Ontario Retirement Pension Plan: Who Will Get to Participate?

Pension on Orange Puzzle.

In early December, the Ontario government tabled legislation to create the new Ontario Retirement Pension Plan. This was followed by a Consultation Paper asking interested parties to comment on proposed design elements of the plan by February 13, 2015.

In the 2014 Ontario Budget, the Liberal government said those already participating in a comparable workplace pension plan would not be required to enrol in the ORPP. With the consultation paper stating that only defined benefit (DB) and target benefit multi-employer pension plans (TB MEPPs) should be considered comparable plans, it is expected that employers sponsoring other types of retirement savings plans and associations representing them will be pushing back hard.

The government’s rationale is that the ORPP is in lieu of a CPP enhancement and therefore it should mirror the key features that have made the CPP a successful pension program for working Canadians. Top of the list is a predictable stream of income that is paid for life, unlike Defined Contribution (DC) Plans, Pooled Registered Pension Plans (PRPPs) and Group RRSPs that simply accumulate a lump sum.

In addition, the consultation paper notes:

  •  Some, but not all DB plans and TB MEPPs index benefits to inflation. This is not the case with DC plans, PRPPs, Group RRSPs and deferred profit-sharing plans (DPSPs). Members must save sufficient funds to keep up with price increases.
  • The ORPP will require equal employer and employee contributions. DC plans, PRPPs and Group RRSPs do not require employer contributions though some employers choose to contribute. Only employers may contribute to a DPSP and contributions which are made at the discretion of the employer are often linked to the company’s financial performance.
  • The ORPP will require locking in to ensure benefits are available at retirement (currently required in DB plans, DC plans and PRPPs but not in Group RRSPs).
  • Pooled investment risk will result in lower fees and higher returns.

 

In a December 19th press release the Canadian Life and Health Insurance Association (CLHIA) expressed extreme disappointment with recommendations in the ORPP consultation paper that existing workplace plans, such as DC plans, would not be considered “comparable.”

CLHIA President and CEO Frank Swedlove said in many cases employers with DC plans who are obligated to participate in the ORPP may reduce their contributions to existing plans or shut them down entirely. According to Swedlove, the average employer contribution for DC plans is 6.5 per cent and the average employee contribution is 4.5 per cent.

So the battle lines have been drawn.

My guess is that ultimately there will be some sort of compromise where employers who make a certain level of contributions to workplace DC plans and offer an annuity purchase option will be exempted from plan participation.

But in the end, a relatively simple, straightforward program will become much more complicated and the very employees who can benefit most from the flexibility and portability of the ORPP may not be eligible for the program for much of their working career.

What do you think? Should employers offering DC plans, Group RRSPs etc. be exempted from participating in the new ORPP?

Feedback on any or all of these questions, as well as comments on the ORPP initiative more generally, can be submitted to ORPP@ontario.ca or mailed to:

 Ontario Retirement Pension Plan: Key Design Questions
Budget Secretariat
Ministry of Finance
95 Grosvenor Street
3rd Floor, Frost Building North
Toronto, ON M7A 1Z1

 Submissions must be received by February 13, 2015.

 

 

 

 

 

 

 

 

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