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ORPP: What’s next now that the election is over

With a new federal Liberal government coming into office on November 4, 2015, what does this mean for the Ontario Retirement Pension Plan (ORPP)?  That’s the question on the minds of many employers and workers in Ontario.

As part of its campaign platform, the federal Liberals promised to work with the provinces and territories, workers, employers, and retiree organizations to enhance the Canada Pension Plan (CPP).  Now that they’ve won a majority government, CPP expansion is back on the table.  This could mean higher employer and employee contributions and also higher CPP benefits for retirees.  As a result, it’s possible that the ORPP will be put on hold.  Ontario’s Premier Wynne has always stated that expanding the CPP was her first choice; the ORPP was a response to the federal Conservative party’s refusal to do so.

What can we expect in the coming months?

Justin Trudeau, the prime minister-designate, has committed to begin talks with the provinces on how to improve the CPP within three months of taking office, so it’s likely that a meeting of the federal and provincial finance ministers will be scheduled in the near future.  But don’t expect the CPP to be expanded any time soon.  Consent among at least 2/3rds of the provinces, having in the aggregate at least 2/3rds of the population of all of the provinces, is required before any changes can be made.  It could take years to obtain this level of agreement.

Prior to the election, Premier Wynne suggested that she would be willing to drop the idea of a provincial pension plan if the federal Liberals win.  However, she recently stated that until the federal Liberals make good on their pledge to enhance the CPP, she would continue with her plan for the ORPP.

For the time being, it seems that the Ontario government will stay on course to establish the ORPP by the 2017 deadline.  This will be an easier task now, as we can expect support from the federal government to help implement the plan.

What should employers do?

All Canadian employers should be aware of, and monitor, possible proposed changes to the CPP in order to assess the potential impacts to its organization.  In addition, employers with Ontario employees should continue to review and assess their retirement savings arrangements and determine whether changes should be made, keeping in mind that the ORPP is, for now, required to be in place by January 1, 2017.

For more information on the ORPP and how the proposed plan will work, click here to read our previous postings:

ORPP: What’s next now that the election is over

British Columbia: A guide to B.C.’s new pension legislation for HR professionals

On September 30, 2015, British Columbia’s new Pension Benefits Standards Act (PBSA) and Regulation came into effect.  The PBSA has wide-ranging implications for HR Professionals who oversee BC-registered pension plans and certain non-BC-registered pension plans with BC members. Among other things, all provincially regulated pension plans with BC members must be administered in a manner consistent with the PBSA effective September 30, 2015, including immediate vesting and locking-in for all service and new portability provisions for BC members. Compliance amendments to bring pension plans in-line with the PBSA must be filed with applicable regulators by December 31, 2015.  In addition, administrators of BC-registered pension plans must file a Contribution Schedule with the plan’s fund holder by the end of October, 2015, and prepare written Governance, Funding and Records Retention policies by the end of 2015.  The PBSA authorizes the Superintendent to impose administrative penalties on corporations and individuals for non-compliance and increases financial penalties, to a maximum of $500,000, for offences under the Act.  To read more about these and other requirements of the PBSA and Regulation, please follow this link: A Guide to BC’s new pension legislation for HR Professionals.

British Columbia: A guide to B.C.’s new pension legislation for HR professionals

Employer liability relating to fees in employer-sponsored retirement and savings plans

Employers who sponsor retirement and savings plans for their employees should ensure that the fees paid by their employees within the plans are reasonable and adequately disclosed.  Lawsuits in the U.S., and a recent regulatory undercover investigation in Canada, serve as a reminder of the risk of employer liability regarding fees.  This article will describe the risks for Canadian employers, and suggest a few simple things that can be done to reduce those risks.

What kinds of plans expose employers to the risk of claims over fees?

The kinds of employer-sponsored plans at issue here are workplace plans known as “CAPs”, meaning “capital accumulation plans”.  These are plans that do not promise a defined benefit pension.  Instead, they provide an individual account for each employee, where contributions are made by the employees, the employer, or both.  CAPs sponsored by employers include defined contribution registered pension plans, Group RRSPs (group registered retirement savings plans), deferred profit sharing plans, non-registered savings plans and tax-free savings accounts.

The employer selects a service provider and the line-up of investment funds to be offered in the CAP.  Employees decide which investment funds they want their account balances to be invested in.

It is common for the costs of the plan to be paid by way of fees charged to the investment funds and accounts of the employee members.  It is also common for employers to rely on the service-providers they have hired to describe to their employees what the fees are.

Exactly what are the legal requirements?

The legal obligation of employers regarding fees is not set out in detail in legislation.  For registered pension plans, generally speaking, there are broadly-worded legislative requirements that employers who sponsor defined contribution registered plans act prudently.  There is little detail in pension legislation as to exactly what that means, with respect to fees paid by plan members.

Eleven years ago a significant document was issued by three Canadian regulators who have jurisdiction over various aspects of CAPs.  The 2004 document, known as the “CAP Guidelines,” says that employers should ensure that employees are provided with a description and amount of all fees and expenses that are borne by the members, including investment fund management and operating fees, record keeping fees and fees for services provided by service providers.

The regulators stated in the CAP Guidelines that fees can be disclosed to plan members on an aggregate basis, “provided the nature of the fees, expenses and penalties is disclosed”.  This means that it is not sufficient to refer in broad terms to an approximate amount of total fees that members will be charged for a vague summary of services.  Rather, there should be a description of what kinds of services are being provided for a fee, what kind of a fee is being charged (a flat fee per participant? a percentage of assets?), who is providing the service, and how much those services cost.

Regulators have not stood still on the issue of fees since the 2004 CAP Guidelines were released.  A few weeks ago the Ontario pension benefits regulator issued a draft guidance note for public comment.  The draft states that statements of investment policies and procedures for registered pension plans should include a description of fees, including:  “which expenses and fees will be paid by the employer and which will be borne by plan members; expectations or limits on total plan expenses and fees; and guidelines for monitoring expenses and fees”.  It is likely that this draft guidance note will be issued in final form in the near future.

Secret regulatory probe into investment fees

In an undercover operation, three Canadian investment regulators sent 105 mystery shoppers to a variety of vendors of investment products such as mutual funds.  The operatives posed as potential individual investor clients, and reported their experiences to the Ontario Securities Commission, the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada.  The regulators released their findings on September 17th, 2015.

The results of the investigation were troubling.  Only 25% of the mystery shoppers were told how the vendor of the investment would be compensated.  And only 56% of them were told anything at all about the fees associated with the investment products they were offered.  Where fees were disclosed, more than one-third of the shoppers were given inadequate information about fees.

The investigation uncovered proof that many investment advisors are not properly disclosing fee information to individual investors.  The probe did not examine employer-sponsored retirement and savings group plans.  Nevertheless, the results of the investigation should prompt employers to confirm that their employees are getting appropriate information about the fees they are paying in their workplace retirement and savings plans.

Employers sued in the U.S. over fees

Dozens of lawsuits have been filed in the U.S. against employers in the past few years regarding fees charged to employees in workplace retirement plans.  Allegations included claims that service providers were receiving “revenue sharing” payments, fees were excessive because the plan sponsor had selected actively managed mutual funds as plan investment options when identical, less expensive institutional funds were available, fees were improperly allocated among participants, service providers should not be paid fees based on a percentage of assets, and fees were “hidden”.  Several high-profile cases were settled on the basis that employers agreed to pay amounts to plan members, and to change to the structure and disclosure of fees going forward.

What’s an employer to do?

Review the fees.  Benchmark them against fees charged in other employers’ plans; your service provider should have access to that industry information.  Are they equitably allocated among participants?  Are any service providers getting a percentage of assets when a less expensive, fixed fee is available in the marketplace?

Disclosure, disclosure, disclosure.  Ensure that information about the fees appears prominently in communications to your employees.  Can employees see who gets their money, and what services they receive for their fees?

Statement of Investment Policies and Procedures.  If you have a policy, or governance guideline of some kind relating to your CAP, include a description of the type and amount of fees charged, and how the fees are allocated among the various players (investment managers, record keepers, auditors, consultants, etc.).

Get it in writing.  Ask your service provider, or consultant, to confirm in writing that the fees are reasonable, and properly disclosed.  Ask for that comfort at least annually.

Employers rarely play a role in negotiating and disclosing fees charged to employees in their retirement and savings plans.  Employers usually rely on their service provider to do so.  Given the spate of lawsuits in the U.S., and the results of the recent regulatory undercover operation in Canada, it would be prudent for Canadian employers who sponsor CAPs to periodically review the information provided to members of their CAPS, in order to ensure that fees are reasonable, and that complete information about fees is being provided.

Employer liability relating to fees in employer-sponsored retirement and savings plans

New details about the ORPP

On August 11, 2015, the Ontario government released long-awaited details about the Ontario Retirement Pension Plan (ORPP). Although there are design issues that need to be settled and many unanswered questions on how the ORPP will work, employers with Ontario employees are one step closer to understanding the impact of the ORPP on their businesses.

All Ontario employees age 18 and older (except federally-regulated workers) will be required to participate in either the ORPP or a comparable workplace pension plan by 2020. The timing for enrolment in the ORPP depends on which category an employer falls within:

Wave 1: Employers with 500 or more employees, without a registered pension plan, will be required to participate in the ORPP starting January 1, 2017.

Wave 2: Employers with 50 to 499 employees, without a registered pension plan, will be required to participate in the ORPP starting January 1, 2018.

Wave 3: Employers with 50 or fewer employees, without a registered pension plan, will be required to participate in the ORPP starting January 1, 2019.

Wave 4: Employers with a registered pension plan that is not comparable to the ORPP, or that have Ontario employees who are not members of their “comparable” pension plan, will be required to participate in the ORPP starting January 1, 2020.

Under the ORPP, the required employee and employer contributions will be phased in, depending on the applicable enrolment “wave”. By 2021, all participating employers and employees will be contributing 1.9% each (total 3.8%) of employees’ base salary to the ORPP annually.

Employers and employees that participate in a pension plan that is comparable to the ORPP will be exempt from participating in the ORPP. An employer that currently does not participate in a registered pension plan can establish a comparable plan prior to its scheduled ORPP enrolment date to qualify for exemption. Defined benefit (DB) and defined contribution (DC) plans will be considered comparable if they satisfy certain requirements. A DB plan that provides a minimum benefit accrual rate of at least 0.5% of an employee’s earnings will be comparable, while a DC plan must have annual contributions of at least 8% of an employee’s earnings (with at least 4% employer funded) in order to be comparable. Other group savings arrangements, such as group registered retirement savings plans (RRSPs) and deferred profit sharing plans, will not be considered comparable to the ORPP.

The government has stated that the ORPP Administration Corporation will “contact all Ontario employers in early 2016 in writing to verify their existing pension plans and assess the coverage offered by employers to their employees.”

What’s next:

The Ontario government continues to work on the design details of the ORPP, including developing appropriate comparability tests for other types of registered pension plans, exploring options for the self-employed, developing a buy-back mechanism for employees to purchase past service credits, and examining options to allow all Ontario employers with comparable plans to opt-in and participate in the ORPP. Other plan-specific information, such as the minimum earnings threshold, also must be confirmed. Additional details will need to be released prior to the implementation of the ORPP in 2017.

In the meantime, employers with Ontario employees should review their current retirement savings arrangements and determine whether changes should be made in light of the ORPP. For example, sponsors of non-comparable DC pension plans may want to increase mandatory employee and employer contribution rates in order to be comparable, and group RRSP sponsors may want to consider converting their plan to a DC pension plan given the many similarities of those plans. Before making changes, employers need to decide if participation in the ORPP is desirable for some or all of its Ontario employees and, if so, whether participation will be an alternative, or in addition, to the current workplace pension plan.

New details about the ORPP

Ontario pension plan sponsors: it’s time to look at your SIPPs

Employers that provide registered pension plans to their Ontario employees should review their Statement of Investment Policies and Procedures (“SIPPs”) within the next few months.  New Ontario SIPP requirements are coming into force:  SIPPs will have to be filed with the Ontario pension regulator, and they will have to address new issues described below.

Electronic filing of SIPPs with the Ontario regulator will be mandatory in 2016.  You shouldn’t  assume that your pension service provider will attend to the filing for you.  It’s the legal responsibility of the registered administrator of the plan – usually the employer – to ensure that the SIPP is adopted and filed on time.  For most plans, the filing deadline is March 1st, 2016.

There is no change to the requirement that SIPPs be reviewed and confirmed, or amended, at least annually.  If your company has not yet conducted its 2015 SIPP review, now is the time to become familiar with the new SIPP requirements and address them as part of your 2015 review.  Doing so will avoid having to do another review in early 2016.

Under the new rules SIPPs must state whether environmental, social and governance (“ESG”) factors have been incorporated into the pension plan’s investment policies and procedures and, if so, how those factors were incorporated.  There is no legal or standard definition of  “ESG factors”.  On June 30th the Ontario regulator released draft “Investment Guidance Notes” (here)  which provide background information on the new rules.  Notably, the regulator expects the administrator to “establish and document its own view or understanding on what is meant by ESG factors” and “consider whether or not it will incorporate ESG factors and document the basis for its decision.”  The regulator expects such documentation to appear in meeting minutes or in an “internal memorandum”.

SIPPs for defined contribution (“DC”) registered pension plans will have to contain a significant amount of new information.  The Ontario regulator released a separate draft “Investment Guidance Note” (here) for “Member Directed Defined Contribution Plans”.  It lists eight categories of information that should be included in SIPPs for DC plans, including the requirement to disclose how investments are selected, communicated and monitored.  Most interesting is the proposed requirement that the SIPP specify “the frequency and type of reporting” that the administrator will require from the plan’s service providers.  The regulator provides an example:  the SIPP may have a statement that quarterly reporting will be provided by the record keeper on fund performance, fund allocation, web-site usage, and other service-level statistics.  This level of disclosure regarding monitoring of service providers should cause administrators to take a fresh look at how they govern their DC plans.

The Ontario pension regulator has invited public submissions on both of its draft Investment Guidance Notes.  All feedback will be made public.  Click here for information about how to comment on the drafts.

Ontario pension plan sponsors: it’s time to look at your SIPPs

More news on the ORPP

On December 18th, 2014, the Ontario government released its consultation paper on the new Ontario Retirement Pension Plan (ORPP).

What’s important to note is that the government’s “preferred approach” is to impose the ORPP on Ontario employers who have defined contribution registered pension plans, group RRSPs, PRPPs and DPSPs.  The government plans to exempt employees who participate in comparable workplace pension plans from participating in the ORPP, but proposes to only include defined benefit and target benefit multi-employer pension plans in the definition of “comparable plan”.  However, this could be changed.

Not all workers in Ontario will be affected by the ORPP.  The government has confirmed that Ontario employees who work in federally regulated sectors, such as telecommunications and banking, will not be required to participate.  In addition, employees earning less than $3,500 and the self-employed are proposed to be exempt from participating.

The government is inviting submissions on the consultation paper until February 13, 2015.

For more information on the ORPP, please see our earlier blog postings on December 9, 2014 and July 28, 2014.

More news on the ORPP

Update on the new, mandatory Ontario Retirement Pension Plan

On December 8, 2014, the Ontario government introduced Bill 56: An Act to require the establishment of the Ontario Retirement Pension Plan regarding the establishment of the new, mandatory Ontario Retirement Pension Plan (ORPP) effective January 1, 2017.  Bill 56 provides information about additional ORPP legislation to come.  It also provides details about the administrative entity that will need to be set up to administer the ORPP and the collection of information that’s necessary for the purpose of establishing the ORPP.

The ORPP was introduced in the 2014 Ontario budget as a new “made-in-Ontario” solution to the federal government’s decision to not expand the CPP.  It will be similar to, and build on key features of, the CPP and will be publicly administered at arm’s length from the Ontario government.  Employers and employees who are required to participate in the ORPP would be required to contribute up to 1.9% each (total of 3.8%) on the employee’s earnings, up to a maximum earnings threshold of $90,000. Additional details about proposed features of the ORPP can be found in our earlier blog posting here.

All Ontario employers should be aware of the ORPP and how it might impact their business.

The main concern for most Ontario employers is whether they will be exempt from mandatory participation in the ORPP.  The only information released by the Ontario government so far is that employees who participate in a “comparable workplace pension plan” will be exempt.  It’s unclear what “comparable” means.  The legislation doesn’t tell us exactly what types of retirement savings plans will exempt employers from the ORPP.

We will continue to provide updates on the ORPP as information becomes available.

If you have questions about the ORPP or would like more information, please do not hesitate to contact one of the pensions and benefits experts at Dentons.

For more information from the Ontario government on the ORPP and Bill 56, click here.


Update on the new, mandatory Ontario Retirement Pension Plan

Get ready for the new Ontario Retirement Pension Plan

Now that the 2014-2015 Ontario budget has been passed by the Ontario legislature, Ontario employers should think about how the new Ontario Retirement Pension Plan (ORPP) could affect them.

The ORPP is part of the Ontario government’s solution to help individuals save for retirement. It’s a new “made-in-Ontario” solution to the federal government’s inaction on expanding the CPP. The ORPP will be a defined benefit pension plan, similar to the CPP, that will be publicly administered at arm’s length from the Ontario government.

Mandatory participation in the ORPP is set to begin in 2017, with enrolment occurring in stages starting with the largest employers. Contributions will be split equally between employers and employees, up to 1.9% each (3.8% total) on an employee’s earnings above a yet-to-be-determined minimum threshold and up to a maximum annual earnings threshold of $90,000. The ORPP aims to provide individuals with retirement benefits that replace 15% of the individual’s pre-retirement earnings (up to $90,000).

The question that employers should be asking is simple: Will I have to participate in the ORPP? The answer, however, is not so simple.

The Ontario government has stated that employers with a “comparable workplace pension plan” will be exempt from participating in the ORPP. But what does “comparable” mean? Does it mean a registered defined benefit pension plan? Probably. What about a registered defined contribution pension plan (DCPP)? Maybe. How about a group Registered Retirement Savings Plan (group RRSP) or a Pooled Registered Pension Plan or even a Tax-Free Savings Account? I don’t know.

To date, the government has not offered any details on what would constitute a “comparable” plan.
If the intent is to require employers to help contribute to their employees’ retirement savings, offering a group RRSP where employer contributions are optional may not suffice. It also might not be enough for an employer to provide a DCPP to its employees since the minimum employer contribution in a DCPP is 1% of an employee’s earnings, almost half of the maximum 1.9% required under the ORPP.

Employers need to start thinking about how the ORPP could affect their business. Employers who aren’t exempt will certainly have increased payroll costs. In addition to that fact, an employer offering a comparable pension plan to its employees may want to consider whether to integrate its current plans with the ORPP, to offload some responsibility, costs and future risk. An employer wishing to wind up a registered pension plan and replace it with a group RRSP in order to save costs may want to wait and see if a group RRSP counts as a comparable pension plan before making changes. Until more details about the ORPP are released, any Ontario employer who doesn’t have a defined benefit pension plan should be monitoring this since we can’t be sure how the ORPP will affect them.

If you’d like more information on the ORPP and its impact on your business, contact one of the pension and benefit experts at Dentons.

For more information on the ORPP from the Ontario government, click here.

Get ready for the new Ontario Retirement Pension Plan

Benefits for Employees over Age 65

As of December 2006, the Ontario Human Rights Code was amended to abolish mandatory retirement. However, the provincial government intentionally did not make corresponding revisions to the Employment Standards Act or the Workplace Safety and Insurance Act. As a result, the law prohibits employer-initiated termination of employment because an employee has reached the age of 65. Voluntary retirement remains acceptable and common. However, employees who work past age 65 are not covered for work-related injuries and need not be covered by group benefit plans. The maximum period for which loss of earnings benefits will be paid under the workers’ compensation system is two years after the date of injury if the employee was age 63 or older on the date of injury. While some employers have arranged for benefit plans to cover employees over age 65, given the increased premium costs, this can lead to a decrease in benefit coverage for all employees or other types of trade-offs. In addition, some unionized employers have been required to provide group health benefits to employees over age 65 due to the wording of a collective agreement – typically a benefits clause which describes the benefits for all members of the bargaining unit.

It was foreseeable that this hybrid status of a worker over age 65 – legally protected from mandatory retirement but not legally protected to receive continued benefits – would lead to litigation. Such an employee would face difficulty succeeding with a complaint under the Employment Standards Act, Human Rights Code or Workplace Safety and Insurance Act since these provincial laws all permit this differentiation.

The Human Rights Tribunal of Ontario (HRTO) is currently hearing such a case. The employee is a unionized teacher who is representing himself. His union cannot bring forward a grievance because it has reached an agreement with the school board in exchange for lump sum payments to teachers over age 65. Nor is the union appearing at the HRTO proceedings. So far, there have been a number of Interim Decisions and Case Assessment Directions issued in the case and the teacher has been unsuccessful in alleging unlawful age discrimination. The final argument, which continues to proceed through the HRTO process, is whether the Human Rights Code of Ontario contravenes the equality rights provisions of the Canadian Charter of Rights and Freedoms, a significant legal challenge for a lone, unrepresented employee.

We will be following this important case as it continues to unfold.

Talos v. Grand Erie District School Board, 2013 HRTO 1949; 2014 HRTO 529


Benefits for Employees over Age 65

Fight over reduction of GM retiree benefits not over

General Motors of Canada suffered a blow this summer when an Ontario court held that GM was not entitled to reduce benefits it had promised to its retired workers. The decision can be found here.

GM informed non-union retirees in 2009 that as a cost-cutting measure, GM had to reduce benefits that it had promised to certain retirees while they were employed. The reductions included significantly lower amounts of life insurance, and the elimination of semi-private hospital coverage. The retirees responded with a class action claiming that they were “stunned” by GM’s actions, and that GM’s actions were illegal. GM’s position was that language in employee booklets allowed it to make such changes. GM’s employee booklets had typical language that purported to give GM the right to make changes to all benefits, “at any time”. The Ontario Superior Court of Justice disagreed with GM’s position. The language in GM’s employee booklets wasn’t sufficiently clear, said the Court, to allow GM to impose the unilateral changes on retirees following their retirement. The Court made very helpful comments about exactly what wording in employee booklets may be effective to give an employer the legal right to reduce retiree benefits.

It is common for employers to change employee benefits promised to current, non-union employees. The considerations for terminated or retired employees are very different. The recent GM case confirms the reality that Canadian courts will likely not allow employers to unilaterally change the benefits of non-union retirees, unless the employer has communicated that possibility very clearly to the employees while they were employed.

GM has not given up the fight. It has announced that it will appeal the Court’s decision. Meanwhile, employers would be well-advised to take a look at the wording in their employee booklets and other benefit communications that says benefits can be changed in future. Will that language withstand a court challenge that it isn’t sufficiently broad or clear to allow changes to be made? The answer may lie in the reasons for judgment in the GM case and pending appeal.


Fight over reduction of GM retiree benefits not over