Quebec Pension Plan (QPP) Changes

Quebec Bill 149 has been introduced to add to the QPP the enhancements announced last year to the Canada Pension Plan. This change to the QPP is designed to coordinate the two public programs as enhancements are introduced in both the CPP and the QPP beginning in 2019.

As in the case of the CPP changes the QPP will increase employer and employee contributions gradually from 2019 until the amount paid by both the employer and the employee will have increased from the current 4.95% to 5.95%. At the same time the cap on earnings (YMPE) will increase in the normal fashion but further details will be needed to determine exactly to what level and in what year the two plans will be in sync.

It is also expected the additional enhancements in the plan benefits announced for the CPP will be duplicated in the QPP.


Ontario Funding Changes to Pension Plans

On May 19, 2017 the Ontario Ministry of Finance issued a news release announcing changes to the funding requirements for registered pension plans.

Although the information release did not provide very much detail, it did signal some potentially significant reduction in solvency funding requirements for Ontario pension plans.

  • Solvency funding will no longer be required if the funding status of the plan is 85% or better.
  • Consolidation of existing past service and deficit funding payment schedules for going concern funding into a single funding schedule.
  • A shortening of the going concern funding schedule from 15 years to 10 years.
  • Introduction of a funding reserve requirement within the going concern funding program to help manage future risk.

The above changes suggest that Ontario will be following some of the same reforms made in Quebec in 2016.

The changes announced by Ontario should result in some important relief in the additional solvency funding that has been generated by the extremely low interest rates in the last several years. It is possible that valuations effective December 31, 2016 may be able to reflect these changes.


ORPP Introduced (Cancelled July 2016)

The Government of Ontario has introduced for first reading on April 14, 2016 Bill 186, an Act to establish the Ontario Retirement Pension Plan ( ORPP ).

The purpose of the ORPP is to “strengthen retirement security for Ontarians”, by requiring all Ontario employers to enroll their employees in the plan and to submit employee contributions and matching employer contributions to a trust fund.

The ORPP is scheduled to begin collecting employee and employer contributions on January 1, 2018. It is possible, although unlikely, an agreement could be forged with the other Provinces of Canada to amend the Canada Pension Plan ( CPP ) before that date and give the Ontario Government a reason to cancel implementation of the ORPP.

N.B. As a result of the introduction of the CPP Changes on June 21, 2016 the Government of Ontario withdrew the ORPP.  The following is of historical interest at this point.


Ontario Employers and Employees

At the present all Ontario employees and consequently their employers will be required to contribute to the ORPP, unless the employees are already participating in a comparable workplace pension plan.

Comparable workplace pension plans are:

(a) A Defined Benefit pension plan with an annual benefit accrual rate of at least 0.5% of the employee’s annual remuneration.

(b) A Defined Contribution pension plan where the mandatory contribution rate is at least 8% of the employee’s annual remuneration and that the employer’s mandatory contribution rate is at least 4% of the employee’s annual remuneration. Voluntary contributions do not qualify in this determination.

(c) A multi-employer plan is a comparable plan if it meets either (a) or (b).

(d) A Pooled Registered Pension Plan ( PRPP ) may be comparable subject to regulations.

Ontario employees will be covered in respect of their employment in Ontario except those persons employed:

(a) under age 18 and age 70 and over,
(b) by the federal government,
(c) as a judge,
(d) as a member of the Senate, House of Commons,
(e) as the Governor General or Lieutenant Governor,
(f) as employees of the office of the person in (d) and (e).

Regulations are being developed to include self-employed persons in the ORPP, but at the present the self-employed are not scheduled to commence contributions to the ORPP as at January 1, 2019, the commencement date for employers with less than 50 employees.

Other persons excluded are:

(a) persons whose income is not included in the Income Tax Act due to a tax treaty with another country,
(b) an Indian as defined in the Indian Act if such person’s income in not included in the Income Tax Act,
(c) persons who apply for and are granted exemption on religious grounds.


Commencement of the ORPP

The ORPP is scheduled to commence operation on January 1, 2018 for Ontario employers with 50 or more employees, defined as medium sized employers in the draft Regulations to Bill 186. Employers with 500 or more employees, defined as large sized employers, will also be required to commence participation on January 1, 2018.

For “small employers”, those with less than 50 employees the contributions to the ORPP commence January 1, 2019.

There is some additional transition time available for employers who have a workplace pension plan. These employers have until January 1, 2020 to make amendments to create a comparable workplace pension plan. Otherwise they and their employees will commence contributing to the ORPP as at January 1, 2020.

Any pensions payable from the ORPP will not commence prior to January 1, 2022.


How

ORPP Contributions

Beginning January 1, 2018 (large and medium employers) and January 1, 2019 (small employers) all Ontario employees will be required to contribute 1.9% of contributory pensionable earnings each year:

• above $3,500 and
• below $90,000

The employer will be required to match these employee contributions.

ORPP Monthly Pension

For each year the employee and employer contribute to the ORPP a pension benefit is earned by the employee equal to 0.375% of the employee’s pensionable earnings for the year to a maximum of $90,000 in 2017 with this latter amount increasing each year thereafter reflecting an average wage increase from year to year.

Example: Employee contributes consistently for 40 years and retires at the normal retirement age of 65. Pension will be:

40 x 0.375 = 15% of pensionable earnings (with adjusts. for changes in wages)

Payment of Pension

A member of the ORPP will be able to retire at age 65 and receive a monthly pension payable for Life with a 10 year guarantee. However, if an employee has a spouse on the day of retirement then the monthly pension must be reduced actuarially and paid as a joint and 60% survivor.

Early and Late Retirement

A member of the ORPP may retire as early as age 60 or as late as age 70. The monthly pension will be adjusted actuarially for commencement of the pension before or after age 65.

Indexation

There are provisions for adjustments of the monthly pension in payment to account for inflation. These adjustments will be influenced by the funded status of the ORPP and its trust fund.

ORPP Administration Corporation

An Administration Corporation is in the process of being formed and which will handle all matters with respect to the operations of the ORPP. It is expected to have a staff of approximately 40 people and will be tasked with all manner of calculations, adjudication and review of actuarial reports. The Administration Corporation will formulate changes and alterations to the ORPP contributions and benefits in accordance with rules laid out in the ORPP act and in consultation with the plan’s designated actuary.

NEWS

December 22, 2016

QPP Consultation Issued – December 21, 2016

The Quebec government has launched a consultation process with respect to the Quebec Pension Plan and opened up the possibility of changes to the QPP that would harmonize, to a...

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October 14, 2016

CPP Change Legislation – Oct. 7, 2016

The B.C. Government completed its review and has now signed onto the CPP Changes.  This officially results in nine Provinces (excludes Quebec for now) accepting the enhancement process for the...

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June 22, 2016

CPP Changes

A tentative agreement has been reached with 8 Provinces to make changes to the Canada Pension Plan beginning with a contribution increase for both employers and employees effective for payrolls...

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June 06, 2016

ORPP Act Passed

Bill 186 passed third reading in the legislature on Monday June 6th. Regulations are expected this summer. The Ontario Retirement Pension Plan continues to dominate the pension plan debate in...

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