Opinions divided over DC plan exemption from ORPP

The decision by the Government of Ontario to let some DC plans be considered comparable to the Ontario Retirement Pension Plan (ORPP) received divided reactions from consultants.

“The fact they have decided that DC plans that meet certain criteria are exempt is very important,” says Scott Clausen, a Mercer partner and senior retirement consultant.

Read: ORPP design details announced

On Tuesday, the government said DC plans will be considered comparable if they are locked in, are regulated by existing provincial pension standards and meet a minimum contribution threshold (an annual contribution rate of 8% and require at least 50% matching of the minimum rate from employers).

He says many DC plans already meet that criteria, so it won’t be an issue for them.

Janice Holman, a principal and leader of Eckler’s DC practice, disagrees.

“To require an 8% total contribution is going to be a significant increase for both some employers and employees,” she says.

Read: Mixed reaction to ORPP announcement

For companies that offer a lower contribution rate, they might decide to increase contributions, scale back their contributions or go into the ORPP.

“It won’t be worth it to redesign the plan to have some money go to the ORPP and then an even smaller portion go into their existing plan,” Holman explains.

However, employers with workers across Canada may want to have one retirement plan instead of one for Ontario and one outside of Ontario.

“That may give some incentive to prefer to maintain an arrangement where you are able to be exempt from the ORPP so you can have one plan,” Clausen notes.

But if there’s an eligibility or waiting period for employees to join a DC plan, it will cause administrative complexity, she says.

Read: Harper, Wynne lock horns over ORPP

“Employers will have to first contribute to the ORPP and then into their own plan,” Holman explains. “Employees could have minuscule contributions to the ORPP.”

Clausen believes the phase-in approach for the ORPP will be beneficial for many employers.

The plan will be rolled out in four separate waves beginning in 2017, starting with employers with 500 or more employees without registered workplace pension plans.

“Phasing in by employer size will help employers, especially the smaller employers where the administrative burdens may be higher,” he says.

But many details still need to be worked out, says Holman.

“There’s still a lot of confusion on the rules of how the ORPP would be implemented and how exemptions would be granted,” she explains.

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