The Ontario Retirement Pension Plan: What is a comparable workplace pension plan?
With enrollment in the Ontario Retirement Pension Plan starting in 2017, the Ontario government recently made a major announcement. Despite criticism from the federal government, the provincial government is going ahead with the ORPP, although at a slower pace. The ORPP will be introduced in four stages starting in 2017. The Ontario government has also clarified what is considered a comparable workplace pension plan.
Phasing-in the ORPP
The government is slowing down the phase-in of the ORPP. This is welcomed news for small and medium-sized employers, who have more time to prepare. Big businesses with 500 or more employers without a comparable workplace pension plan will be the first to join the ORPP in 2017, followed by medium-sized employers in 2018. Self-employed individuals have all the way until 2019 to join the ORPP. Employer enrollment in the ORPP will be done in four “phases.”
- Phase 1 (January 1, 2017): Businesses with 500 or more workers without comparable workplace pension plans.
- Phase 2 (January 1, 2018): Businesses with between 50 and 499 workers without comparable workplace pension plans.
- Phase 3 (January 1, 2019): Businesses with less than 50 workers (including self-employed individuals) without comparable workplace pension plans.
- Phase 4 (January 1, 2020): Businesses with workplace pension plans that aren’t updated to meet the minimum standards. Also, workers who aren’t enrolled in the employer’s comparable workplace pension plan (i.e. if a worker decides to opt-out of the employer’s pension plan).
The introduction of the ORPP isn’t the only thing that’s going to be phased in. For phases 1, 2, and 3, contributions rates for employers and workers will be phased at 0.8 percent for year one, 1.6 percent for year two and 1.9 percent for year three and thereafter. There will be no ease-in for businesses in phase 4; the contribution rate will be 1.9 percent in year one and thereafter.
There has been a government body set up to check if employers are required to join the ORPP. The ORPP Administration Corporation will begin reaching out to businesses starting in 2016 to verify their current workplace pension plans. Businesses deemed to have a comparable workplace pension plan on August 11, 2015 (or businesses that start to register a plan) will be placed in phase 4. As long as an employer in phase 4 offers a comparable pension plan by January 1, 2020, it will not be forced to join the ORPP.
What is a comparable workplace pension plan?
A major sticking point of the ORPP surrounds what is considered a comparable workplace pension plan. Initially, it was announced employers that offer alternative retirement savings plans, such as defined contribution pension plans, group RRSPs and PRPPs, would be forced to join the ORPP. This would be quite a financial burden for employers, who would have little incentive to continue to offer these plans if they must also pay into the ORPP.
The government has provided some clarity about what is considered a comparable workplace pension plan. For a defined contribution pension plan to be considered comparable, it must be locked-in, fall under current provincial pension standards, and it must have a minimum contribution rate of 8 percent with a 50 percent match from employers.
Not all employers that offer defined benefit pension plans are necessarily exempt from contributing to the ORPP. To be exempt from the ORPP, an employer’s defined benefit pension plan must have an annual accrual rate of at least 0.5 percent.
What do you think about the new Ontario Retirement Pension Plan?
Comments
ORPP is a terrible idea and only complicates the retirement montage further. For workers who spend only a short time in Ontario the admin costs to send them their 5 bucks every month will be horrendous. Also if we cannot leverage the CPP infrastructure, the effective MER will be much higher than investing in a low cost ETF like XIC or SPY. Ms Wynne needs to back down and continue to lobby for an enhancement of the CPP.
The Ontario Retirement Pension Plan
Why are employers required to contribute to this? Who benefits? I also don’t think employers should contribute to the CPP for the same reasons. These types of socialist programs contribute to inflation and the cost of doing business and eventually price Canada out of international markets.
The employer contribution is a business expense: less profit means less income tax.
The more we train people to rely on government handouts, the more these people will be dependent on government.
If the government wanted to encourage people to put money away, give them a bonus/incentive when they put it away but no income tax or clawback effects when withdraw after they’ve started to collect OAS. But re-claim the bonus/incentive if the withdrawal occurs before that. The remaining ORPP funds should be repaid at death, becoming part of the estate.
And force the government to do all the administrative work, not financial institutions and definitely not the employers. The government pays the financial institutions for their trouble if they foist the administration on them.