2016 Ontario Budget
Chapter I: Building Prosperity and Creating Jobs

Section F: Strengthening Retirement Security

Many Ontarians are not saving enough for retirement. Two-thirds of Ontario’s workers do not participate in a workplace pension plan. Moreover, about three-quarters of younger workers — aged 25 to 34 — do not participate in a workplace pension plan. Without action, many of today’s workers will not be able to maintain their current living standards in retirement and this would place pressure on government programs.

The government’s goal is to strengthen retirement security for all Ontarians. The Province is actively participating in national discussions to enhance the Canada Pension Plan (CPP), while implementing the Ontario Retirement Pension Plan (ORPP).

The ORPP is a made-in-Ontario solution to support current and future generations of Ontarians in retirement. The Conference Board of Canada’s recent cost–benefit analysis of the ORPP confirms that both the economy and Ontarians would be better off with the ORPP.1 In the long term, it is expected to add billions of dollars to the economy, while providing a cost-effective means of helping individuals save for retirement. The cost–benefit analysis also estimated that the impact on employer payroll costs from the ORPP would be, in total, almost entirely offset by expected reductions to Employment Insurance (EI) and Workplace Safety and Insurance Board (WSIB) premium rates.

The government is also helping to strengthen and modernize workplace pension plans with several measures, including:

  • Reviewing the current solvency funding framework for single-employer defined benefit pension plans; and
  • Consulting on a proposed regulatory framework for target-benefit multi-employer pension plans.

Progress on the Ontario Retirement Pension Plan

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 ORPP Administration Corporation is now established and the process to register the plan with the Canada Revenue Agency is well underway. Final elements of plan design were announced in January 2016 and would be outlined in legislation to be introduced in spring 2016. The legislation would focus on employer eligibility, benefit calculations, and the compliance and enforcement regime.

The government has engaged Ontarians, including businesses, associations, labour groups and pension experts, throughout the design of the ORPP. Based on this feedback and to ensure a successful and smooth implementation, the ORPP Administration Corporation would launch the employer verification and enrolment process in 2017, with employer and employee contribution collection beginning in 2018. This decision supports national discussions on a CPP enhancement and facilitates transition to the ORPP.

The ORPP Administration Corporation

The ORPP Administration Corporation is responsible for administering the ORPP and managing and investing ORPP contributions. It is an independent entity with a professional board and robust governance structure modelled on the best practices of leading public-sector pension plans.

In November 2015, the government appointed the initial board of directors to oversee the ORPP. Susan Wolburgh Jenah was named the Chair, along with Murray Gold and Richard Nesbitt as Directors. The initial board members bring a diversity of experience in key areas, including investment and asset management, pension administration, legal and regulatory compliance, and financial operations and management. The government intends to appoint the full board of directors later this year.

In January 2016, the board recruited Saäd Rafi as the first CEO of the Administration Corporation. Mr. Rafi and the board are building the capacity of the Administration Corporation to deliver a member-focused, cost-effective and world-class pension plan. Immediate priorities include engaging employers on the verification and enrolment processes to ensure a seamless transition, and overseeing the set-up of infrastructure and technology requirements to administer the plan.

The government also intends to introduce an amendment to the ORPP Administration Corporation Act, 2015, that, if passed, would enable the Administration Corporation to adopt any pre-incorporation contracts made on its behalf within one year of its establishment.

Accountability and transparency are critical features of the Administration Corporation’s governance model. Through a strong accountability and transparency framework, the board of directors and management team will be fully accountable to plan members.

Specific measures to support accountability and transparency include the development of a Memorandum of Understanding between the Minister of Finance and the Administration Corporation, an annual report, an annual meeting for beneficiaries, external auditing and strong financial controls. The Administration Corporation would also work closely with a proposed Office of the Chief Actuary.

Plan Administration

The Administration Corporation is committed to efficient and cost-effective administration of the ORPP. It continues to engage and evaluate options for administration, including working with the federal government, leveraging existing infrastructure within the broader public sector and using third-party delivery partners.

To support the launch of the ORPP in 2017, with collections beginning in 2018, the Administration Corporation would proceed with the following updated implementation timelines.

TABLE 1.8 ORPP Phase-In and Contribution Schedule
(Employer contribution rates below would be matched by eligible employees)
Enrolment of employers in the ORPP would begin on January 1, 2017
Type of Employer Jan. 1, 2018 Jan. 1, 2019 Jan. 1, 2020 Jan. 1, 2021
Wave 1: Large employers without registered workplace pension plans 0.8% 1.6% 1.9% 1.9%
Wave 2: Medium employers without registered workplace pension plans 0.8% 1.6% 1.9% 1.9%
Wave 3: Small employers without registered workplace pension plans 0% 0.8% 1.6% 1.9%
Wave 4: Employers with registered pension plans that either do not meet the comparability test or do not cover all classes of employees 0% 0% 1.9% 1.9%

The Province heard from the business community that it needed additional time. The government has responded to this and will provide employers affected by the ORPP with more time to make the technical changes required. The Province is committed to supporting a smooth and successful implementation of the ORPP. The additional time will also enable national discussions on CPP enhancement to proceed.

A Sustainable Plan

The government is creating a sustainable plan that builds on the foundation of the CPP. This would help ensure that Ontarians retire with improved savings and security. In spring 2016, the government intends to introduce proposed legislation setting out the requirements of ORPP, rules relating to plan funding, and the compliance and enforcement regime.

Mirroring the strengths of the CPP, the ORPP would:

  • Aim to replace 15 per cent of an individual’s pre-retirement earnings, up to a maximum earnings threshold of $90,000 (proposed in 2017 dollars), based on 40 years of participation;
  • Require equal contributions from employers and employees, with a maximum combined rate of 3.8 per cent;
  • Require benefits to be earned as contributions are made to ensure plan sustainability and intergenerational equity;
  • Establish a minimum earnings threshold of $3,500 for eligible employees between the ages of 18 and 70;
  • Provide a survivor benefit to beneficiaries or surviving spouses;
  • Exempt those subsets of members of comparable workplace pension plans with benefit accruals or contribution levels that meet the appropriate thresholds; and
  • Phase in implementation for employers between 2017 and 2020, with collections beginning in 2018.

Detailed features of the proposed plan design are available at Ontario.ca/orpp.

Responsible Funding of the ORPP

The financial viability of the ORPP is imperative. Through extensive modelling and consultations with experts, the ORPP has been designed to be sustainable over the long term. A formal funding policy would guide timely actions by the Administration Corporation and the government, in the event of funding excess or shortfall.

To evaluate and report on plan sustainability and prepare funding valuations, the government is proposing to establish an independent provincial Office of the Chief Actuary (OCA) by legislation in 2016. Modelled on the Office of the Chief Actuary of Canada, Ontario’s Chief Actuary would provide the Province and the Administration Corporation with impartial and expert actuarial advice and guidance. All valuations would be peer-reviewed and made public.

Moving Forward

The Province and the ORPP Administration Corporation will continue to seek advice through ongoing discussions with stakeholders such as the Business Advisory Group on ORPP Implementation.

Collaboration on a National Pension Solution

The Province has long been a champion of strengthening the retirement income security system and is pleased that the federal government shares this commitment and has renewed national discussions to enhance the CPP. Ontario will work collaboratively and intensively with the federal government, provinces and territories to make progress on a CPP enhancement that addresses the needs of future retirees.

The Province’s extensive consultations in developing the ORPP have helped to inform Ontario’s view that a CPP enhancement must be timely and provide a level of adequacy and targeted coverage that is consistent with the ORPP. The government looks forward to collaboration on a CPP enhancement and other innovative approaches at the Federal–Provincial–Territorial Finance Ministers meeting in June 2016.

Strengthening and Modernizing Workplace Pension Plans

Workplace pension plans are an integral part of Ontario’s retirement income system. They provide employers with a tool to attract and retain talent, while giving employees a valuable source of retirement income. The 2008 recession and subsequent economic challenges have highlighted the need for regulatory reform. The government continues to pursue reforms to the pension regulatory landscape to encourage innovative and flexible retirement savings tools and to ensure pension plans continue to be a viable retirement savings tool in different economic conditions. At the same time, the government is committed to ensuring that the Pension Benefits Guarantee Fund remains a sustainable source of protection for covered plans.

Solvency Funding Review and Temporary Solvency Funding Relief

In recent years, low long-term interest rates have placed funding pressures on pension plan sponsors of single-employer defined benefit (DB) pension plans. To assist sponsors in these challenging circumstances, the government has initiated a review of the current solvency funding framework.

The government has appointed David Marshall, former president and CEO of the WSIB, to lead the solvency funding review. He will provide advice and recommendations to the Minister, with a view to assisting the Ministry of Finance in developing a balanced set of solvency funding reforms that would focus on plan sustainability, affordability and benefit security, and take into account the interests of pension stakeholders — including sponsors, unions, members and retirees.

A stakeholder reference group is being established to ensure that reforms to the existing solvency funding framework are informed by a broad range of stakeholder opinions. A consultation paper, outlining possible reform measures, will be released in spring 2016.

To provide plan sponsors with more immediate assistance, the government plans to extend temporary solvency funding relief measures introduced in 2009 and 2012 for private-sector plan sponsors. Draft regulations will be posted for consultation in spring 2016.

Target Benefit Multi-Employer Pension Plans

In summer 2015, Ontario released a consultation paper seeking input from affected stakeholders on a proposed regulatory framework for target benefit multi-employer pension plans (MEPPs), including a permanent exemption from solvency funding requirements. The consultation paper also proposed a transition period of three years for eligible MEPPs to allow such plans to make necessary adjustments to comply with any new target benefit MEPP framework. Feedback was received from a variety of stakeholders, including actuarial firms, professional associations, MEPPs and labour unions.

While submissions were supportive of a new framework, including a solvency funding exemption, some concerns were raised that certain MEPPs may face challenges transitioning to a new framework and implementing changes in funding rules.

The government will continue to consult with affected stakeholders on all aspects of a target benefit MEPP framework, including funding rules, and is committed to providing a transition period that allows sufficient time and ensures minimal disruption to the collective bargaining process.

Additional Legislative Measures

Minor adjustments to legislation are being pursued in the following areas:

  • Pension advisory committees (PACs): Draft regulations under the Pension Benefits Act intended to facilitate the establishment of PACs were posted for public consultation in fall 2015. The role of PACs would be to monitor plan administration, make recommendations to the administrator regarding the pension plan, and promote awareness and understanding of the pension plan. The government is proposing additional legislative changes to enable implementation of PACs. Regulations incorporating stakeholder feedback will be finalized later this year.
  • Pooled registered pension plans (PRPPs): The government is introducing amendments to the Pooled Registered Pension Plans Act, 2015, to further facilitate harmonization with other jurisdictions and ensure the efficient operation of PRPPs. Regulations to support the implementation of PRPPs in the province are under development. The government will also be developing an appropriate test to determine comparability for the purposes of the ORPP.
  • Teachers’ Pension Act: Since its inception, the Ontario Teachers’ Pension Plan has contained provisions that limit the amount of education-related work that can be pursued by retired teachers who are collecting a pension. This has been an important parameter that helps facilitate opportunities for newer teachers. Amendments to the Teachers’ Pension Act are being proposed that ensure these re-employment rules would prevail over the Pension Benefits Act to the extent of any conflict.

1 Conference Board of Canada, “A Cost–Benefit Analysis of the Ontario Retirement Pension Plan,” (2015), http://www.fin.gov.on.ca/en/pension/orpp/orpp-cb-analysis.html.