. Hybrid plans – plans that have both a DB and DC component – must meet the requirements set out in the Comparability test for hybrid plans. [http://www.fin.gov.on.ca/en/pension/orpp/bulletin-100815.html]

The “comparable” definition does not include Group Registered Retirement Savings Plans (Group RRSPs) and Deferred Profit Sharing Plans (DPSPs).

Participation in the ORPP is from date of hire, so if a comparable plan has a waiting period – or is voluntary and the employee has not yet joined, the waiting period would need to be eliminated and the plan would need to be made mandatory. – Alternatively, the employer would need to enroll the employees in the ORPP as of their date of hire for the duration of the waiting period.

Contributions and benefits
Contributions are shared equally between employers and employees, and initially will be set at 1.9 per cent of earnings (3.8 per cent combined) to a maximum annual earnings threshold of $90,000. The ORPP maximum earnings threshold will increase each year, consistent with percentage increases to the CPP maximum earnings threshold.

The stated goal of the ORPP is to provide a retirement income replacement rate of 15 per cent of an individual’s earnings – up to a maximum annual earnings threshold of $90,000. Benefits would be indexed to inflation.

The Ontario government has stated that benefits provided under the ORPP will be consistent with the sustainability of the plan, but they haven’t yet described what this means. Since the plan will ultimately operate essentially like a target benefit design, there are only three changes that can be made if the funded status of the plan is insufficient for the benefits – increase contributions, decrease benefits or delay the start date for income.

Implementation
Enrolment in the ORPP will be phased in in four waves, with the waves varying based upon both the size of an employer and whether or not the employer maintains a registered pension plan (or has begun the process of registering a pension plan) as of August 11, 2015.
 

  • Wave 1- large employers (500 or more employees) without a pension plan.  Contributions for these employers will begin January 1, 2017. At that time, the contribution rate will be 0.8% for both employees and employers. In 2018, the contribution rate will be 1.6%, and in 2019 will reach 1.9% for both employees and employers.
  • Wave 2 - medium employers (50 – 499 employees) without a pension plan. Contributions for these employers will begin January 1, 2018. At that time, the contribution rate will be 0.8% for both employees and employers. In 2019, the contribution rate will be 1.6%, and in 2020 will reach 1.9% for both employees and employers.
  • Wave 3 - small employers (50 or fewer employees) without a pension plan. Contributions for these employers will begin January 1, 2019. At that time, the contribution rate will be 0.8% for both employees and employers. In 2020, the contribution rate will be 1.6%, and in 2021 will reach 1.9% for both employees and employers.
  • Wave 4 - employers (of any size) with a workplace pension plan that does not currently meet the applicable comparability test. Contributions for these employers will begin January 1, 2020 (at the maximum contribution rate of 1.9% for both employers and employees), unless the workplace pension plan is modified or adjusted to meet the comparability test prior to January 1, 2020.

How Sun Life Financial can help
Sun Life strongly believes that the retirement and savings plans our plan sponsor clients offer to their employees, strongly positions those employees to enjoy a secure retirement. We believe the Ontario government has been overly conservative when it comes to the contribution levels required for a DC plan to be considered comparable to the ORPP. In partnership with other key industry leaders, we will continue to work to convince the Ontario government to expand its definition of what constitutes a comparable plan and to modify the contribution levels required, so that more employers - in Ontario, and across the country - can be recognized for providing high quality retirement and savings plans to their employees.

Questions?
Please contact your Sun Life Financial Group Retirement Services representative.