Based on concerns that Ontarians are not saving enough for retirement, the province has introduced the Ontario Retirement Pension Plan (ORPP) as a measure to fill resulting gaps. The ORPP is a supplement to and is modeled after the Canada Pension Plan (CPP).
What ORPP Means to You
The ORPP is an incremental plan that will require contributions to be shared between employer and employees. On February 16, Ontario Finance Minister Charles Sousa announced that the province would delay premium payments till January 1, 2018 for large employers, although their ORPP registration period will begin one year earlier. Enrollment will take place in waves, depending on your number of employees and whether or not you have comparable workplace pension plans in place.
- If your current pension plan satisfies the ORPP’s comparability test, but has a waiting period for eligibility, you will be required to participate in the ORPP for the duration of that period.
- Neither Group Registered Retirement Savings Plans (RRSPs) nor Deferred Profit Sharing Plans (DPSPs) qualify as comparable plans.
- If you have a Defined Benefit (DB) Plan, a Defined Contribution (DC) Plan or a hybrid plan, you will have to weigh the pros and cons of your plan against the ORPP to decide how to proceed. An earnings-based DB plan is comparable if its annual benefit accrual rate is at least 0.5 percent of pensionable earnings. DC plans are considered compliant if they have a minimum total contribution of 8 percent of base salary earnings, where employers are required to contribute at least 50 percent of the total minimum. The same guidelines apply to flat-benefit plans. Minimum comparability thresholds for hybrid plans are calculated using a predetermined formula.
- If your plan covers more than one group of employees, you will be required to determine comparability on a class-by-class basis.
- If you participate in a Multi-Employer Pension Plan (MEPP), the ORPP comparability test will be applied to your collective bargaining agreement and/or to employee agreements at the subset level. If your MEPP does not satisfy the test, you will need to address your options in order to achieve compliance. If you have a comparable plan, you can still opt in to the ORPP.
All Ontario employees will be part of the ORPP, unless they do not meet minimum earning thresholds or participate in a comparable workplace pension plan. Another exception is those who work in federally regulated sectors such as banks, airlines and railways.
- Retirees collecting ORPP benefits who return to paid employment are eligible to opt in and make pension contributions, on the condition that their ORPP benefit payments are suspended until they again leave the workforce.
- Employees who work in Ontario but are not residents of Canada for tax purposes and who are exempt from taxes under a treaty also are exempt from contributing to the ORPP.
- Exemptions also are available for certain members of religious orders.
Contributions and Benefits
Details on ORPP contributions and benefits include:
- Age: The minimum ORPP participation age is 18 and the maximum age is 70. Members can receive benefits at age 65, with actuarially adjusted benefits payable on early or late commencements between the ages of 60 and 71.
- Earnings thresholds: The minimum earnings a member must have before they and their employer are required to contribute to the ORPP is the same as that of the CPP: $3,500. The maximum earnings are $90,000, indexed to the average growth of wages and salaries as determined by Statistics Canada.
- Contribution rates: Contribution rates start at 0.8 percent and gradually increase to 1.9 percent on an employee’s annual earnings. The maximum contribution for each would be $1,710 before indexation.
Benefits will begin to be paid in 2022. More information, including details on enrollment waves for various sized employers, is available here.
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