[BY WARDS PC LAWYERS]
The Ontario Retirement Pension Plan (the ORPP), is soon to be a provincially-run plan that, similar to the federal Canada Pension Plan, will be funded by equal contributions from both employers and employees.
What Is It and When Does It Take Effect?
Basically, the ORPP is a compulsory Ontario-managed pension plan intended to give employees a more certain, predictable income structure in retirement. It is intended to improve the retirement position of Ontario employees who do not have an established, secure workplace pension plan.
To that end, the ORPP requires that every employee participate in either the ORPP or in a comparable workplace pension plan by 2020. While comparable is not fully certain, comparable workplace pension plans will include registered plans that comply with federal and provincial pension legislation and that have minimum contribution requirements, including defined benefit plans and defined contribution plans. The effective difference between these two types of plans is that the former plans are generally held and managed by the employer, but the latter allows the employee to manage the investment.
The ORPP will be in effect on January 1, 2017. The Ontario Government will be releasing more information and guidance on how to comply with the new plan going forward. Employers should pay attention and keep updated on the plan requirements.
How Does It Work?
The ORPP will roll-out in four waves, based on the number of employees of an employer and the type of registered workplace plan currently in place.
The largest employers will be affected firstly.
Contribution rates by employees and employers will be implemented when the business is enrolled.
Both employers and employees will make equal, graduated contributions to the ORPP. The rate will start at 0.8 percent by each (1.6 per cent in total). The rate will be capped at 1.9 per cent by each (3.8 per cent in total) based on the employees annual earnings up to a maximum of $90,000.
When contributions take place at the maximum rate, they will continue to contribute at that rate. Earnings by an employee that exceed $90,000 annually will be exempt from ORPP contributions.
The mandatory enrollment and contribution schedule is basically:
- Wave 1 – Large employers (with 500 or more employees) without registered workplace plans. Contributions start January 1, 2017 at a rate of 0.8 per cent. This rate will increase to 1.6 per cent in 2018 and continue or remain at 1.9 per cent as of 2019 for both the employer and employees.
- Wave 2 – Medium employers (with 50-499 employees) without workplace plans. Contributions start January 1, 2018 at a rate of 0.8 per cent. This rate will increase to 1.6 per cent in 2019 and continue or remain at 1.9 per cent as of 2020 for both the employer and employees.
- Wave 3 – Small employers (with 50 of fewer employees) without registered workplace plans. Contributions start January 1, 2019 at a rate of 0.8 per cent. This rate will increase to 1.6 per cent in 2020 and continue or remain at 1.9 per cent as of 2021 for both the employer and employees.
- Wave 4 – Employers that have registered plans, but which do not meet comparability threshold test. Contributions will start and remain at a rate of 1.9 per cent as of January 1, 2020. An employer that has already has a registered pension plan existing as of August 11, 2015, or that has already initiated the process of registering a plan, will be Wave 4. If it is a comparable plan as of January 1, 2020, there will be no requirement for the employer to enroll in the ORPP. In addition, any employer not having a workplace pension plan, but which establishes a comparable plan prior to that employers Wave coming into effect will not be required to enroll in the ORPP.
What Do I Do?
Get ready. Contact the Ontario Retirement Pension Plan Administration Corporation (the Corporation) for more information to plan for this new workplace requirement. If you do not already have a workplace pension plan, the ORPP will require your business to make these mandatory contributions soon.
You should determine what Wave will apply to you, so you comply with the deadlines for enrolment.
If you have a registered workplace pension plan, or will have a plan before your Wave takes effect, you should determine if it qualifies as a comparable plan. If it does not meet the threshold, you will need to decide whether to change your registered plan or be enrolled in the ORPP.
The Corporation plans to contact employers soon about their current registered plans and to assess coverage and whether ORPP enrollment is required, but it is best to get a head start and start planning for this workplace change that is coming very soon.
Jason Ward WARDS PC LAWYERS
This WARDSPC BLAWG is for general information only. It is not legal advice, or intended to be. Specific or more information may be necessary before advice could be provided for your circumstances.