The Ontario Registered Pension Plan (ORPP) will be phased in gradually. Small employers with 50 or fewer employees who do not already offer pensions to their workers will not have to start making contributions until 2019, and even then they will only have to pay 0.8%. The qualifying criteria for comparable plans have also been expanded.
On Aug. 11, the Ontario government announced that it intends to implement the new ORPP in four waves. Employers with 500 or more employees who do not currently offer comparable registered workplace pensions will be in the first wave, with contributions slated to begin Jan. 1, 2017; in that year they will only be required to contribute 0.8% of an employee's yearly earnings (calculated on an annual maximum of $90,000). The contribution rate for large employers will increase to 1.6% in 2018, and then reach the top 1.9% rate in 2019.
Wave 2 is made up of medium employers with 50 to 499 employees who are without registered workplace pension plans. Their contributions will begin on Jan. 1, 2018, increasing to 1.6% in 2019 and 1.9% in 2020.
Wave 3 consists of small employers who have 50 employees or less and who do not offer workplace pension plans. This group's contributions will not start until Jan. 1, 2019, when they will be required to contribute 0.8% of their employees' annual salaries. This amount will increase to 1.6% in 2020 and 1.9% in 2021.
The final group in Wave 4 is made up of employers who do offer pension plans, but ones that do not meet the government's comparability test; their contributions are to begin at the 1.9% rate on Jan. 1, 2020.
As for what counts as “comparable”, Ontario has expanded its definition of what qualifies and now says that a comparable plan is a federally or provincially regulated 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
For earnings-based defined benefit plans, the Ontario government says that the annual benefit accrual rate must be at least 0.5% to be considered comparable. Defined contribution plans may also be considered comparable, but in order to qualify the total contribution rate must be 8% and employers must contribute at least 50% of this amount, i.e., at least 4% of base salary earnings.
Following the announcement, the Ontario Chamber of Commerce (OCC) released a statement praising the provincial government's decision to expand the comparability criteria, noting that the new guidelines will exempt some employers who already provide defined contribution pension plans from participating in the new plan. The organization warns, however, that the ORPP will still raise costs for most Ontario businesses.
"We remain deeply concerned about the cumulative burden facing Ontario employers," said OCC president and CEO Allan O'Dette. "Rising electricity prices, the introduction of a cap and trade system, and the ORPP will further add to the cost of doing business in Ontario. This is why we have asked the government to conduct and publicly release the results of an economic impact analysis of their proposed pension plan."