Ontario Retirement Pension Plan deductions start for large employers in 2018

The organization administering a new mandatory pension plan for Ontario employees will start collecting contributions in 2018, the ruling Liberals confirmed Thursday in their 2016-17 budget document.

Finance Minister Charles Sousa first announced the Ontario Retirement Pension Plan (ORPP) two years ago, when he delivered the 2014-15 budget.

“The government is on track to ensure that, by 2020, all eligible Ontario workers would be covered by a comparable workplace plan or the ORPP,” the Liberals stated Thursday in their budget document.

ORPP – which will require contributions of 1.9% each from some employees and employers – will be mandatory for employers without a “comparable workplace pension plan.”

ORPP was opposed by the Insurance Brokers Association of Ontario (IBAO) due in part to the Ontario Automobile Insurance Rate Stabilization Act (AIRSA). That law, in 2013, established an “industry-wide target reduction,” by 15% over two years, of the average private passenger auto premium.

The cost for a brokerage to contribute to ORPP would be “particularly onerous,” said Michael Brattman, then president of IBAO, in early 2015.

“We have serious concerns because of the impact on small business,” IBAO CEO Jim Murphy told Canadian Underwriter last week. “However, in terms of the recent announcement we support the government’s delay” to 2018, he added at the time. “It was listening to the input it was receiving from businesses, and small businesses like insurance brokers. But we still have a concern with it, absolutely.”

The ORPP Administration Corporation will “launch the employer verification and enrolment process in 2017,” the government states in its 2016-17 budget document, and will start collecting contributions in 2018.

“When it comes to Ontario retirement security, people want it,” Finance Minister Charles Sousa said Thursday, of ORPP, during a press conference. “Businesses recognize that they want an efficient effective system that can be used to do so. The new ORPP does that.”

ORPP will “aim to replace 15% of an individual’s pre-retirement earnings, up to a maximum earnings threshold of $90,000 (proposed in 2017 dollars), based on 40 years participation.”

It will require equal contributions from employers and employees with a maximum combine contribution rate of 3.8%.

The government plans to phase in the contributions, starting with large employers without registered workplace pension plans in 2018.

“Insurance brokerages will not be impacted this in 2018,” Murphy told Canadian Underwriter earlier.

Wave 2, comprised of medium-sized employers without registered pension plans, is scheduled to start in 2019 while Wave 3, comprised of small employers without registered pension plans, starts in 2020. Wave 4 is comprised of employers with registered pension plans that either do not meet the compatibility test or do not cover all classes of employees.

The ORPP establishes a minimum earnings threshold of $3,500 for eligible employees between the ages of 18 and 70. It would provide a sole survivor benefit to beneficiaries or surviving spouses.

Exempt from ORPP would be employers with pension plans “with benefit accruals or contribution levels that meet the appropriate thresholds,” the provincial government explains.

“We wanted to make sure that defined contribution plans were included, and they made changes in regard to that,” Murphy told Canadian Underwriter earlier.

The province is planning for revenues of $130.589 billion and expenditures of $133.895 billion in 2016-17. It projects revenues of $126.547 billion and spending of $132.08 billion in fiscal year 2015-16, for a deficit of $5.686 billion. The planned deficit of $4.306 billion in 2016-17 would bring the net debt to $308.315 billion, or $22,103 for every man, woman and child in the province. The net debt includes the net debt of hospitals, school boards and colleges. In 2007-08, the net debt per capita stood at $12,270.

Of the revenue planned in 2016-17, $32.2 billion, or 24.6%, will be from personal income taxes, 18.9% (or $24.6 billion) will be transfers from the federal government. Nearly a fifth (18.4%) is from sales tax and 9.2% is from corporate taxes.

Of the planned expenses in 2016-17, 38.7% ($51.8 billion) is for the health sector, 8.8% (11.8 billion) will be interest payments on the debt, 19.1% ($25.6 billion) will be on the education sector and 11.8% $15.8 billion) will be on children and social services.

More coverage of the 2016-17 Ontario budget

Ontario government to mandate disclosure of insurance claims history on used vehicles