Should you beef up your defined contribution pension plan or axe it and enrol in the Ontario Registered Pension Plan instead? What if your plan is non-comparable come 2020? Those were among the questions addressed by the cabinet minister heading up the ORPP at an event in Toronto on Wednesday.
“I cannot predict the employer and employee response at the end of the day,” said Associate Finance Minister Mitzie Hunter at a pension and benefits seminar hosted by Osler, Hoskin & Harcourt LLP.
What the government can do, she added, is give companies enough clarity and time to make a good decision. An exclusive survey by Benefits Canada, published in the May issue, found 60 per cent of respondents think the government has given employers enough time to prepare for the ORPP, though 22 per cent think they haven’t been provided with enough time and 18 per cent are unsure.
Large- and medium sized employers will start contributing to the ORPP in January 2018, while small businesses will join in January 2019. Companies with non-comparable plans will have until January 2020 to opt in to the provincial scheme or adjust the one they already have in place.
More than two-thirds (71 per cent) of respondents to Benefits Canada‘s ORPP research said their defined contribution pension is not comparable. Among this group, 18 per cent plan to boost their DC plan, eight per cent plan to keep their DC plan and participate in the ORPP and five per cent plan to close their DC plan and move into the ORPP. But the vast majority (68 per cent) or respondents haven’t decided what to do.
At the Osler seminar, associate deputy minister Mahmood Nanji said while the “policy is mandatory, the instrument is not necessary.” He said while plans with six per cent contribution rates may offer returns equal or higher to those from the ORPP, government analysis found an eight per cent contribution is necessary to “replicate predictable streams of income,” especially as life expectancies increase.
Hunter and Nanji also spoke to the ORPP’s original “mushiness” in determining who is and isn’t eligible for the program. Self-employed people and federal employees can’t contribute, and only contractors in traditional employer-employee relationships are eligible.
Ontario won’t likely put the ORPP on hold to see if the new Liberal government will boost the Canada Pension Plan since Prime Minister Justin Trudeau needs the support of at least seven provinces with two-thirds of the country’s population to restructure the national plan, Hunter noted. But the government has designed the ORPP with future integration with the CPP in mind. If that doesn’t occur, there’s nothing in the legislation preventing other provinces from joining the ORPP, but that conversation “is not happening yet,” she said.
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