The passage of the Ontario Retirement Pension Plan Act (Strengthening Retirement Security for Ontarians), 2016 delivers on the government’s commitment to strengthen retirement security for the more than 4 million Ontario workers — including many younger workers — who do not have access to an adequate workplace pension plan. The act enshrines in legislation key requirements of the plan, including participation, contributions, benefit types, and plan sustainability.
The government will continue to formalize additional plan design details, including those previously announced, in regulations expected this summer.
This act ensures employers and employees across the province have the information needed to prepare for implementation, with enrollment starting in January 2017, and the collection of contributions phased in, starting on January 1, 2018.
Overview of the Legislation
Participation and Eligibility:
Workers between 18 – 70 years old: By 2020, every eligible worker aged 18 to 70 in Ontario will be part of the ORPP or a comparable workplace plan. A member will be required to stop contributing when they reach 70 years of age.
Self-employed and non-crown federally-regulated workers: Self-employed individuals and those who work in industries such as banks, telecommunications, railway and air transportation will not be eligible to participate at this time, due to the current structure of federal income tax and pension rules. The province is currently in discussions with the federal government to support the participation of federally-regulated employees and the self-employed in the ORPP.
First Nations: On-reserve First Nations employers and their employees will have the option to opt-in to the ORPP.
Religious Exemptions: Individuals who object to participation in the ORPP on religious grounds may apply to the ORPP AC for an exemption. Future regulations will lay out the criteria for a religious exemption which would follow a similar approach to CPP.
Definition of Ontario Employee:
A person will be considered employed in Ontario if they report to work, full- or part-time, at an employer’s establishment in Ontario. This also applies to a worker whose salary or hourly wages are paid from an Ontario-based employer, but who is not required to work at an employer’s place of business (e.g., work from a home office).
Employers will be required to pay contributions on behalf of each of the eligible workers employed in Ontario, and also to collect and remit contributions from those workers.
Employer and Employee Contributions:
Employees and employers will each contribute 1.9 per cent of the employee’s annual earnings up to $90,000 (2017 dollars).
The full contribution rate would be phased in over time based on the size of the business.
Contributions Held in Trust:
All contributions will be held in trust and invested for the benefit of the members of the plan, and will not form part of general government revenues.
The plan will offer two benefits: a retirement benefit and a survivor benefit (payable to a surviving spouse, beneficiary or an estate).
The ORPP is designed to provide plan members a 15 per cent income replacement rate after 40 years of contributing to the plan. A member will be eligible to begin collecting a benefit at 65, with actuarially adjusted benefits as early as 60 or as late as 70. The ORPP will begin to pay benefits in 2022.
The amount of money an individual receives from the ORPP after they retire will depend on how many years they contribute to the pension plan and their salary throughout those years. Pension benefits and the maximum earnings threshold will be indexed to inflation.
Pre-Retirement Death: If a member dies before retirement, a lump sum will be paid to their spouse, beneficiary or estate.
Post-Retirement Death (Without a spouse): If a member retires without a spouse, they will receive a full pension. If the member dies within 120 months of retirement, the remaining value of their pension up to 120 months after retirement will be paid to their beneficiary or estate.
Post-Retirement Death (With a spouse): If a member retires and has a spouse, they will receive a joint survivor pension. This means that their retirement benefit is adjusted, and when they die, their spouse will receive a survivor benefit for life.
120-Month Guarantee Period:
The member and their spouse will be able to choose to waive the survivor benefit and receive a full pension with a 10-year guarantee period paid in 120 monthly installments. If the member dies within 10 years of retirement, the remaining value of their pension, up to 10 years after retirement, would be paid to their spouse.
The ORPP will be mandatory for employees and employers without a comparable workplace pension plan.
Comparable workplace pension plans are registered pension plans that meet a minimum benefit/contribution threshold:
- Defined benefit (DB) plans – where an employee’s earnings history is considered as part of their retirement income calculation, the annual benefit accrual rate must be at least 0.5 per cent
- Defined contribution (DC) plans – must have a minimum total contribution rate of 8 per cent, with employers contributing at least half that amount (voluntary contributions would not be applicable for the purposes of the ORPP comparability test)
- Multi-employer pension plans (MEPP) – individual employers would have the option to assess the pension benefit comparability of their plan by using either the DB accrual or DC contribution rate threshold
- Pooled-registered pension plans (PRPP) – when available in Ontario, a benefit/contribution threshold will be set for PRPPs.
Should future pension plan innovations address the principles of comparability that the government has identified, the government remains open to examining those plans for comparability.
A plan’s comparability will be assessed at the “subset” level of employees within a pension plan. A subset of members could exist where a pension plan provides for different contribution rates or benefit structures for employees, based on a clear definable category, such as:
- The nature of the member’s employment
- The terms of employment, years of service
- Whether or not the member belongs to a union
Members who belong to a subset must be subject to the same contribution or benefit structure.
Contributions to the ORPP will occur in waves, starting on January 1, 2018, depending on the size of the employer. Employer size would be based on the number of T4s that were issued to Ontario employees in 2015.
Employers that have comparable workplace pension plans will be able to opt-in to the ORPP starting in 2020. This includes if a decision to opt-in is made as part of a collective bargaining negotiation. An employer that elects to opt-in must do so for all of its employees.
ORPP Administration Corporation (ORPP AC):
This bill will enable the ORPP AC to continue implementing the ORPP. The ORPP AC is the independent, arms-length organization that will administer the ORPP, including investing in opportunities that maximize returns for plan members. Its broad responsibilities include enrolling members, collecting and investing contributions in trust, administering benefits, and communicating with employers, members and other beneficiaries. The ORPP AC will determine where and how contributions are invested.
The government has designed the ORPP to be sustainable over the long term. This act establishes formal funding rules to guide the actions of the ORPP AC and the government in the event of a funding shortfall or excess.
To support transparency and accountability regarding plan sustainability, the government is committed to introducing legislation this fall that would establish an Office of the Chief Actuary. This office would provide the government and the ORPP AC with expert and impartial advice and guidance.
Compliance and Enforcement:
This bill establishes the ORPP AC’s compliance and enforcement framework to encourage employers and plan members to comply with ORPP legislation, address issues of non-compliance, and create a way to resolve disputes.
The compliance and enforcement framework will apply to all stages of the administration of the ORPP, from the employer verification process to the collection of contributions and the payment of benefits.
The ORPP AC will be permitted to administer fines. Employers who fail to deduct or remit contributions will be charged interest on late payments.
The ORPP will be reviewed five years after its full implementation in 2027 to help ensure the plan is meeting its intended objectives. Subsequent reviews of the ORPP will occur every 10 years.
June 2, 2016, Ministry of Finance