Ontario Delays ORPP Contribution Requirements to 2018 | KPMG | CA

Ontario Delays ORPP Contribution Requirements to 2018

Ontario Delays ORPP Contribution Requirements to 2018

Canadian Tax Adviser, February 23, 2016. Qualifying large employers will now have until January 1, 2018 before they have to start making contributions to the new Ontario Retirement Pension Plan (ORPP). Ontario has agreed to push back the first phase of contribution requirements until January 1, 2018 (from January 1, 2017) to allow the federal government to consider potential CPP enhancements. As a result, qualifying large employers will now start to make contributions in 2018. Enrollment in the ORPP starts January 1, 2017.

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In addition, the federal government has agreed to facilitate plan registration and data sharing arrangements, and will work with Ontario to administer elements of the plan, such as the collection of employer and employee contributions. Ontario also recently provided further information regarding the design of the ORPP, including more specific information for employers and employees with respect to benefits, comparable workplace pension plans, member participation and enforcement and compliance.

Background

The 2014 Ontario budget proposed a new provincial pension plan based on the key features of the CPP. Ontario Bill 56, which contains measures to implement the ORPP, received Royal Assent on May 5, 2015.

The ORPP will be funded by phased-in equal co-contributions from both employers and employees, reaching 1.9% when fully phased in, up to a maximum annual earnings threshold of $90,000. Every employee in Ontario will be part of the ORPP or a comparable workplace pension plan.

Enrolment will be phased-in over four years to focus on employees without access to an existing plan and to give employers time to adapt. Pending approval by Ontario's legislature, the ORPP would not apply to individuals who are currently in a comparable workplace pension plan.

Employer contributions

According to a Finance press release, the delay is intended to allow Ontario and the federal government to work with other provinces and territories to develop options for CPP enhancements by the end of May 2016.

Additional design details of the ORPP

Ontario also unveiled certain ORPP implementation details on January 26, 2016.

Employment in Ontario

A person will be considered employed in Ontario if he or she reports to work on a full or part-time basis at an employer's establishment in Ontario. This definition includes employees whose wages are paid from an Ontario-based employer, but who are not required to work at the employer's place of business (i.e. employees who work from a home office).

Non-resident workers

Non-resident workers must be enrolled in an ORPP if they:

  • Earn above the minimum earnings threshold of $3,500
  • Have income that is taxable for purposes of Canadian and Ontario income tax
  • Are not exempt from tax under a tax treaty.

Pensionable earnings

Pensionable earnings will include both cash and non-cash earnings, including amounts beyond base salary such as bonuses and commissions.

Structure of the survivor benefits

Survivor benefits will be payable to the surviving spouse of an ORPP member, or to his or her beneficiary or estate. If a plan member dies before retirement, a lump sum based on the actuarial equivalent value of the member's pension will be paid to an eligible spouse. If there is no eligible spouse, the lump sum will be paid to the member's beneficiary or the estate. Similar provisions exist for post-retirement survivor benefits, with a spousal pension equal to 60% of the member's pension. Alternatively, the plan member may choose to waive the survivor benefit and receive the full pension within a 10-year guarantee period, with any unpaid pension at the date of death paid to the surviving spouse (or beneficiary or estate where there is no spouse) within the remaining 10-year period

Indexation

Pre-retirement benefits will be indexed according to the average growth of wages and salaries as outlined by Statistics Canada. This is intended to ensure that benefits earned in the past will be given present-day value upon retirement. Benefits paid over the course of a plan member's retirement will be indexed according to the Consumer Price Index (CPI) to account for inflation. 

Comparable workplace pension plan

The announcement provides new details about determining whether a workplace pension plan is comparable to the ORPP. Specifically, Ontario says it will:

  • Introduce a "comparability" test that accounts for subsets or classes of employees who are all enrolled in the same pension plan, but do not have identical benefits (i.e. differences in benefits for full-time vs. part-time employees)
  • Introduce a special "comparability" test for Multi-Employer Pension Plans (MEPP) where two or more unrelated employers contribute to the same pension fund
  • Exclude voluntary workplace pension plan contributions when determining if a defined contribution plan is comparable to the ORPP.

Opt-in

Employers that have comparable workplace pension plans will be able to opt-in to the ORPP in the final phase of the ORPP enrolment schedule or at any time thereafter.

Waiting periods

Ontario clarifies that workers who are employed in a workplace with a comparable plan, but who are not yet a member of that plan because of a waiting period, would have to contribute to the ORPP until the employee waiting period has ended.

Other details

Ontario's announcement also notes details about:

  • Voluntary participation in the ORPP for on-reserve First Nation employers and their employees
  • Establishing an Office of the Chief Actuary to conduct actuarial valuations of the ORPP and to provide advice and analysis
  • Plans for potential ORPP funding shortfalls.

For more information, contact your KPMG adviser.

Disclaimer

Information is current to February 23, 2016. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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