New Developments Relating to the Ontario Retirement Pension Plan (ORPP)LinkedIn
NB Bulletin Vol. 19 N. 4, February 2016
In our August 2015 bulletin, we informed you about the latest developments concerning the design of the Ontario Retirement Pension Plan (ORPP), i.e. the phased enrolment of employers beginning in 2017 as well as the definition of a comparable workplace pension plan that determines whether or not an employer will be required to participate in the ORPP.
On January 26, 2016, the Ontario government took another step toward the implementation of the ORPP by releasing additional details on the design of the plan:
In November 2015, the Ontario government also confirmed that the minimum earnings threshold, above which a contribution to the ORPP will be required, would mirror the Canada Pension Plan's annual basic exemption at $3,500.
Comparable pension plans
Employers that offer their employees a comparable pension plan will not be required to participate in the ORPP. The Ontario government has provided the following details to clarify the definition of comparable workplace pension plan published in August 2015:
Although they are not required to do so, employers that offer a comparable pension plan will be able to join the ORPP as of the fourth wave of enrolment, i.e. on or after January 1, 2020.
Funding of the ORPP
Members of the Board of Directors of the ORPP Administration Corporation were appointed in November 2015. These members will be responsible for implementing and overseeing the ORPP. To ensure the plan's sustainability, an Office of the Chief Actuary will be established to prepare triennial actuarial valuations of the ORPP.
A funding policy has already been established to set out the measures to be taken should the ORPP become underfunded.
For example, in the case of a future funding deficit, indexation could be partially reduced for members and, if necessary their contributions could be increased by up to a maximum of 0.2%. If significant reductions to benefits were to prove necessary to ensure the sustainability of the plan, the consent of at least 60% of ORPP members would be required for these amendments to be implemented.
As promised by the Ontario government, a cost-benefit analysis of the ORPP was published in late December 2015 by the Conference Board of Canada, an independent, not-for-profit research organization. The report analyzes the impact of the ORPP over an extended horizon, from its implementation in 2017 up to 2093, to assess its impact on the Ontario economy.
According to the analysis, the long-term impacts of the ORPP will be positive since economic benefits arising from the plan would outweigh losses incurred from the reduction in the disposable income of Ontarians following the mandatory payment of contributions to the ORPP. By 2045, the disposable income of Ontarians will be higher than it would have been without the ORPP. Consequently, expenses for retirees receiving a pension from the ORPP will increase, which will stimulate the economy.
Finally, it should be noted that, on January 22, 2016, the Association of Canadian Pension Management (ACPM) sent a letter to the Ontario government requesting that the implementation of the ORPP be delayed for one year. According to the ACPM, this would allow the federal government and the provinces to agree on a common solution that could be applied across Canada. On February 3rd, 2016, the Canadian Institute of Actuaries (CIA) released a similar opinion, which also requests a one-year deferral of the ORPP implementation in order to continue further discussions on potential Canada Pension Plan expansion.
Normandin Beaudry consultants will continue to closely monitor the progress of the work on the ORPP and will keep you informed of future developments.