NAVIGATING THE ORPP AN UPDATE ON KEY ISSUES 18 AUGUST Louis Gagnon Senior Partner. Scott Clausen Partner. Oma Sharma Partner.

Transcription

1 HEALTH WEALTH CAREER NAVIGATING THE ORPP AN UPDATE ON KEY ISSUES 18 AUGUST 2015 Louis Gagnon Senior Partner Scott Clausen Partner Oma Sharma Partner Toronto

2 SPEAKERS Louis Gagnon Senior Partner Scott Clausen Partner Oma Sharma Partner TO SUBMIT A QUESTION To submit a question while in full screen mode, use the Q&A button at the top of your screen. Move your mouse to the top of your screen to reveal the toolbar. CLICK HERE TO ASK A QUESTION TO ALL PANELISTS MERCER

3 KEY FEATURES OF THE ORPP Lifetime inflationprotected benefits* Target benefit replacing up to 15% of covered earnings after a 40 year career Equal employee and employer contributions totalling 3.8% Covered earnings: $3,500 - $90,000 indexed Locked-In RPP with portability features to be announced * BASED ON THE SUSTAINABILITY OF THE PLAN MERCER

4 COVERAGE By 2020, every employee in Ontario will be part of either the ORPP or a comparable pension plan Coverage will exclude Employees under age 18 or over age 70 Federally regulated employees Employees receiving ORPP benefits Employees earning less than the minimum earnings threshold; and Employees participating in a comparable plan The government is examining options to allowing employers with comparable plans to opt into the ORPP MERCER

5 IMPLEMENTATION TIMELINE Employee and Employer matching contribution rates will be phased in over three years for four waves of employers Ontario eligible employees must join the ORPP unless they are covered by a comparable plan after the corresponding entry date Type of employer Employers without a registered pension plan on August 11, 2015 Employers with a registered pension plan on August 11, 2015 Wave 1 Wave 2 Wave 3 Wave 4 Large 500 or more employees Medium employees Small 50 or fewer employees All Sizes With non-comparable RPP 0.8% 1.6% 1.9% 1.9% 1.9% n/a 0.8% 1.6% 1.9% 1.9% n/a n/a 0.8% 1.6% 1.9% n/a n/a n/a 1.9% 1.9% Benefits would be paid starting in 2022 but full benefits would not be accrued for decades MERCER

6 COMPARABLE WORKPLACE PENSION PLANS REGISTERED PENSION PLANS THAT MEET MINIMUM THRESHOLDS WILL BE COMPARABLE Group RRSP, Deferred Profit Sharing Plans, Tax Free Savings Arrangements would not be considered comparable as these retirement savings options do not lock-in contributions A process to verify which pension plans are comparable will begin in early 2016 MERCER

7 COMPARABLE WORKPLACE PENSION PLANS DB PLANS An earnings-based defined benefit registered pension plan must provide an annual accrual rate of at least 0.5% For a flat-benefit defined benefit registered pension plan, the 0.5% threshold will be determined as follows: Monthly Dollar Benefit Accrual x 12 Maximum Hourly Wage Rate x 2080 hours/year >= 0.5% accrual rate For example: Pension benefit of $40 per month per year of service where the maximum hourly wage rate at the organization is $35 per hour: $40 x 12 $35 x 2080 hours/year = 0.66% > 0.5% accrual rate, therefore comparable MERCER

8 COMPARABLE WORKPLACE PENSION PLANS DC PLANS A defined contribution registered pension plan must have total required employer and employee annual contributions of at least 8% of base salary earnings, with at least 4% being contributed by the employer Sample Plans Employee Contribution Employer Contribution Plan A 4% required 4% required Plan B up to 5% voluntary 100% match of employee contribution Total Contribution 8% 0% to 10% Comparable? ü û MERCER

9 COMPARABLE WORKPLACE PENSION PLANS DC PLANS MERCER

10 COMPARABLE WORKPLACE PENSION PLANS HYBRID PLANS For a hybrid plan that provides the greater of a defined benefit or defined contribution formula, the minimum threshold for the defined benefit formula or the minimum threshold for the defined contribution formula must be met For a hybrid plan that provides defined benefits plus defined contributions, the comparability threshold will be determined as follows: Annual DB Accrual Rate 0.5% + Annual DC Contribution Rate 8% >= 1.0 For example: DB Accrual Rate of 0.25% and a DC plan with required contributions of 3% from both employees and employers 0.25% 0.5% 6% + = 1.25 >= 1.0, therefore comparable 8% MERCER

11 MORE INFORMATION NEEDED Specific benefit formula/how benefits work for employees for part of their career Method of ensuring sustainability of the plan Confirmation of tax reporting Treatment of low earners Ability for employers with comparable plans to opt-in, if desired Treatment of self-employed MERCER

12 PENSION DESIGN CONSIDERATIONS FOR ELIGIBLE ONTARIO EMPLOYEES Assess company retirement plan against ORPP Employers with comparable RPPs Employers with an RPP that is not comparable Employers without an RPP What options exist for employees not covered Are all employees covered? What are the pros/cons of opting into ORPP How can we make our plan comparable? Are all employees covered? What are the cost implications of these design changes? Should company plan be reduced to reflect ORPP costs Join the ORPP or introduce a comparable plan? What are the cost implications of any design changes? Employers with workforces in multiple jurisdictions will want to consider the implications arising from the potential participation of Ontario employees in the ORPP MERCER

13 ACTIONS THAT EMPLOYERS SHOULD TAKE NOW Consider implications of ORPP in collective bargaining Review the impact on different classes of employees Determine if there are business reasons to treat employee groups differently Review retirement and savings programs from an overall financial wellness perspective Update key stakeholders and decision makers MERCER

14 IN CONCLUSION By 2020, every employee in Ontario will be part of either the ORPP or a comparable pension plan Almost every employer that is not federally regulated will have some employees who will be required to participate in the ORPP if they have employees in Ontario The introduction of the ORPP is a good opportunity to review your retirement and savings programs to ensure that they are meeting the needs of the business and the needs of your employees MERCER

15 QUESTIONS Louis Gagnon Senior Partner Scott Clausen Partner Oma Sharma Partner QUESTIONS Please type your questions in the Q&A section of the toolbar and we will do our best to answer as many questions as we have time for. To submit a question while in full screen mode, use the Q&A button at the top of your screen. Move your mouse to the top of your screen to reveal the toolbar. To submit a question while in half screen mode, use the Q&A panel on the bottom right-hand side of your screen. FEEDBACK Please take the time to fill out the feedback form at the end of this webcast so we can continue to improve. The feedback form will pop-up in a new window when the session ends. CLICK HERE TO ASK A QUESTION TO ALL PANELISTS MERCER

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