Although it seems far away, the ORPP will be upon us quickly. Is there enough time to prepare new administrative processes and budgets for the proposed Ontario Retirement Pension Plan (ORPP)? These questions will have to be pondered by organizations and employees alike.
Basic facts:
The Government of Ontario will be implementing the ORPP in January 2017. The Ontario Government created the ORPP as a “predictable source of retirement income for life for millions of Ontarians”. The ORPP is Ontario’s provincially run retirement plan, completely separate from the federally run Canada Pension Plan (CPP). The ORPP is supported by mandatory payroll contributions from both the employee and employer. Both employee and employer will eventually contribute 1.9% each of gross income up to a maximum of $90,000 (2014 dollars), so a combined total employee and employer contribution of 3.8%. The contributions will be mandated for large corporations starting January 2017 and phased into all other organizations within 2 years. Eventually, all Ontarians without comparable plans will be contributing to the ORPP by 2020.
The ORPP benefits will be distributed to plan members when they reach retirement age 65. They can start collecting as early as age 60 or as late as 70, however those amounts will be subject to actuarial adjustments. The proposed amounts based on a plan member’s contribution over 40 years at a salary of $70,000 is approximately $9,970 per year for life. If a contributing employee moved outside of Ontario they would still be eligible to collect retirement income from the ORPP based on the contribution they made while in Ontario.
ORPP Preparations:
As a consultant for multiple seniority levels and a variety of organizations, there are several concerns. Consider the eligibility of the ORPP and who may be exempt from the ORPP:
“Those already participating in a comparable workplace pension plan would not be enrolled in the ORPP. A comparable pension plan for Ontario is a pension plan that:
- provides people with a predictable stream of income for life
- provides people with security (they won’t outlive their savings)
- requires contributions from employers to ensure fairness
- aims to replace up to 15% of a person’s pre-retirement income”
Defined benefit Registered Pension Plans (RPP) would be considered comparable, but a group Registered Retirement Savings Plan (RRSP) match, or deferred profit sharing plan (DPSP) where the employer contributes as well, will not be considered comparable. If an organization’s group RRSP or DPSP is matching below 1.9% or perhaps not matching at all, it is advisable to start preparing for the upcoming ORPP contributions and how the organization will budget for the increased cost of employing. At the very least, organizations should begin providing clear communication to employees that their existing plan may be altered or dissolved completely once the ORPP is made mandatory.
There are computer system adjustment considerations as well. The ORPP will be applied in a similar way to CPP (Canada Pension Plan). Although the ORPP contribution percentage is lower than CPP (1.9% vs 4.95%), the maximum threshold is higher than CPP at $90,000 vs $52,500 (2014 yearly maximum pensionable earnings for CPP). Computer systems will have to be adjusted to account for these amounts. Systems must also adjust for the exemption of employees whose lower salaries qualify as exempt, as well as, changes to remittance procedures. Once ORPP begins, the remittance of those contributions will have to be made separately from CPP (which is federal) and instead be remitted to the Ontario Government.
The ORPP is still being defined, therefore expect to see additional information in the coming year on how the program will be applied to organizations depending on size and employee payroll.
For more details regarding the ORPP visit http://www.ontario.ca/government/ontario-retirement-pension-plan and https://www.ontario.ca/page/orpp-who-enrolled
About HR Options:
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