Ontario Retirement Pension Plan (ORPP): comparable plans defined

On August 11, 2015, Ontario Premier Kathleen Wynne announced additional details on the Ontario Retirement Pension Plan (ORPP), including what defines a comparable workplace pension plan. The ORPP is a new Ontario pension plan aimed at helping working Ontarians who do not have a workplace pension plan.

The ORPP was first introduced as Bill 56, An Act to require the establishment of the Ontario Retirement Pension Plan, and was the subject of public hearings held up to the end of March 2015. We informed you about the key objectives and features of the ORPP in our April 2015 bulletin. Bill 56 received royal assent on May 5, 2015, providing for the establishment of the ORPP by the government by January 1, 2017 (see our June 2015 bulletin). At that time, the main design concerns had not been addressed, including the definition of a comparable workplace pension plan that could exempt employers from participation in the ORPP.

Employers that offer their employees a comparable pension plan will not be required to participate in the ORPP. Employers offering a defined benefit or defined contribution plan could be exempt provided that they meet the ORPP’s comparability test. Outlined below are the criteria that must be met according to plan type.

1- Defined benefit (DB) plan

a. Be registered and subject to provincial and federal regulations
b. Have an annual benefit accrual rate of at least 0.5%
c. Provide for the required employer contributions

2- Defined contribution (DC) plan

a. Be registered and subject to provincial and federal regulations
b. Provide for locked-in contributions
c. Have a minimum annual contribution rate of 8%
d. Provide for employer contributions of at least 50% of the total minimum contribution (at least 4%)

Other pension plans, such as hybrid plans, could also be deemed comparable and thus be exempt from the ORPP. Ontario has developed conversion tools that will allow for the comparability test to be completed.

Despite the pressure to expand the definition of comparable workplace plan to include capital accumulation plans and not just defined contribution pension plans, capital accumulation plans, such as Group RRSPs and deferred profit-sharing plans (DPSPS), will not pass the government’s comparability test.

Employers offering comparable plans must also take the time to analyse their plan’s structure and provisions, particularly those concerning eligibility and enrolment. For example, provisions for a waiting period before enrolment in the plan or optional participation could result in some employees not being covered, and could require them to enrol in the ORPP.

Enrolment and contribution levels will be implemented in a phased-in approach from January 1, 2017 to January 1, 2019, starting with larger organizations. Employers already offering a pension plan that could be comparable with the ORPP, but requires a few changes, will have until January 1, 2020 to comply. The table below illustrates this phased enrolment by wave.

Source: Ontario Ministry of Finance

Subject to approval by the Legislative Assembly, the ORPP would be implemented on January 1, 2017 and benefits payments would start in 2022. Although some employers may be exempt from participation in the ORPP, others will need to reflect on the direction they want to take.

The Normandin Beaudry consultants will continue to monitor this subject closely and will keep you informed of any developments. Feel free to contact them should you have any questions.