The Ontario Retirement Pension Plan (ORPP): Updates for non-profits
Last month, the Province introduced Bill 56 – The Ontario Retirement Pension Plan Act 2014, to the legislature. If passed, the Act will create the foundation for the Ontario Retirement Pension Plan (ORPP) that will be implemented in 2017.
The ORPP is designed to replace approximately 15 per cent of an employee’s pre-retirement income. It mandates equal employer and employee contributions of no more than 1.9 per cent of the employee’s annual income each, up to a maximum income of $90,000. That means that both the employee and the employer will contribute 1.9 per cent to the employee’s pension fund for a combined contribution of 3.8 per cent.
The Province’s ORPP website provides a number of examples that can help employers calculate how much they will have to contribute to the ORPP. Two examples are provided below: one for an employee receiving a $45,000 salary before taxes, and another for an employee making $70,000.
Employee A ($45,000 per year): Employer contributes $2.16 a day to the employee’s ORPP, amounting to $786.24 a year (the employee contributes the same amount from their paycheque.)
Employee B ($70,000 per year): Employer contributes $3.46 a day to the employee’s ORPP, amounting to $1,324.96 a year (the employee contributes the same amount from their paycheque.)
The Province has yet to provide full details on a number of parts of the ORPP. At this stage, they have not stated whether the ORPP requirements will treat non-profit organizations any differently than for-profit companies.
In a consultation document released in December, however, the Province did provide more detail on a few other areas of the ORPP.
The first area discussed in the document is the minimum income threshold required to participate in the ORPP. The Province has proposed a minimum income threshold of $3,500 – the same threshold used for the Canadian Pension Plan (CPP). This means that employees who earn less than $3,500 per year will not have to contribute to the ORPP. It also means that employees and employers are exempt from contributions on the first $3,500 of any salary.
The second area relevant to non-profit housing providers is the definition of a comparable workplace pension plan. The Province has suggested that a comparable workplace pension plan will have to meet a number of criteria: it must provide benefits for life; be indexed to inflation; require mandatory employer contributions; provide pooled investment risk; and have locked-in funds.
According to these criteria, the only workplace pension plans that would be comparable to the ORPP are Defined Benefit Pension Plans and Target Benefit Multi-Employer Pension Plans. The Ontario Municipal Employees Retirement System (OMERS) is an example of a Defined Benefit Plan that some housing providers may already participate in.
It is important to note that other workplace pension plans, such as Defined Contribution Pension Plans, Pooled Registration Pension Plans, Group Registered Retirement Savings Plans, and Deferred Profit Sharing Plans, are not considered comparable to the ORPP. This means that housing providers whose employees currently participate in these plans will still have to participate in the ORPP come 2017.
The Province currently welcomes feedback on the proposed minimum income threshold and definition of a comparable workplace pension plan to the ORPP, as discussed above.
To learn more, click here.