August 11, 2015
The ORPP comparability thresholds outline the minimum level of contribution or benefit a workplace pension plan will need to provide in order to be comparable under the ORPP. These thresholds were developed in conjunction with leading pension experts and actuaries.
Defined Benefit (DB) Plans
A Defined Benefit plan is a registered pension plan where the retirement benefit is pre-determined and the assets are managed on behalf of the employee. Benefits depend on individual circumstances, like length of employment and earnings.
In order to be considered comparable, DB plans will need to equal or exceed the benefits being offered through the ORPP. Accordingly, the minimum comparability threshold that earnings based DB plans will need to meet is an annual benefit accrual rate of at least 0.5 per cent.
An accrual rate is the rate at which you build up pension benefits. It’s multiplied by your earnings to determine how much money you will be entitled to upon retirement. It’s typically a fraction, so the bigger the fraction the greater the pension benefit.
Defined Contribution (DC) Plans
A Defined Contribution plan is a registered pension plan that specifies the amount of contributions from employers and employees. Benefits are provided from accumulated contributions plus the return on the investment of these monies.
While the risk pooling nature of DB plans is similar to that of the ORPP, management fees could be different, and DC plans lack many of the attributes of the ORPP, including:
Actuarial analysis has been conducted and it was determined that the minimum comparability threshold for a DC plan would be a total contribution of eight per cent of base salary earnings. Employers will also be required to contribute at least 50 per cent of the total minimum contribution, being at least four per cent.
Other Types of Plans
Flat-benefit Defined Benefit (DB) Plans: Flat-benefit DB plans are structured so that benefits are generally accrued on a monthly basis. The 0.5 per cent accrual rate minimum comparability threshold will be determined as follows:
|Monthly Dollar Benefit Accrual x 12|
|≥||0.5% accrual rate|
|Maximum Hourly Wage Rate x 2080 hours/year|
Flat-dollar Defined Contribution (DC) Plans: For flat-dollar DC plans, i.e. contributions are earned on an hourly basis, the 8 per cent minimum contribution comparability threshold will be determined as follows. The employer would need to provide at least 50 per cent of the minimum threshold contribution.
|Monthly Dollar Contributions x 12|
|≥||8% contribution rate|
|Maximum Hourly Wage Rate x 2080 hours/year|
Hybrid Pension Plans: A hybrid pension plan is a registered pension plan with two components, a Defined Benefit (DB) component and a Defined Contribution (DC) component.
For Defined Benefit/ Defined Contribution hybrid plans, the threshold will be determined as follows:
|Annual Defined Benefit Accrual Rate||Annual Defined Contribution Rate|
Multi-Employer Pension Plans (MEPP): A MEPP is a pension plan where two or more unrelated employers participate and contribute to the same pension fund. This can be a defined benefit or defined contribution, or a combination of both types of plans. The government continues to work with actuarial experts to determine the threshold rate for the various combinations of MEPPs in Ontario, and will align with principles considered for DB, DC and hybrid plans.
Pooled Registered Pension Plans (PRPP): PRPPs are professionally administered, defined contribution style pension plans targeted to employees and self-employed persons who do not have access to a workplace pension plan. The province recently passed the Pooled Registered Pension Plans Act, 2015, which creates a framework for Ontario businesses to offer PPRPs to their employees, as well as make PRPPs available to the self-employed. The government, in consultation with pension experts, intends to develop an appropriate comparability threshold for PRPPs with equivalent characteristics of a DC plan.
Comparable Plans and Phase-In of ORPP Enrollment
The Ontario Retirement Pension Plan Administration Corporation (ORPP AC) will contact all Ontario employers in early 2016 in writing to verify their existing pension plans and assess the coverage offered by employers to their employees.
Any employer with a registered workplace pension plan that exists on August 11, 2015, or that has begun the process of registering one, will be assigned to Wave 4. If the plan meets comparability thresholds by the time Wave 4 begins, the employer will not be required to enroll in the ORPP.
Any employer that does not have a workplace pension plan, but sets up a comparable plan prior to its entrance Wave, will not be required to enroll in the ORPP.
Employers with a workplace pension plan who have employees who do not participate will be placed in Wave 4. By 2020, they will be required to have all employees participating in a comparable workplace pension plan, or have employees who are not in the comparable workplace pension plan, enrolled in the ORPP.
FOR MEDIA INQUIRIES ONLY: