Canadian Lawyer InHouse

31 CANADIANLAWYERMAG.COM/INHOUSE JANUARY 2016 31 CANADIANLAWYERMAG.COM/INHOUSE JANUARY 2016 someone's going to have to pay more. That's just the way pensions work." But beyond that, the government could make CPP en- hancements voluntary for the provinces, such that some areas would participate and others not. It's impossible to say exactly what the CPP might look like if it's amended. That fact makes it diffi cult to plan ahead. Steele's advice: "There isn't much to be done except having a strong understanding of your cur- rent benefi t program agreements, collective agreements, and employment contracts so you can act in a timely and productive man- ner if and when — a big if and when — CPP enhancement ever becomes a reality." GET READY FOR THE ORPP Returning to the made-in-Ontario system, Seller points out that plan sponsors still have questions. How will the ORPP affect their companies' costs and operations? Should their businesses throw out their current pen- sion plans, or perhaps change those plans to make them comparable to the ORPP, which would exempt the organizations from par- ticipating in the provincial plan? Answers to some of those questions are straightforward. Others are decidedly not. With respect to the timeline, by 2020, ev- ery worker in Ontario must be enrolled in the ORPP or a comparable workplace plan. Participation in the ORPP involves employees paying 1.9 per cent of their annual earnings up to $90,000, and employers contributing a match- ing amount: 1.9 per cent. The fi rst ORPP contributions are scheduled to begin in 2017, starting with large employers that don't have pension plans. Those organizations and their employees will have to contrib- ute just 0.8 per cent in the fi rst year, but the contribution rates rise each year to 1.9 per cent by 2019. (See "Find out when . . . " above for details.) Throughout 2016, the province will be in sleuth mode assessing current workplace plans to decide whether or not they're com- parable to the ORPP. The government will assess direct-benefi t plans as comparable if they have a minimum accrual rate of 0.5 per cent. Comparable DC plans must have a minimum contribution rate of eight per cent with at least 50 per cent contributed by the employer. Note that comparable DC plans have sig- nifi cantly higher contribution requirements (eight per cent) compared to the ORPP (3.8 per cent). Why? According to an Ontario government backgrounder, DC plans "do not . . . provide people the assurance they will not outlive their savings, and protect them from market volatility. Actuarial analysis has been conducted to place a value on these differences, and determine a con- tribution rate that would be able to reliably deliver the same level of retirement income replacement as the ORPP." Seller is worried that the ORPP system will undermine the work that some compa- nies have already done to create good work- place plans. For instance, many organiza- tions sponsor generous and well-managed DC plans that let employees choose differ- ent contribution levels, "anywhere from one to fi ve per cent or three to fi ve per cent or higher — and the employer matches that. The minute the government says it will ex- empt DC plans with a combined contribu- tion rate of eight per cent and a minimum employer contribution of four per cent, you would knock off a lot of those DC plans that are structured with employee-selected con- tribution levels with an employer match, and which could actually go even higher than eight per cent. You also lose the potential for those plans to be improved over time." Kalinowski notes that some companies might decide to continue with their non- comparable plans as is, rather than scrap them or change them to be comparable. "A plan that might not be considered compa- rable but has a contribution rate up to 14 per cent [in] total is not something you're just going to ditch to save a 1.9-per-cent employer contribution," she says. "And the ORPP benefi t level may not be equivalent to what's available through your plan. It's not necessarily apples to apples." Steele suggests the ORPP could cause some companies to start offering workplace pensions — if an organization feels that it would prefer its own plan to meet specifi c goals or human-resources needs, for in- stance. That would be fi ne. After all, "ulti- mately, the goal of the ORPP is enhancing pension coverage and adequacy," she says. "If that means a company putting in its own great plan, fantastic." IH A plan that might not be considered comparable but has a contribution rate up to 14 per cent [in] total is not something you're just going to ditch to save a 1.9-per-cent employer contribution. STEPHANIE KALINOWSKI, Hicks Morley Hamilton Stewart Storie LLP I n d u s t r y S p o t l i g h t t

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