By: David Bradley
Recently, Ontario Premier Kathleen Wynne announced some important details on how her government intends to implement her key election promise – introduction of the Ontario Retirement Pension Plan (ORPP) – which it says is designed to address the 3 1/2 million Ontario workers that do not have a secure workplace pension plan and is “both an economic imperative and a moral responsibility.” In the absence of any movement on the Canada Pension Plan (CPP), no doubt Ontario is hoping that other provinces will eventually come on board.
By its very definition, and notwithstanding whatever the social benefit of such a program may be, the ORPP is a payroll tax and as such is of concern to many employers, including employers in the trucking industry, as well as many employees as they too will be required to pay into the plan from their earnings.
So, far the government has not been clear on whether it will attempt to impose the ORPP on federally-regulated employers and employees, although in press releases it says the plan will cover all Ontario employees and those covered by provincial or federal pension plans. It is our view that the province does not have the constitutional jurisdiction to impose the ORPP on federal undertakings.
The plan is to phase-in the ORPP between 2017 and 2020 in four waves, depending on company size and whether it already has a comparable plan in place. Like the CPP, contributions will be shared equally by employers and employees and will reach 1.9 per cent of total earnings (up to $90,000) per employee by 2021 to a maximum of $1,643 per year per employee. Benefits will start to be paid in 2022.
Exemptions will be available for existing defined benefit or defined contribution plans that are deemed “comparable” to the ORPP. A comparable defined contribution plan (the most common form of company pension) must: (1) Have a minimum annual combined contribution rate from the employer and employee of 8 per cent; (2) Require at least 50 per cent (in other words 4 per cent each) matching contributions from the employer and employee; (3) Be locked-in; and (4) Be regulated by existing provincial or federal pension standards.
As with most things, in a large fragmented industry like trucking, the impact of the ORPP on individual companies will vary depending on a number of factors, the most obvious being whether a company already has a comparable pension plan or not.
A recent OTA survey indicates that a majority of employers in the industry do not currently have a registered pension plan. For those that do they are almost exclusively defined contribution plans. Most of those employers match the employees’ contribution 50-50, but few appear to be at the 8 per cent (4 per cent each) needed to be deemed comparable to the ORPP.
None of this should come as a great surprise given the size of the majority of carriers and the low-margin nature of the business. Nor does it suggest that trucking employers don’t care about their employees’ financial health. (I know many employers who are very concerned that some of their employees appear not to be engaged in any sort of retirement saving). While they may not have registered pension plans, a number of companies do offer group RRSPs, for example. Unfortunately, group RRSPs, TFSAs, etc., currently do not qualify as being comparable to the ORPP.
More often than not, the decision on whether to have a pension plan or some other form of group savings plan, whether such plans are mandatory or voluntary, or what the levels of contribution are – or whether the company offers things like a group health benefits program in lieu or instead of a retirement savings scheme – is a direct reflection of the employees’ wishes.
It is recognized that there are many in the industry who simply prefer a more attractive take home pay package to a pension. The ORPP contributions will impact their disposable income. While we hope that everyone is doing some retirement planning, it is a difficult thing to tell someone what they should do with their money.
Nevertheless, it is also true that there are many employees in our sector who are putting money aside in RRSPs and TFSA’s and want to retain the ability to make their own financial planning decisions. They certainly don’t want government making those decisions for them.
As currently envisaged, older employees – especially those close to retirement – will not get the full benefit of the ORPP. The older an employee currently is and the closer to retirement – let’s not forget the trucking industry has one of the country’s oldest and most rapidly aging workforces – he/she will not have been paying into the ORPP long enough to receive the maximum benefit. Is it fair that the person who is a few years away from retirement should be required to pay the full ORPP shot in his/her last few years of working when they will not receive anywhere near the full benefit upon retirement?
We will call for additional flexibility through extension of the phase-in periods, lower minimum contribution levels, acceptance of group RRSPs/TFSAs as comparable to the ORPP, or relief for older workers who will not enjoy the full benefit of the plan. What the government’s appetite for further modification is remains to be seen. It has the mandate and the legislative majority to ensure introduction of the ORPP.
I would urge both employers and employees to start planning and preparing now.