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A Quick Guide to the Taxation of Retiring Allowances

When an employee’s employment is terminated without cause, the employee will typically receive some form of a termination/severance payment. All or part of this termination/severance payment may be considered a “retiring allowance” under the Income Tax Act, providing the employee with additional options in respect of the allocation of the payment.

Whether a payment qualifies as a “retiring allowance” will depend on the reason for the payment. Under the Income Tax Act, a retiring allowance is an amount paid to an employee on or after the date his or her employment terminates for the purpose of recognizing long service, or for the loss of employment. As a result of the definition of “retiring allowance”, a payment made pursuant to the applicable employment standards legislation may or may not qualify as a retiring allowance, depending on the circumstances.

Employees with service prior to 1996 may be able to take advantage of preferential tax treatment by transferring part of their retiring allowance to a registered retirement savings plan (RRSP) or registered pension plan (RPP) regardless of their “contribution room”, up to certain limits.

The portion that can be transferred directly to a RRSP or RPP regardless of the contribution room is commonly referred to as the ‘eligible portion’ of the retiring allowance.

Here is how to calculate the eligible portion of a retiring allowance:

  • $2,000 for each year or part of a year of service before 1996 that the employee or former employee worked for the employer (or a person related to the employer); plus
  • $1,500 for each year or part of a year of service prior to 1989 of that employment in which none of the employer’s contributions to a RPP or deferred profit sharing plan were vested in the employee’s name when the employer paid the retiring allowance.

Eligible portion of a retiring allowance:

The eligible portion of a retiring allowance must be transferred directly into the employee’s RRSP or RPP on a tax-free basis. It is not determined by, nor does it affect, the employee’s regular RRSP contribution room. The direct transfer of the retiring allowance to an RPP may result in a pension adjustment (PA) that will affect the employee’s RRSP deduction limit in subsequent years. Note that an employee cannot transfer any part of an eligible retiring allowance directly to a spousal or common-law partner RRSP.

Ineligible portion of a retiring allowance:

The non-eligible portion of a retiring allowance (i.e. amounts over and above the eligible portion) may also be transferred directly into the employee’s RRSP, or a spousal or common-law partner’s RRSP, if the employee has the available RRSP contribution room. If the transfer is made directly to the RRSP, tax need not be withheld.

Things to keep in mind:

  • Contributions to an employee’s RRSP can only be made until the end of the year in which he or she turns age 71.
  • Employers contributing remuneration directly to an employee’s RRSP on his or her behalf should have reasonable grounds to believe that the employee has sufficient RRSP contribution room and can deduct the contribution for the year.

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A Quick Guide to the Taxation of Retiring Allowances

Ontario Retirement Pension Plan: a guide

Media coverage about the Ontario Retirement Pension Plan (ORPP) has been unrelenting for the past two years. The Ontario government has made many announcements setting out its vision for its new, government-run defined benefit pension plan for Ontario employees which will be similar to the Canada Pension Plan (CPP).

Are you finding it hard to keep track? Here is an up-to-date guide. More details are in the articles listed at the end of this guide.

When is the ORPP coming into effect?

The Ontario government recently changed the effective dates. It’s likely that the following schedule is final.

Employers who had an active registered pension plan on August 11, 2015, are exempt until January 1, 2020. It doesn’t matter if their existing plan does not currently qualify as “comparable” under the ORPP rules. It doesn’t matter if their existing pension plan doesn’t apply to all of their employees. All of those lucky employers have until January 1, 2020 to decide how to react to the ORPP.

All other employers of Ontario workers will be required to start making contributions to the ORPP on the following dates, unless they adopt a “comparable” registered pension plan:

  • January 1, 2018 if more than 50 employees; and
  • January 1, 2019 if 50 or fewer employees.

What types of pension plans will qualify as “comparable”? 

The Ontario government has not budged from its position that group registered retirement savings plans do not qualify as “comparable”. It is now certain that Ontario employers who offer only a Group RRSP, deferred profit sharing plan or other type of non-pension savings plan, will have to either change their plans, or join the ORPP.

See the links at the end of this guide for details of what registered pension plans do qualify as “comparable.” Beware: this is not a simple, blanket exemption. Every registered pension plan will have to be closely examined to ensure that it perfectly complies with the details of what the Ontario government deems to be “comparable”. Does your registered pension plan have a waiting period for plan entry or service caps? Are there classes of employees who are not required to join your plan (e.g. certain fixed-term, contract, call-in or other classes of permitted excluded employees)? If the answer is yes, not all of your employees will be members of a “comparable” plan for ORPP purposes. Those employees will need to join the ORPP, while your other employees will not.

The ORPP Administration Corporation will soon start communicating with employers to confirm their enrolment date in the ORPP, and to verify which employers have “comparable” plans and are therefore exempt.

Is the ORPP now law?                        

Yes. In 2015 a very brief piece of legislation was adopted without many specifics. On April 14, 2016 the Ontario government released Bill 186, the Ontario Retirement Pension Plan Act (Strengthening Retirement Security for Ontarians), 2016. It is 50 pages of legislative details about the new regime. More details have been promised in regulations that will be released in the summer of 2016.

Will it go away if the Canada Pension Plan is enhanced?

Don’t count on it. Federal, provincial and territorial finance ministers will be meeting in June of 2016 to discuss possible changes to the CPP. It’s a long and uncertain political road to get to an enhanced CPP. It may never happen. Meanwhile, the Premier of Ontario has repeatedly said that the Ontario government is pressing ahead with the ORPP.

What’s new?                                    

The recent introduction of Bill 186 in the Ontario Legislature (on April 14, 2016), with all of its detailed rules about the ORPP, is exciting for lawyers. Details in the Bill include a regime for enforcement, guidelines for the collection of personal information, unsurprising points about the treatment of pensions earned under the ORPP on marriage breakdown, death, and so on. Many of these details are not new, so the Bill is less exciting for employers.

One interesting new detail in the Bill applies to directors of corporations. If they receive a “stipend or remuneration” for their service as a director, they will be subject to the ORPP unless an exemption applies.

Want more information?

Contact any member of the Dentons Canada pension group, or click on the following links:

 

 

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Ontario Retirement Pension Plan: a guide

Out with the Old, In with the New: What’s New with the Ontario Pension Regulator

FSCO reminds administrators about their roles and responsibilities

On January 25, 2016, the Financial Services Commission of Ontario (“FSCO”) issued a new policy that describes the roles and responsibilities of administrators of registered pension plans (policy A300-101). It replaces aging policies which were published in 1990 and 1992 (policies A300-100 and A300-150). Things have not changed drastically in the last two and a half decades. In fact, much of the new policy echoes the old. Some of the new elements in the policy refer to recent legislative and regulatory changes. In summary:

  • FSCO emphasizes the key responsibilities of pension plan administrators to comply with the federal investment regulations and the new requirements regarding environmental, social and governance factors with respect to the Statement of Investment Policies and Procedures.
  • Regulatory filings must be made electronically through the Pension Services Portal, including requests for an extension of a filing deadline.
  • As of January 1, 2015, administrators must provide statements of pension benefits to former members and retired members every two years.
  • The administrator is responsible for addressing inquiries and complaints from plan beneficiaries, or delegating the task to an agent if the administrator does not have the necessary knowledge.
  • FSCO emphasizes that the administrator must monitor and review delegated activities and that certain duties cannot be delegated. More information can be found in CAPSA Guideline No. 6.
  • The conflicts of interest section of the new policy has been expanded to reference CAPSA Guideline No. 4, while another section of the policy expounds on the “prudent person rule” as the fiduciary standard that applies to administrators.
  • Finally, the new policy sets out the need for prudent record-keeping practices, making reference to the relevant FSCO policy, and the administrator’s duty to make certain records available for inspection.

Ontario plan administrators will pay more to the regulator

On February 10, 2016, FSCO published its 2015-2016 preliminary pension assessment for the entire pension sector, and issued pension assessment invoices for all Ontario-registered pension plans. Primarily, these invoices set out the amount that must be paid for the year by each pension plan administrator to cover all estimated expenses and expenditures incurred by FSCO for the pension sector, along with a per member cost for their own plan.

This assessment is, however, simply an estimate of FSCO’s expenses and expenditures for this fiscal year. The actual cost will only be known by March of 2017. At that point, next year’s preliminary assessment will have been issued absorbing this year’s over or undervaluation of the actual cost of FSCO’s expenses.

The 2014-2015 total pension assessment for Ontario was approximately $15 million. The current (2015-2016) preliminary pension assessment is slightly higher.

New FSCO form for joint & survivor pension waiver

FSCO has issued a new Form 8 to be used by a former spouse to waive his/her right to a survivor benefit on the death of a retired member in the case of a marriage breakdown. It is essential that plan administrators use this new form.

Do not hesitate to contact any member of the Dentons Pension Group if you have any questions.

Out with the Old, In with the New: What’s New with the Ontario Pension Regulator

ORPP Update: Enrollment and Phase-in of Contributions Delayed

The Ontario and federal governments announced on February 16, 2016 that they have reached an agreement regarding the Ontario Retirement Pension Plan (ORPP) and improving pensions for Canadians.  With contributions originally set to begin next year, the Ontario government now proposes to phase-in the launch of the ORPP by starting enrollment in January 2017 and commencing collection of contributions in January 2018.

How will this affect businesses?

If applicable, the delay will give businesses more time to enroll in the ORPP, something that many organizations have been asking for.  Large employers who would have been required to start making contributions to the ORPP on January 1, 2017 will now have one additional year to prepare for the ORPP and consider whether changes should be made to their existing retirement and savings programs.

There was no mention of delaying enrollment or contributions for small and medium-sized employers in the Ontario government’s announcement. Based on the current enrollment schedule, small and medium-sized employers without a registered workplace pension plan will be required to contribute to the ORPP starting January 1, 2019 and January 1, 2018 respectively.

CPP enhancements and next steps

The delay will also provide more time for the federal government and other provinces to discuss and develop options for enhancing the Canada Pension Plan (CPP).  If provincial agreement on CPP enhancement is not reached, the Ontario government is committed to moving forward with the ORPP.  The federal government acknowledges this and has agreed to facilitate plan registration and data sharing agreements and help ensure that contributions are collected efficiently and cost-effectively.

To read the government bulletin on the announcement, click here.

ORPP Update: Enrollment and Phase-in of Contributions Delayed

ORPP: Additional Design Details Released

On January 26, 2016, additional design details of the Ontario Retirement Pension Plan (ORPP) were released by the Ontario government.  The government reconfirmed its commitment to implement the ORPP beginning January 1, 2017, ensuring that by 2020, every eligible employee in Ontario will be part of the ORPP or a comparable workplace pension plan.

The following is a summary of the additional design details.  Stay tuned for further postings which will put the details into context and discuss the implications for employers.

What employers should know: 

  • Contributions: ORPP contributions will be based on an employee’s pensionable earnings between $3,500 and $90,000, and will include cash and non-cash earnings and amounts beyond base salary such as bonuses and commissions.   
  • Definition of employment in Ontario: A person will be considered employed in Ontario for ORPP membership purposes if he or she:
    • is required to report to work at an establishment of the employer in Ontario, or
    • is not required to report to work at an employer’s Ontario establishment but is paid by the employing establishment in Ontario.
  • Comparability test:  Employers and employees in Ontario will be required to participate in the ORPP unless they participate in a comparable pension plan, subject to certain exceptions.  For information on the comparability tests, please see our August 12, 2015 posting.  The government has since released the following additional details relating to the comparability test:
    • Subset level: For pension plans with more than one group of employees (e.g. full- and part-time, union and non-union, etc.) and different benefit formulas for groups or “subsets” of employees, the comparability test will apply at the group or “subset” level.
    • Voluntary contributions: Voluntary contributions to a defined contribution pension plan will not be taken into account when determining if the plan is comparable to the ORPP.  Contributions to a defined contribution pension plan must be mandatory in order for them to be included in the comparability test.
    • Multi-Employer Pension Plans (MEPPs): The comparability test for a MEPP will be applied separately for each participating employer based on the employer’s collective bargaining agreements or employee agreements at the subset level, as defined by plan governing documents.  Employers will have the option to assess comparability using the defined benefit accrual or defined contribution rate threshold.
  • Waiting periods: Employees waiting to join their employer’s comparable pension plan will be required to participate in the ORPP during the waiting period.
  • Employer opt-in: Employers with a “comparable workplace pension plan” can opt-in to the ORPP on or after January 1, 2020.
  • Non-resident workers: Non-resident workers (for tax purposes) earning income over $3,500 that is subject to Canadian and Ontario income tax will be included in the ORPP.  However, if a non-resident worker is exempt from tax under an applicable tax treaty between Canada and another country, they will be exempt from participating in the ORPP.
  • Other workers: Individuals in receipt of ORPP benefits may opt-in to the ORPP if they return to eligible employment.  There will also be religious exemptions for certain workers, similar to the Canada Pension Plan (CPP).

ORPP benefits for employees:

  • Benefit formula: ORPP benefits will accrue at a rate of 0.375% of annual earnings per year and will be calculated using members’ average earnings over their career.  The ORPP is designed to provide a 15% income replacement rate to members who participate for over 40 years.
  • Payment of benefits: The ORPP will begin paying benefits starting in 2022.  Members will be eligible for retirement under the ORPP as early as age 60, and may postpone retirement until age 71.
  • Indexation: Benefits will be indexed according to average growth of wages and salaries as outlined by Statistics Canada pre-retirement, and indexed according to the Consumer Price Index post-retirement.
  • Pre-retirement survivor benefits: If a member dies before retirement, a lump sum based on the actuarial equivalent value of his/her pension will be paid to an eligible spouse, the member’s beneficiary or estate.
  • Post-retirement survivor benefits: If a member dies after retirement with an eligible spouse, the spouse will receive a survivor benefit equal to 60% of the member’s actuarially adjusted pension.  If the spouse waives his or her right to a survivor pension prior to the member’s retirement, or the member retires without an eligible spouse, the member would receive his or her full retirement pension with a 10-year guarantee period.  If the member dies within that guarantee period, the remaining value of his/her full retirement pension will be paid to his/her spouse, beneficiary or estate as an actuarially equivalent lump sum.

Other details:

  • Plan sustainability: A funding policy has been established for the ORPP to ensure that the plan is sustainable over the long-term.  In addition, the government will establish an Office of the Chief Actuary to conduct triennial valuations of the ORPP and to provide advice and analysis.
  • Plan review and changes: The ORPP will be reviewed five years after its full implementation and subsequent reviews will occur every ten years.  Fundamental changes to the ORPP that would substantially impact member benefits and are not resulting from funding policy adjustments would require the consent of at least 60% of ORPP members.

The Ontario government will set out these and other details about the ORPP in forthcoming legislation.

To read the Ontario government’s technical bulletin regarding these details, click here.  To read our previous ORPP postings, click the links below:

ORPP: Additional Design Details Released

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