On May 1, 2014, Ontario’s Liberal Government released its 2014 Budget (the “Budget”). Given that an election was called in Ontario for June 12, depending on the election results, the Budget proposals might never come to fruition. The Budget’s proposed pension initiatives included:
- the introduction of an Ontario Retirement Pension Plan (“ORPP”);
- the introduction of an Ontario Pooled Registered Pension Plan (“Ontario PRPP”);
- new rules applicable to certain defined benefit plans; and
- consultations for target benefit plans and self-directed retirement savings
ONTARIO RETIREMENT PENSION PLAN
The Budget proposed to launch the ORPP in 2017, beginning with enrolment of the largest employers. This initiative resulted from the fact that the Ontario government disagreed with the conclusion of the Federal government not to expand the Canada Pension Plan, and would include the following features:
- this plan would be very similar to the CPP and would be publicly administered, at arm’s length from the government;
- all Ontario workers would participate, except that those already participating in a comparable workplace pension plan would not be required to enrol in the ORPP;
- benefits would be calculated based on an intended replacement rate of 15% of an individual’s earnings, to a maximum annual earnings threshold of $90,000 (increased yearly consistent with CPP maximum earnings threshold increases);
- contributions would be determined to fully fund the new benefits, shared equally between employers and employees, not exceeding 1.9% of earnings each, to the maximum annual earnings threshold, but earnings below a certain threshold would be exempt from contributions (possibly different from the $3,500 exemption under the CPP);
- contribution rates would be phased in over two years;
- annual contributions would be estimated to total approximately $3.5 billion;
- the advantages of this new plan would include benefit predictability by pooling longevity and investment risk, low administration cost, and inflation indexing; it would also be possible in the future to extend this plan to other provinces or combine it with the CPP.
ONTARIO POOLED REGISTERED PENSION PLAN
Another planned pension initiative was the Ontario PRPP, intended to be launched with draft legislation in the fall of 2014. This initiative resulted from the recent consultation, and would include the following features:
- voluntary participation and contributions by employers;
- automatic enrolment of employees where an employer offers an Ontario PRPP, unless an employee chose to opt out within a specified period; and
- low cost administration.
DEFINED BENEFIT PLANS
The three key initiatives relating to defined benefit plans announced in the Budget were (1) reform of certain funding rules, (2) facilitating conversions to jointly sponsored pension plans and (3) enabling asset pooling for broader public sector plans.
The planned reforms to funding rules would include regulations that define the funding level for, and duration of, contribution holidays. Proposed new regulations would set parameters for accelerated funding of benefit improvements in underfunded pension plans. The government also planned to review the current exemption for specified multi‑employer pension plans and jointly sponsored pension plans (“JSPPs”) not subject to solvency funding requirements from the “solvency concerns” test. In the meantime, the current exemption for specified MEPPs and JSPPs would continue to December 31, 2017.
Further to a previously stated intention in Ontario’s 2013 budget, the government planned to introduce amendments to the Pension Benefits Act to prescribe the requirements related to the transfer of assets from single-employer pension plans to JSPPs. Amendments would require:
- notice to all plan beneficiaries and trade unions in advance of conversion;
- consent of plan beneficiaries prior to the plan conversion;
- approval of the Superintendent of Financial Services for the conversion; and
- upon conversion, that the same pension be provided to retirees and the equivalent value be provided to current employees.
Also as previously announced, as a result of consultations, the government intended to introduce legislation in the spring of 2015 to establish an asset pooling entity operating at arm’s length from the government. Participation of pension plans and qualified organizations would be voluntary; however the government identified the Workplace Safety and Insurance Board and the Ontario Pension Board as “well placed” to be initial participants.
TARGET BENEFIT PLANS
The government planned to engage in consultation with a view to establishing the eligibility conditions, funding rules and governance requirements, for multiple (and, subsequently, single) employer target benefit plans.
SELF-DIRECTED RETIREMENT SAVINGS
The government intended to appoint an expert committee to develop recommendations for the financial planning industry concerning reliance on financial advisors for savings and investment decisions.