By Peter Nogalo
The Ontario government has provided welcomed clarity around an issue of chief concern to the province’s business community—not to mention one which has thrusted itself square into the middle of the current federal election.
As a refresher, the proposed Ontario Retirement Pension Plan (ORPP) would establish a provincial retirement fund, much like the CPP, with contributions payable by both the employer and employee. When signaling its initial plans, the government had pledged that workplaces with comparable plans would be exempt from the new ORPP. Comparability, however, was unknown until earlier this week.
As expected, the province announced that most workplaces with defined benefit plans will be exempt from the ORPP. What is news–good news, in fact– is the inclusion of defined contribution (DC) plans in the “comparable” category. Specifically, DC plans with an 8% contribution, half of which must come from the employer. However, group RRSP plans, with or without employer matching, are not considered comparable.
Also announced was the timeline for implementation. Businesses without a comparable plan and with over 500 employees will begin contributing at the beginning of the 2017. Medium sized businesses of 50-499 employees will follow in 2018. Finally, small businesses will have until 2019 before they are part of the plan. Any employers with existing, but not comparable plans, will have until 2020 to make changes or start contributing.
There is an equal cost to employers and employees, with each contributing 1.9% of income. A worker making $45,000 will contribute $855 a year, which will be matched by the employer. This rises to $1710 for both the employee and employer for a worker making $90,000.
While the expansion of comparability guidelines to include DC plans is certainly good news to those employers who contribute to their employees’ retirement in this manner, there will still be a large number of companies that will incur significant additional expenses as a result of the ORPP. Another concern is that firms with RRSP matching plans may jettison them altogether for the ORPP, leaving their employees without this popular and flexible option.
There are still some unanswered questions around the plan, particularly its implementation. In what has become a battle of words between himself and Premier Wynne, Prime Minister Harper has said that if re-elected, a Conservative government would not enact implementing legislation to support a rollout of the ORPP. As with most income tax related matters, the federal government would be required to facilitate collection of ORPP payroll contributions.
While it is noteworthy that the province has listened to business, including MBOT, in expanding comparability, concerns remain around the overall burden programs like the ORPP will have on businesses, particularly when coupled with things such as rising hydro rates and a proposed cap and trade carbon trading system.
Look to this space next month where I will cover some of the main federal election issues facing businesses in Mississauga.
For more information on MBOT’s policy efforts, including becoming a member of the Policy and Government Affairs committee, please contact Peter Nogalo.