The Government of Ontario is moving forward with the introduction of the Ontario Retirement Pension Plan (ORPP), a provincial pension plan designed to supplement the Canada Pension Plan (CPP), with the goal of increasing income security of Ontarians in retirement.
In May 2015, the Ontario government passed the Ontario Retirement Pension Plan Act, which set out the framework of the Plan and mandated the government to establish the ORPP no later than January 1, 2017.
On January 26, 2016, the Ontario government announced additional details regarding the operation and implementation of the ORPP. Significantly, it announced that by 2020, “every eligible worked in Ontario will be part of either the ORPP or a comparable workplace pension plan.” All Ontario employers without “comparable” workplace pensions plans in place will be required to participate in the mandatory ORPP.
In light of the broad scope of the plan, and the fast-approaching implementation deadlines, organizations should become familiar with the details of the plan, and the repercussions upon their business operations and employees.
What is the ORPP?
The ORPP is a mandatory provincial pension plan designed to supplement the CPP and provide additional financial security in retirement. The aim is to provide replacement of up to 15 percent of pre-retirement income after 40 years of contributions.
Who is affected?
Every Ontario employer without a “comparable” workplace pension plan at the scheduled time of enrollment will be subject to the ORPP.
All employees between the ages of 18 to 70 employed in Ontario, whether full-time or part-time, will be subject to the ORPP. Individuals who are self-employed are exempt. Affected employees must earn a minimum of $3,500 annually, and not be enrolled in a comparable workplace pension plan.
What is a “comparable” workplace pension plan?
The Government of Ontario has set out the following tests to determine whether an employer has a “comparable” workplace pension plan, and is thus exempt from the ORPP. Comparability testing will be applied to each subset of employees in a pension plan.
Defined Benefit Plans:
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Annual benefit accrual rate must be at least 0.5 percent, meaning that the total annual benefit upon retirement must equal 0.5% x years of service x average salary for the best 5 years.
Defined Contribution Plans:
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Mandatory minimum total contribution of 8 percent of base salary, with at least half of that being contributed by the employer, meaning at least 4 percent employer contribution
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For defined contribution plans with voluntary employee contributions, the voluntary portions will not count towards the 4 percent employee threshold
Multi-Employer Pension Plans:
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Most will be exempt and must satisfy the comparability of either a defined benefit or defined contribution plan
RRSP Matching Plans:
- Will not be considered comparable to the ORPP
- Employers and employees will be subject to the ORPP
Deferred Profit Sharing Plans:
- Will not be considered comparable to the ORPP
- Employers and employees will be subject to the ORPP
How much will employers contribute?
Eligible employers and employees will each contribute 1.9 percent of annual salary earned between the $3,500 minimum and the maximum threshold. The maximum threshold in 2017 will be $90,000. The contribution rate will be phased in beginning in 2017, in accordance with the chart below.
When does implementation begin?
The ORPP is set to be phased in commencing on January 1, 2017, depending on the size of the employer. The Ontario government has released the following schedule for implementation and contribution rates:
| Type of employer | 2017 * | 2018 | 2019 | 2020 | 2021 |
| Wave 1: large employers without registered workplace plans | 0.8% | 1.6% | 1.9% | 1.9% | 1.9% |
| Wave 2: medium employers without registered workplace plans | 0% | 0.8% | 1.6% | 1.9% | 1.9% |
| Wave 3: Small employers without registered workplace plans | 0% | 0% | 0.8% | 1.6% | 1.9% |
| Wave 4: employers with registered plans that do not meet test | 0% | 0% | 0% | 1.9% | 1.9% |
Large employers are those with 500 employees or more that do not have registered workplace pension plans. Contributions were expected to begin on January 1, 2017.
* On February 16, 2016, the Ontario government announced that the originally scheduled implementation date of January 1, 2017 has been delayed until January 1, 2018. We will continue to provide details on the revised schedule as they become available.
Medium employers are those with 50 to 499 employees that do not have registered workplace pension plans. Contributions will begin on January 1, 2018.
Small employees are those with fewer than 50 employees that do not have registered workplace pension plans. Contributions will begin on January 1, 2019.
Employers with workplace pension plans that are not modified or adjusted to meet the comparability test, and those with employees who are not members of the employer’s comparable plan will begin paying contributions on January 1, 2020.
Given the significant financial and operational consequences that will flow from the implementation of the ORPP, organizations that have not already done so should become familiar with the details of the plan, and determine how they might be affected.
We will continue to monitor the ORPP as it progresses, and keep Focus readers informed of significant developments.
For further information please contact Mark Newton at 416-846-6855 or Adam Gamwell at 613-940-2736.
