“The Ontario Registered Pension Plan was dead: to begin with. There is no doubt whatever about that. . . . Old ORPP was as dead as a door-nail.” With a paraphrased nod to that holiday classic, Charles Dickens’ A Christmas Carol, Benefits Canada takes a look at the ghost of 2016, Ontario’s would-be provincial pension program.
This time last year, plan sponsors with pensions registered in Ontario were one year away from the Jan. 1, 2017, deadline to begin enrolling employees. The largest employers would begin on that date with mid- and small-sized employers phased in over the following years.
But in June, when federal and provincial finance ministers reached an agreement to enhance the Canada Pension Plan, the ORPP became a thing of the past — a footnote in the annals of Ontario’s pension history.
Let’s imagine, for a moment, that the CPP agreement didn’t happen and — in the style of Scrooge’s visit with the ghost of Christmas past — travel back in time to find out whether the industry would have been ready for the ORPP.
As it prepared for the changes earlier this year, ArcelorMittal Windsor — a division of ArcelorMittal Dofasco formerly known as DJ Galvanizing Corp. — was considering changes to its defined contribution and group registered retirement savings plans to ensure comparability. The ORPP legislation stated that in order for a pension to be comparable, there must be a total of eight per cent contributions between the employer and the employee. It also stated that group RRSPs wouldn’t be comparable.
When employees contribute six per cent of earnings to its defined contribution plan, ArcelorMittal Windsor matches the amount for a combined contribution of 12 per cent, which means it was already providing a comparable plan. However, after employees have been with the company for two years, it allows them to move their six per cent contribution into a group RRSP, which means its defined contribution plan would no longer be compliant with the ORPP legislation.
“We’re going to have to change that, given the eligibility criteria that’s been communicated so far,” Kristi Farmer, the organization’s accounting and benefits co-ordinator, told Benefits Canada earlier this year. “This will have to revert back because it would mean we don’t meet the eight per cent rule.”
At the time, Farmer said the organization was considering a range of options to comply with the legislation. “We’re looking at reverting people back to six per cent and two per cent to get the eight per cent or four per cent and four per cent,” she said. “We’re not sure how we’re going to do it yet, but it’s on the radar.”
Though Goodyear Canada Inc. would also have had a couple of years to comply with the legislation, it would have had to amend it defined contribution pension plan as well. The company currently contributes four per cent, but there are no mandatory contributions from employees, says Thak Bhola, the company’s manager of pension, investments and administration.
“The government of Ontario was attempting to ensure that every Ontarian got a reasonable retirement income, but the way they were going about it would have placed a burden on people that already provide for retirement income for their employees,” he says.
Since ArcelorMittal Windsor is a small organization, it also had a bit more time to deal with the issue. “We will make the plans but won’t pull the plug on what we’re doing now to meet the criteria until we have to,” said Farmer.
Every December, the organization hosts a session for employees to review the pension plan. Due to the ownership changes in 2016, ArcelorMittal Windsor didn’t host its annual pension meetings this year, but it’s hoping to have one in January, says Farmer, who notes the focus will be on updating employees with annual investment results and information on compliance with the Canadian Association of Pension Supervisory Authorities’ guidelines, as well as to encourage them to review their annual pension statements.
“We will mention the upcoming changes in the CPP, and I have already sent out memos on the scrapping of the ORPP when it was first announced,” says Farmer. “We currently don’t have anything planned specifically on the CPP as of yet, but CPP is incorporated in our preretirement sessions that will be held again in 2018.”
When it comes to the CPP, Bhola agrees with those who say the retirement programs in Canada are already adequate. “I think CPP as it is right now is good; it’s adequate,” he says. “The new CPP that the federal government is proposing, I don’t see how it would benefit the people who don’t have a pension plan right now.”
Goodyear Canada has yet to tell employees about the CPP changes. Instead, it’s spending more time on communications to ensure it’s meeting the CAPSA guidelines. “We have meetings with our employees, we show them the advantages of being in our program from the perspective of the fees they pay versus retail fees and we encourage them to do the annual assessment: Where are you with respect to where your expectations are for retirement? That’s our focus at the moment.”
When the new CPP comes into play, it will trigger some work for the organization, adds Bhola, noting it will likely look at its current contributions to the defined contribution plan versus the additional amounts it will have to pay under the CPP changes. “That’s been the trend with most employers,” he says. “They look at the impact of the changes and they try to ensure that, as cost effectively as possible, the employee is kept whole.”