Pension update: More about the Ontario Retirement Pension Plan
Despite a federal Liberal majority in the fall, the provincial Liberals are moving full steam ahead with the Ontario Retirement Pension Plan (ORPP). Ontario Finance Minister Charles Sousa said Ontarians can’t afford to wait years for a national consensus on CPP expansion. Ontarians need a solution to the looming retirement crisis now.
Last year we wrote about the consultation paper released by the provincial Liberals, which included details on the coverage of self-employed individuals and low-income earners. The provincial Liberals released further details on the ORPP in January 2016. The ORPP was supposed to come into effect in phases starting January 1, 2017, but due to the possibility of CPP expansion, it’s being delayed until January 1, 2018. The ORPP will offer a maximum pension of $12,816 per year to four million Ontario workers without a comparable workplace pension plan. This would be in addition to the maximum $13,110 per year Ontarians could be entitled to under the CPP.
The ORPP provides better coverage for high-income earners. While the CPP only covers $54,900 of pensionable earnings, the ORPP covers up to $90,000 in pensionable earnings. Something else that sets the ORPP apart from its federal counterpart is that the ORPP will offer a lump sum payout to the surviving spouse of a member that dies before retirement. Similar to the CPP, the surviving spouse would be entitled to 60 percent of a member’s pension who dies in retirement. If you’re a plan member without a spouse, you can choose a pension with a 10-year guarantee and designate a beneficiary.
Other details released about the ORPP includes a comparability test for employers to figure out if they are exempt from the ORPP. The comparability test will take place at the level of a subset of employees to account for the difference in benefits between part-time and full-time.
Although workplace pension plans in Ontario have immediate vesting, employers can still put in place waiting periods of up to two years to join the pension plan. However, once the ORPP comes into effect, employees and employers are required to pay into the ORPP during the waiting period. In light of these new details, if you’re an employer who offers a pension plan with a waiting period, it’s worth considering abandoning the waiting period to avoid joining the ORPP.
In addition, there’s also an option for employers to opt-in to the ORPP if they already offer a comparable workplace pension plan starting on January 1, 2020. For plans with voluntary contributions, those contributions won’t be used as part of the comparability test.
The added cost of the ORPP couldn’t come at a worse time when economic growth is slowing. This has a lot of employers concerned about management fees and administrative costs. Although the provincial Liberals wouldn’t get into specifics, they did say the fees of the ORPP would be “inline” with comparable plans.
Ontario Premier Kathleen Wynne reiterated that she is most concerned about workers between the ages of 25 and 34. Three-quarters of younger workers don’t have a comparable workplace pension plan, compared to half of the workers between the ages of 45 and 54.
With the first phase for the ORPP coming into effect on January 1, 2018, it’s important for employers in Ontario to sit down and figure out a pension strategy going forward. You can read further details about the ORPP additional design details here.