Ontario Retirement Pension Plan

(ORPP) Deferred another year, possibly indefinitely!

On February 16, 2016, the Ontario Government announced that they will defer the implementation of the ORPP another year from the original start date of January 1, 2017.  They are working with the federal government in attempts to enhance the current CPP and possibly eliminate the ORPP altogether.  If they cannot get the federal government to enhance the CPP, some employers in Ontario will begin to start paying into the ORPP for their employees beginning January 1, 2018.  Details with respect to the ORPP are outlined below.

Enrollment in the ORPP for companies will depend on the number of employees companies have and whether or not they have an existing pension plan for their employees. 

Implementation

The following chart illustrates the start dates for the various types of employers and the percentages they and their employers will have to contribute for each year: 

Type of Employer

2018

2019

2020

2021

2022+

Large employer (500+ employees) with no registered workplace plan

0.8%

1.6%

1.9%

1.9%

1.9%

Medium Employers (50-499 employees) with no registered workplace plan

0%

0.8%

1.6%

1.9%

1.9%

Small Employers (<50 employees) with no registered workplace plan

0%

0%

0.8%

1.6%

1.9%

Employers with registered plans that do not have “comparable pension plans”

0%

0%

0%

1.9%

1.9%

Employers with registered plans that have “comparable pension plans”

0%

0%

0%

0%

0%

As the chart shows, the 2018 start date only applies to employers who have 500 or more employees and offer no pension plan to their employees.  The rates are the employer’s contribution percentage and employees will also have the same percentage deducted from their wages. 

Comparable Plans

Employers with comparable pension plans offered to their employees will not have to contribute to the ORPP.  Ontario has outlined what they believe to be considered a comparable pension plan for the exemption.  Each of the two most common pension plans, defined benefit plan and defined contribution plan, may qualify. The requirements to be considered comparable for each are outlined below:

Defined Benefit Plan

A defined benefit plan is a plan that the employer promises a specified monthly benefit when an employee retires, based on a formula that is pre-determined.  Both the employer and employees make contributions to the plan.  Upon retirement the employee will receive a set retirement income that is paid for life. 

In order to qualify as a comparable plan for the exemption, the plan must match or exceed the benefit being offered through the ORPP.  For earnings-based 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% to be considered comparable.

Defined Contribution Plan

A defined contribution plan is a plan that the employer and employee both pay a set amount of money into an established account in the employee’s name. Upon retirement, the employee will draw from their pension until the plan has been fully withdrawn with no guarantees on duration or amount as it will be directly impacted by the market. 

In order to qualify as a comparable plan for the exemption, the total contribution must be at least 8% of the employee’s wages and employers must contribute at least 4%. 

Other Retirement Savings Plans

Group registered retirement savings plans and deferred profit sharing plans will not be considered comparable under the ORPP. 

If the company has a current pension plan, no contributions will be required until 2021. If the plan meets the above requirements, the company and their employees will not have to make any contributions to the ORPP.  If there is a waiting period for employees to join the plan offered by their employer, both the employer and employee will have to contribute to the ORPP until the waiting period is over. 

Employees

As an employee you must pay into the ORPP if your employer does not offer a comparable plan beginning at the age of 18 and ending when you turn 70.  There will be $3,500 exemption similar to the CPP plan and the contributions stop once you have reached $90,000 in income. 

Part-time employees must also contribute to the ORPP unless they are able to participate in a comparable workplace pension plan. 

The plan will work very similar to the CPP in that the amount of pension you receive will be directly related to the years you have contributed to the ORPP and your wages throughout those years.

Self Employed

Currently if you are self employed you will not be required, nor have the ability, to contribute to the ORPP.  This is due to the federal Income Tax Act not allowing self-employed individuals to participate in registered pension plans.  Ontario is currently exploring options to enable the self-employed to participate in the ORPP. 

If you have any further questions regarding the ORPP please do not hesitate to contact us and we will be happy to assist you.