On December 8, 2014, the Ontario Government introduced two significant pieces of pension legislation: (i) Bill 56, the Ontario Retirement Pension Plan Act, 2014; and (ii) Bill 57, the Pooled Registered Pension Plans Act, 2014. In doing so, the Ontario Government is following up on previous public commitments and implementing a plan laid out in its 2014 budget.
There are numerous mechanisms aimed at helping individuals in their retirement, including the Canada Pension Plan (CPP), Old Age Security, employer-sponsored pension plans and personal savings vehicles. Despite these mechanisms, only slightly more than one-third of Ontarians participate in a workplace pension plan, and many individuals are not saving enough and are likely to suffer a decreased standard of living throughout retirement.
Ontario Retirement Pension Plan Act, 2014
If passed, Bill 56 would commit the Ontario Government to establishing the Ontario Retirement Pension Plan (ORPP) by January 1, 2017. The ORPP, as currently proposed, will have several key elements, including:
- mandatory participation of eligible employees employed in Ontario;
- exemptions from participation for employees with a “comparable” workplace pension plan or who are similarly exempt from contributing to the CPP;
- equal contributions from employers and employees not exceeding 1.9% each on employee earnings up to the maximum annual income threshold of $90,000;
- providing a defined benefit income stream for life, which will be indexed to inflation; and
- administration by an arm’s-length entity with “a strong governance structure.”
While Bill 56 does not speak to benefit levels, the government indicates that the aim of the ORPP is to replace 15% of an individual’s earnings, up to the maximum threshold.
The Ontario Government released a consultation paper on December 17, 2014 seeking feedback on various components of the ORPP, including the definition of a “comparable” workplace pension plan, the minimum earnings threshold, and the proper approach to take with respect to the self-employed.
The paper proposes that only defined benefit pension plans and target benefit multi-employer pension plans (TB MEPPs) would be included in the definition of a “comparable” plan. Therefore, employers with defined contribution pension plans or other capital accumulation plans (CAPs) may not be exempt from contributing to the ORPP. In addition, the self-employed and those earning less than $3,500 would not be required to contribute to the ORPP, but the self-employed may potentially have the ability to opt-in. The Government is inviting responses until February 13, 2015.
Pooled Registered Pension Plans Act, 2014
In late 2012, the federal Pooled Registered Pension Plan Act came into force and created a legislative framework that allows individual provinces to enact parallel legislation governing pooled registered pension plans (PRPPs). Bill 57 is Ontario’s parallel legislation. If it is adopted, Ontario will join Alberta, British Columbia, Nova Scotia, and Saskatchewan, which have already passed legislation to implement PRPPs.
PRPPs are large-scale defined contribution plans, and work much like registered retirement savings plans. Participation in a PRPP would be voluntary for both employers and employees. If an employer decides to offer a PRPP, all of its employees will be enrolled, but individual employees will be able to opt out. PRPPs are intended to be a low-cost option for both members and employers by pooling funds for investment purposes.
In introducing Bill 56 and Bill 57, the Ontario Government moves forward with its pension agenda. It will be interesting to see the outcome of the Ontario Government’s consultation process on the ORPP. In particular, employers who sponsor CAPs should monitor the consultation process to see if the proposed restriction on the definition of “comparable” plan to defined benefit pension plans and TB MEPPs holds.
If you have any questions on bills 56 and 57, please contact the authors or any other member of Torys’ Pension and Employment Group.
To discuss these issues, please contact the author(s).
This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.
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