Ontario's proposal for a mandatory provincial defined benefit plan to supplement the Canada Pension Plan is a long way from being put in place.
For starters, the government, which made the proposal in its 2014-"15 Ontario budget plan announced May 1, has to win an election first. Then, assuming the ruling coalition retains power, there are the plan's details to be hammered out, such as tax ramifications, investment policy and governance.
“It's early days,” said Karen Tarbox, senior retirement consultant at Towers Watson & Co., Toronto. “Important details need to be fleshed out. It will be a tough debate moving forward.”
According to the Ontario Finance Ministry's proposal, the Ontario Retirement Pension Plan would supplement pension coverage to 3 million people in Ontario who now rely on the C$201.5 billion (US$182.6 billion) Canada Pension Plan, Ottawa, along with social security and personal savings for retirement.
The ORPP would pool longevity and investment risk, index benefits to inflation similar to the CPP, and require equal employer and employee contributions of up to 1.9% of pay each up to an annual threshold of C$90,000.
The maximum earnings threshold would rise each year, consistent with increases to those of the CPP.
One day after the provincial budget was released, Ontario Premier Kathleen Wynne announced the government would be dissolved and elections held on June 12, fearing her current minority Liberal Party government would lose a confidence vote on the overall budget. The Liberals' coalition partner, the New Democratic Party, said it would vote with the opposition Progressive Conservative party to defeat the budget. Consequently, the budget won't be voted on until after the election next month — and it's possible that with a Liberal Party defeat, the proposed budget could be revamped.
The New Democrats' opposition to the budget, however, does not extend to the supplemental pension plan. “The proposal is in line with NDP support,” Ms. Tarbox said.
Gavin Benjamin, Toronto-based senior consulting actuary at Towers Watson, added that the supplemental plan could be a “positive” for the Liberals' election platform, “but the premise that they will actually be helped is questionable. One of the proposal's aspects is that it's mandatory, which can be attached as a tax to small businesses, and that could increase unemployment.”
The mandatory requirement for participation except for employers that have “comparable” plans is also an issue, Mr. Benjamin said. “If I were an employer, one of the concerns would be: If you don't sponsor a pension plan, what would be the cost (of the supplemental plan)? And if you do have a retirement plan, how will "comparable' be defined? Will that mean you have to have a defined benefit plan, since that's what the supplemental plan is? What if you have a defined contribution plan? ... It'd be unfortunate if this new plan would undermine other retirement plans.”
Also among the issues to be ironed out: who will manage the plan, and how will it be run. “Investment management remains to be seen,” said Ms. Tarbox. “Certainly they have good examples in the province to draw from.” The budget states the province “could leverage” the governance and management expertise of its current public-sector plans, including the C$140.8 billion Ontario Teachers' Pension Plan and the C$65.1 billion Ontario Municipal Employees Retirement System, both of Toronto. It did not elaborate, but in the past OMERS, for one, has indicated its willingness to manage external assets as a third party.
In terms of governance, the proposal states the ORPP would be administered by an external board that would be responsible for managing investments associated with annual contributions of about C$3.5 billion. Ms. Tarbox said this “seems to me like it looks like a new entity will run it.”
The proposed pension fund “could later be integrated with the CPP should negotiations on an enhancement be successful in the future,” according to the budget. Also, other provinces could be invited to join in the Ontario plan. Officials from Prince Edward Island and Manitoba helped in planning for the Ontario proposal, and Alberta, British Columbia, Newfoundland, Nunavut and Northwest Territories are in discussions with Ontario officials about possibly participating in the supplemental plan.
Ontario officials are “hoping that other provinces will rally around this model,” Mr. Benjamin said.
“It forces debate on the issue,” added Ms. Tarbox, saying Ontario began the push for a supplemental pension plan to the CPP as far back as 2008.
The supplemental plan proposal came from a committee formed by the Ontario government after talks in December between provincial finance ministers and the federal government failed to reach agreement on a supplemental plan, spurring Ontario Finance Minister Charles Sousa and Ms. Wynne to pledge to create a provincial plan. n
