CPP expansion would throw a wrench in pension plans in Ontario

Prime Minister Justin Trudeau with Ontario Premier Kathleen Wynne (Todd Korol/Reuters)
Prime Minister Justin Trudeau with Ontario Premier Kathleen Wynne (Todd Korol/Reuters)
Companies in Ontario may have to backpedal on plans to modify their pension arrangements if the new Ontario Registered Pension Plan, scheduled for 2017, is supplanted by a proposal from the incoming federal Liberals to enhance the Canada Pension Plan.

Premier Kathleen Wynne introduced the ORPP in late 2014, largely as a response to the former prime minister’s refusal to raise pension contributions for businesses. But with Prime Minister Justin Trudeau promising to call meetings with the provincial finance ministers within three months, the ORPP could find itself redundant and outdated — as well as any company plan designed around it.

Stephanie Kalinowski, a pension lawyer and partner at Hicks Morley Hamilton Stewart Storie LLP, says the province has stated clearly that it’s moving ahead with ORPP, and clients have already begun considerations on plan amendments designed to blunt the impact of increased contributions.

Companies with group RSPs, for instance, could move to defined contribution plans where a minimum employee contribution of 4 per cent of salary is matched by the employer. This kind of DC pension plan would meet “comparability standards” under the ORPP and would exempt companies from increased obligations.

“That’s precisely one of the options that we see our clients and employers in general considering,” says Kalinowski. “Is there some tweak that they would like to make to their existing retirement plan design to react or address the fact that there is now this additional government program?”

The Canada Pension Plan, however, includes no such mechanism, so plan amendments designed to circumvent the ORPP may be rendered futile if Ottawa goes ahead with a simple boost to CPP, and the ORPP is scaled back or taken off the table.

The complications become even trickier depending on the company’s labour force. Smaller companies with non-unionized staff may have the freedom to adjust their plans, but the costs of doing so may not be worthwhile. At larger companies with unionized workers, meanwhile, pension benefits are often negotiated and cannot be easily modified — regardless of the type of increased pension benefits on the way.

“If you are unionized,” says Kalinowski, “you need to start thinking now about whether there’s something you can negotiate with your union and put into your collective agreement to help you prepare for this.”

Timing is another issue. CPP expansion will take years of negotiation with the provinces, and ultimately the agreement of two-thirds of provinces representing two-thirds of the population.

The ORPP, meanwhile, is already scheduled for introduction in waves: with large employers beginning contributions in 2017; employers with 50 to 499 employees beginning in 2018; small employers in 2019; and employers with newly modified plans beginning in 2020.

Given the wide variety of companies and employee scenarios, there’s no one-size-fits-all solution to avoiding increased costs under a more generous pension plan. Ontario companies with no pension plan will be forced to contribute more one way or another. Companies with non-unionized employees under a pension plan may want to adjust them for comparability to avoid paying twice into the pension. And those with unionized workers may well have to enter into bargaining.

The key, says Jana Steele, a pension lawyer at Osler, Hoskin and Harcourt LLP, is keeping on top of policy changes as they evolve and understanding what your business needs to do to adapt.

“Every organization, knowing that there’s going to be some change, will need to look at their work force – what programs are in place, what pension benefits are in place, what does their collective agreement say on pension plans, benefit plans, employment contracts – and determine their overall approach to pensions. It’s like a wholesale look at the organization and what their approach is going to be.”