Ontario Retirement Pension Plan

Last updated

The Ontario Retirement Pension Plan (ORPP) was a proposed social insurance program for Ontario, Canada to complement the national Canada Pension Plan. It was intended to cover the 3.5 million workers in Ontario who would not receive a comparable workplace pension after their retirement. [1] [2] Plans to implement the ORPP were cancelled in 2016 following an agreement between the federal government and the provinces to expand the Canada Pension Plan. [3] [4]

Contents

Initial framework (2015)

The ORPP was a major plank in the 2014 election platform of the Ontario Liberal Party, and introductory legislation received Royal assent in May 2015. [5]

In August 2015, it was explained that the plan had several specific goals: [6]

  1. It is designed to provide up to 15 per cent of a retiree's pre-retirement income as an annual pension, adding about the same amount as the Canada Pension Plan (CPP) for those who have contributed to both plans.
  2. Employees and employers would each contribute 1.9 per cent of an employee's income up to a maximum of $90,000 of income per year.
  3. Employees who have either an employer-sponsored defined benefit pension plan, or a defined contribution pension plan which requires contributions of at least 8% of pay (half provided by the employers), will be exempt from participating in the ORPP.
  4. The program may be cancelled if the CPP is enhanced by the federal government

Enrolment in the ORPP had been planned to be staged in four waves: [6]

Anticipated rollout of ORPP (at February 2016) [7]
WaveClassContribution rate (by each of employer and employee)
20172018201920202021
Wave 1Large employers (500 or more employees) without comparable workplace pension plans0.8%1.6%1.9%1.9%1.9%
Wave 2Medium employers (approximately 50- 499 employees) without comparable workplace pension plans–0.8%1.6%1.9%1.9%
Wave 3Small employers (50 or fewer employees) without comparable workplace pension plans––0.8%1.6%1.9%
Wave 4Employers with a workplace pension plan that requires modifications to meet the comparability test, as well as employees who are not members of their workplace's comparable plan–––1.9%1.9%

Introduction of detailed legislation

As required under the 2015 Act, a bill providing greater detail on the operation of the plan was introduced in the Legislative Assembly of Ontario on April 14, 2016. [8] It revealed that the ORPP's implementation was to delayed by one year (with Waves 1 and 2 happening simultaneously), although final rollout was expected to be completed by 2020. [8] : §90 

Among the key points of the plan:

  • An employer is required to contribute to the ORPP with respect to all employees who are required to contribute it. [8] : §4 
  • An employee is required to contribute with respect to any employment on which he is not covered by a "workplace pension plan that is comparable to the ORPP", but an employer with a comparable plan may elect to opt into the plan in circumstances prescribed by regulations. [8] : §5 
  • Only employees who report to work at an establishment in Ontario, or who are paid from an establishment in Ontario. [8] : §6 
  • Employment in the federal government is exempt. [8] : §7 
  • Employees who are under 18 years of age or over 70 years, and those receiving an ORPP pension (other than a pension to a surviving spouse), are exempt. [8] : §§8–9 
  • Earnings exempt from income tax under a tax treaty are exempt. [8] : §10 
  • Employment of an Indian on an Indian reserve is exempt, except where both the employer and employee have elected to opt into the plan. [8] : §11 
  • Employment may be exempted on religious grounds, where an application is made and prescribed conditions have been met. [8] : §12 
  • Contributions are to be made where earnings have exceeded a minimum threshold for a pay period, [8] : §15  and continue until a maximum annual earnings threshold is reached (initially set at $90,000). [8] : §17 
  • Lump sum payments shall be made on the death of a member where he has not yet started to draw a pension, [8] : §33  as well as upon application when his expected life expectancy is less than two years [8] : §34  and where the amount of a pension is below the prescribed threshold. [8] : §35 
  • In the event of a relationship breakdown, contributions may be divided and reallocated between the separating spouses. [8] : §41 
  • Payments from the ORPP will not commence until 2022. [8] : §91 

Implications

There was great debate as to the impact and desirability of the proposed plan. Questions were raised as to the motivation behind its creation, suggesting that retirement concerns are less significant than the need to raise funds for the Province's infrastructure plans. [9] Premier Kathleen Wynne admitted that the Province had no idea how much it will cost to run it, [2] while Leader of the Opposition Patrick Brown had promised to abolish the Plan and refund all contributions if the Progressive Conservative Party of Ontario won the next provincial election. [10]

Opinions varied widely on the plan. While the chief executive officer of OPTrust has stated that "[t]he ORPP is good public policy," [11] it has also been described as "a cautionary example of what happens when we use blunt tools to address poorly defined problems." [12] The contributions expected to be collected from participants are seen to be relatively small compared to other retirement plans, [12] as one-third of the targeted workforce will make less than $15,000 per annum and almost one-half of these will be under the age of 25. [13] This group was already seen as being adequately covered by the current Canada Pension Plan and Old Age Security. [9]

Employers were urged to review the retirement arrangements they have in effect for their employees, as there was a risk that some will not qualify as "comparable workforce pension plans" (CWPP) for the purposes of the ORPP. [14] Defined benefit plans will qualify only where they have an annual benefit accrual rate of at least 0.5 per cent of the member's annual remuneration, and defined contribution plans must have a minimum contribution rate of 8 per cent of the member's annual remuneration (with at least 4 per cent being the employer's share). [8] : §5 

The following areas were identified as being special concerns: [14]

  • What measures need to be taken to ensure that a pension plan is determined to be a CWPP?
  • As employees who are excluded from participating in a plan (because of waiting periods, voluntary membership or being beyond the scope of coverage) will still be subject to ORPP contributions, should coverage be extended to include them?
  • How many employees will be subject to the ORPP, even where there is a CWPP?
  • Where an employer is part of a multi-employer pension plan, how does it obtain assurances that that plan will be a CWPP?
  • If an employer has offered a deferred profit sharing plan and/or a group registered retirement savings plan to its employees, should it continue with them or make modifications?
  • For other retirement arrangements in effect, should they be replaced with a CWPP?

Related Research Articles

In the United States, a 401(k) plan is an employer-sponsored, defined-contribution, personal pension (savings) account, as defined in subsection 401(k) of the U.S. Internal Revenue Code. Periodic employee contributions come directly out of their paychecks, and may be matched by the employer. This legal option is what makes 401(k) plans attractive to employees, and many employers offer this option to their (full-time) workers.

<span class="mw-page-title-main">Pension</span> Retirement fund

A pension is a fund into which amounts are paid regularly during the individual's working career, and from which periodic payments are made to support the person's retirement from work. A pension may be:

The Canada Pension Plan is a contributory, earnings-related social insurance program. It forms one of the two major components of Canada's public retirement income system, the other component being Old Age Security (OAS). Other parts of Canada's retirement system are private pensions, either employer-sponsored or from tax-deferred individual savings. As of Jun 30, 2022, the CPP Investment Board manages over C$523 billion in investment assets for the Canada Pension Plan on behalf of 21 million Canadians. CPPIB is one of the world's biggest pension funds.

A registered retirement savings plan (RRSP), or retirement savings plan (RSP), is a type of financial account in Canada for holding savings and investment assets. RRSPs have various tax advantages compared to investing outside of tax-preferred accounts. They were introduced in 1957 to promote savings for retirement by employees and self-employed people.

<span class="mw-page-title-main">Retirement plans in the United States</span>

A retirement plan is a financial arrangement designed to replace employment income upon retirement. These plans may be set up by employers, insurance companies, trade unions, the government, or other institutions. Congress has expressed a desire to encourage responsible retirement planning by granting favorable tax treatment to a wide variety of plans. Federal tax aspects of retirement plans in the United States are based on provisions of the Internal Revenue Code and the plans are regulated by the Department of Labor under the provisions of the Employee Retirement Income Security Act (ERISA).

A Simplified Employee Pension Individual Retirement Arrangement is a variation of the Individual Retirement Account used in the United States. SEP IRAs are adopted by business owners to provide retirement benefits for themselves and their employees. There are no significant administration costs for a self-employed person with no employees. If the self-employed person does have employees, all employees must receive the same benefits under a SEP plan. Since SEP-IRAs are a type of IRA, funds can be invested the same way as most other IRAs.

<span class="mw-page-title-main">Local Authorities Pension Plan</span> LAPP

LAPP, formerly known by its expanded acronym, the Local Authorities Pension Plan, is the largest pension plan in Alberta and the seventh largest in Canada.

The State Second Pension (S2P), or Additional State Pension, was introduced in the UK by the Labour Government on 6 April 2002, to replace the SERPS. The main aim of this change was to skew existing Additional Pension (AP) benefits in favour of low and moderate earners at the expense of higher earners and to extend access to include certain carers and people with long-term illness or disability for the first time.

Pensions in the United Kingdom, whereby United Kingdom tax payers have some of their wages deducted to save for retirement, can be categorised into three major divisions - state, occupational and personal pensions.

In Australia, superannuation or "super" is a retirement savings system. It involves money earned by an employee being placed into an investment fund, to be made legally available to fund members upon retirement.

<span class="mw-page-title-main">Defined contribution plan</span> Type of retirement plan

A defined contribution (DC) plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis. Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts plus any investment earnings on the money in the account. In defined contribution plans, future benefits fluctuate on the basis of investment earnings. The most common type of defined contribution plan is a savings and thrift plan. Under this type of plan, the employee contributes a predetermined portion of his or her earnings to an individual account, all or part of which is matched by the employer.

Income taxes in Canada constitute the majority of the annual revenues of the Government of Canada, and of the governments of the Provinces of Canada. In the fiscal year ending 31 March 2018, the federal government collected just over three times more revenue from personal income taxes than it did from corporate income taxes.

The Mandatory Provident Fund, often abbreviated as MPF (強積金), is a compulsory saving scheme for the retirement of residents in Hong Kong. Most employees and their employers are required to contribute monthly to mandatory provident fund schemes provided by approved private organisations, according to their salaries and the period of employment.

For the Old Age, Survivors and Disability Insurance (OASDI) tax or Social Security tax in the United States, the Social Security Wage Base (SSWB) is the maximum earned gross income or upper threshold on which a wage earner's Social Security tax may be imposed. The Social Security tax is one component of the Federal Insurance Contributions Act tax (FICA) and Self-employment tax, the other component being the Medicare tax. It is also the maximum amount of covered wages that are taken into account when average earnings are calculated in order to determine a worker's Social Security benefit.

<span class="mw-page-title-main">Oregon Public Employees Retirement System</span> U.S. public employee retirement and disability fund

The Public Employees Retirement System (PERS) is the retirement and disability fund for public employees in the U.S. state of Oregon established in 1946. Employees of the state, school districts, and local governments are eligible for coverage. A health insurance plan for covered retirees was added to the program in 1987. The program is administered by a twelve-member board of trustees, appointed to three-year terms by the Governor subject to confirmation by the Senate, which also administers the Oregon Savings Growth Plan, a voluntary deferred compensation plan established in 1991.

An individual pension plan or IPP is a Canadian retirement savings vehicle. An IPP is a one-person maximum defined benefit pension plan which allows the plan member to accrue retirement income on a tax-deferred basis. As such, an IPP must conform to the Canadian Income Tax Act (ITA) and regulations (ITR) as well as the requirements of the Canada Revenue Agency (CRA) with respect to defined benefit pension plans. It is possible for an IPP to be a combination plan offering both defined benefits and defined contribution pensions

Retirement compensation arrangements (RCAs) are defined under subsection 248(1) of the Canadian Income Tax Act, which allows 100 per cent tax-deductible corporate dollars to be deposited into an RCA, on behalf of the private business owner and/or key employee. No tax is paid by the owner/employee until benefits are received at retirement. Contributions to an RCA should not exceed what is required to fund the "entitlement" under the "generally accepted guidelines" for pensions, which are:

<span class="mw-page-title-main">Defined benefit pension plan</span> Type of pension plan

Defined benefit (DB) pension plan is a type of pension plan in which an employer/sponsor promises a specified pension payment, lump-sum, or combination thereof on retirement that depends on an employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns. Traditionally, many governmental and public entities, as well as a large number of corporations, provide defined benefit plans, sometimes as a means of compensating workers in lieu of increased pay.

<span class="mw-page-title-main">Pensions in Canada</span> Overview of pensions in Canada

Pensions in Canada can be public, private, and collective, or come from individual savings.

<span class="mw-page-title-main">Employees' Old-Age Benefits Institution</span> Pakistani government pension organization

The Employees' Old-Age Benefits Institution (EOBI) is the pension, old age benefits and social insurance institution of the Government of Pakistan. It operates under the control of Ministry of Overseas Pakistanis and Human Resource Development. It came into formation in 1976, through the passage of the Employees' Old-Age Benefits Institution Act of 1976 by the Parliament of Pakistan. Naheed Shah Durrani is the chairperson of Employee's Old-Age Benefits Institution.

References

  1. ↑ Brennan, Richard J. (11 August 2015). "Wynne calls proposed Ontario pension plan 'right thing to do'". Toronto Star .
  2. 1 2 Csanady, Ashley (11 August 2015). "Ontario to start implementing new pension plan in 2017, with full roll-out expected by 2020". National Post .
  3. ↑ Blatchford, Andy (June 21, 2016). "Canada, provinces agree to 'historic' pension deal". Toronto Star. The Canadian Press. Retrieved September 29, 2017. The federal Liberals ran on a platform to upgrade the public pension system, as did their Ontario cousins. The result also means Ontario will abandon its project to go it alone with its own pension plan.
  4. ↑ Benzie, Robert; Ferguson, Rob (June 21, 2016). "Wynne says CPP deal means no need for Ontario pension plan". Toronto Star. Retrieved September 29, 2017.
  5. ↑ Ontario Retirement Pension Plan Act, 2015 , S.O. 2015, c. 5
  6. 1 2 McFarland, Janet (12 August 2015). "What you need to know about the Ontario Retirement Pension Plan". The Globe and Mail .
  7. ↑ "New Ontario Retirement Pension Plan" (PDF). Grant Thornton. February 2016.
  8. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 "Bill 186: An Act to establish the Ontario Retirement Pension Plan" (PDF). Legislative Assembly of Ontario.
  9. 1 2 Coyne, Andrew (February 2, 2016). "Ontario pension plan not about 'helping' retirees, but financing infrastructure". National Post .
  10. ↑ Ferguson, Rob (March 9, 2016). "Tories promise to 'repeal and refund' contributions to Ontario retirement pension plan". Toronto Star .
  11. ↑ O'Reilly, Hugh (12 August 2015). "Ottawa has a duty to support the Ontario Retirement Pension Plan". The Globe and Mail .
  12. 1 2 Hamilton 2015, p. 25.
  13. ↑ Hamilton 2015, p. 26.
  14. 1 2 Allard, Lorraine (May 3, 2016). "Should I Stay or Should I Go?". McCarthy Tétrault.

Further reading

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.