If you own a small or mid-sized business, you have likely heard of the Ontario Retirement Pension Plan (ORPP) coming into effect on January 1, 2018. It is a new mandatory pension program from the Government of Ontario.
Employers will be required (phased in over time) to offer an employee retirement savings plan to their employees. As a small business, this could have a significant impact if not handled effectively.
What Is the Ontario Retirement Pension Plan?
The ORPP introduces a pension program similar to the Canada Pension Plan. Requiring matching employer and employee contributions, it is intended to ensure employees without a comparable workplace pension plan have an appropriate amount of income and financial security in retirement.
Employers who already offer a “comparable workplace pension plan” will be exempt from joining the ORPP.
In terms of the ORPP, a comparable pension plan must provide similar benefit levels, including:
- A reliable source of retirement income for life
- Both employee and employer contributions
- Reduce risk and the impacts of market volatility to ensure longevity
- Target income replacement rate of at least 15%
- Locked-in contributions
Based on these criteria, the following types of plans are currently considered comparable:
- Defined Benefit Pension Plans with a 0.5% minimum annual benefit accrual rate.
- Defined Contribution Pension Plans with a 4% minimum employer contribution and an 8% minimum employer-employee contribution.
The Ontario government is still determining which plans will constitute as comparable. More information about which types of plans (or plan combinations) will be considered comparable will be available in the future.
Employers should note that Group RRSPs and DPSPs are not currently considered to be comparable plans.
When Should I Take Action?
Right now, you don’t need to make any changes. But you must be aware of the upcoming regulations and prepare accordingly so you will be ready when the time comes.
Here is the proposed rollout schedule for ORPP enrolment:
- Employers with 500 or more employees: January 1, 2018
- Employers with 50 – 499 employees: January 1, 2018
- Employers with 50 or less employees: January 1, 2019
- Employers with a comparable plan that is not modified or adjusted to meet the comparability test and employees who are not members of their workplace’s comparable plan: January 1, 2020.
See the chart below for a breakdown from the Government of Ontario of how contribution rates will be rolled out:
*Please note, as of February 2016, the start date for contributions from large businesses has been pushed to 2018.
As you see, small and medium sized businesses have several years to prepare for these changes.
How Will This Impact My Business?
If you do not have a comparable plan in place by your company’s enrolment date, you have three options:
- Make changes to your current plan to meet the requirements for it to be comparable.
- Enrol in the ORPP and continue to offer your existing workplace pension plan.
- Enrol in the ORPP and discontinue your existing workplace pension plan.
Many small and mid-sized businesses are currently on benefits plans that lack stability and can fluctuate up to 20% in one year. With the extra strain of this new regulation coming down the pipeline, that kind of volatility can be unviable for limited budgets.
You need a benefits partner who can provide a plan that is stable and predictable when the ORPP comes into effect; and one who will work with you to help you meet ORPP requirements by implementing a qualifying comparable workplace pension plan that is manageable within your budget.
Hynek Financial Group is following the ORPP proposal closely and will keep our clients well-informed as this issue progresses. As the ORPP is currently a proposal, it is subject to further change in the future. When more information is available, we will provide appropriate advice for our clients’ businesses and help them weather the changes with a benefits and retirement solution that meets their needs.
HFG offers stable benefits solutions for small and mid-sized businesses. Our advisors will be happy to sit down with you and discuss your options to prepare for ORPP, as well as your group insurance needs, goals, and budget. Get in touch with an HFG advisor today to get started!
Like this? You might also like:
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Note: Edits made to this blog on March 2, 2016 to reflect date change to contribution start date for large businesses. Original date of 2017 has been changed to 2018. Click here to view the Government of Canada’s announcement.
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