June 16, 2014
The Liberal’s Proposed 2014 Budget and its Effect on Employers
Following the election of a Liberal Party majority in the recent Ontario election, Premier Kathleen Wynn has promised to reintroduce the 2014 Liberal Budget (the “Budget”). The Budget contains significant items pertaining to pensions that would affect employers. For instance, the Budget proposes a new, mandatory provincial pension plan called the Ontario Retirement Pension Plan. It also proposes to introduce a legislative framework for pooled registered pension plans and proposes consultation with stakeholders for the creation of Target Benefit Pension Plans.
Ontario Retirement Pension Plan (“ORPP”)
The proposed ORPP would be the first mandatory Provincial pension plan of its scale in Canada. The intent of the ORPP is to supplement the Canada Pension Plan (CPP) and provide participants additional income in retirement. The following features of the ORPP are pertinent to employers:
• It would require employers and employees to equally contribute an additional 1.9% (3.8% combined) of annual earnings (up to $90,000). This could increase employer costs by 1.9%.
• Employers who offer a “comparable pension plan” may be exempt from making ORPP contributions. A “comparable pension plan” is not defined in the Budget, so it is not clear when an employer with a registered pension plan would be exempt.
• The ORPP is expected to be introduced in 2017. Contribution rates would be phased in over two years and enrolment would begin with the largest employers.
Pooled Registered Pension Plans (“PRPP”)
The Budget calls for the introduction of legislation to create Pooled Registered Pension Plans. PRPPs are large scale multi-employer pension plans that are professionally administered and managed by a third party administrator. Unlike traditional pension plans, the third party administrator would assume the fiduciary risk that would normally be assumed by the employer or a board of trustees.
The Budget stipulates that the PRPPs would be “low cost”, voluntary, and that all employees would be automatically enrolled unless they opt out.
At this point in time, it is unclear how the PRPP would interact with the ORPP.
Target Benefit Pension Plans (“TBPP”)
The Budget suggests the development of single employer Target Benefit Pension Plans. Although few details were revealed in the Budget, it suggests that consultations would occur for the development of a TBPP, which would allow employers to combine features of a Defined Benefit (“DB”) pension plan with those of a Defined Contribution pension plan. A key feature of a TBPP would be to permit the administrator to reduce benefits should there be a funding shortfall unlike the requirement for an employer to make up for the shortfall under a traditional DB pension plan.
As can be seen, the Budget contains many items that have the potential of affecting many employers. Depending how they are ultimately implemented, these items may result in cost implications to employers while at the same time reducing risk.
If you have any questions about the implications of the Budget, or any other questions relating to workplace law, please do not hesitate to contact a Mathews Dinsdale lawyer.
For more information on new developments in Workplace Law, please refer to our website at: http://www.mathewsdinsdale.com/news-events/in-a-flash/
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