The debate has been heard over what the final version of the Ontario Retirement Pension Plan, the province's proposed supplemental retirement plan, should resemble, but details on what the pension fund will ultimately look like when it debuts in January 2017 remain undetermined.
And although the deadline for implementation is more than 20 months away, that lack of detail has some observers concerned given the difficulty in creating a public pension fund from scratch.
“It seems like a long way away, but so many things will need to come together, fleshing out details, creating final legislation and then creating a superstructure to implement this,” said Karen Tarbox, senior retirement consultant at Towers Watson & Co., Toronto.
Comments heard during four days of public hearings on the ORPP, held in various locations in Ontario March 23-24 and March 30-31, focused on three broad areas of concern over the pension fund, intended as a supplement to the C$238.8 ($191 billion) Canada Pension Plan, Ottawa: which corporate plan providers will be exempt from contributing to ORPP; which individuals will be exempt; and who will handle plan investments.
Employer exemptions hinge on how the provincial government ultimately will handle the issue of which plans are determined as comparable to the ORPP.
“What is comparability? That's the big question,” said Jana Steele, partner, pension and benefits, at law firm Osler, Hoskin & Harcourt LLP, Toronto, which represents several Ontario pension fund sponsors. Lawmakers “say that companies would be exempt from ORPP if they have comparable plans, but what's the definition? They've said they would consider defined benefit or target benefit plans, but some say, 'Oh no, this also should include DC plans.' Others say there should be no comparable plans.”
Paul Litner, partner and chairman of the pensions and benefits department at Osler Hoskin, added that the comparability issue is “the most critical. … Getting that right will be crucial to the success of ORPP. Based on what our clients have told us, the government will have to really think this through or put at risk 'the third leg of the stool' — private-sector pension plans. If defined benefit plans aren't exempt, it will cost in the long run” through contributions to both corporate DB plans and the ORPP, “and employers will have to integrate what they're providing in their DB plans with the ORPP.”
At issue is whether corporations will have to make mandatory contributions to the ORPP, now pegged at 1.9% of employee pay to match contributions from employees, while also making full contributions to their own corporate retirement plans, whether defined benefit, target benefit or shared risk, or defined contribution.
“This is a very complicated policy issue,” Ms. Steele said. “At the far end, there are those who say everyone should be in ORPP, but at the other end of the spectrum are those who say employers with pension plans should be exempt. When you look at what's a comparable plan, there's DB and target benefit plans, but there are a lot more inputs to that, like those (employers) who say, 'I have a very generous DC plan, why isn't that exempt?' How do you define who's in and who's out? Where this will go is anyone's guess.”
A survey of Ontario corporate plan sponsors conducted in January and February showed that 81% of those with DC plans want to be exempt from the ORPP if their total DC contributions are equal to or greater than the combined 3.8% employer/employee contribution rate of the ORPP. Also, 64% of respondents with DC plans would consider decreasing contributions if DC plans are not exempt.
Also, Towers Watson's Ms. Tarbox added, the self-employed can participate in the CPP because it's a social security fund while the ORPP's status as a multiemployer fund would bar them unless the federal government changed the plan's tax status. However, she added, “That's unlikely given the current political atmosphere today,” with conflicts between the ruling Conservative Party of Canadian Prime Minister Stephen Harper and the Liberal Party, which controls the Ontario government and proposed the ORPP. (The process of creating the ORPP was begun after the Canadian government and provincial ministers failed to agree on expansion of the CPP in 2013.)
Concerning investments and administration, Hugh O'Reilly, president and CEO of OPTrust, recommended in testimony at the March 23 hearing that the ORPP should draw upon the expertise of existing public pension funds in Ontario, including OPTrust, which manages the C$16 billion Ontario Public Service Employees Union Pension Plan, Toronto. “An investment organization need not be established for the ORPP,” Mr. O'Reilly said. “This cost can be avoided through the use of the investment expertise of Ontario's public sector jointly sponsored defined benefit pension plans,” which he said were “global leaders at what they do, both as investors and pension administrators.”
Osler Hoskin's Mr. Litner said such a choice could be beneficial to the ORPP, as would the creation of a crown corporation — a corporation approved by the provincial government specifically to manage pension assets, as is done in Alberta and British Columbia. However, he added, “a lot of money managers would like to be a part of this. Using existing pension funds could be an alternative” to both external management and a crown corporation. “But again, it's very early days. There haven't been discussions on that at all.”
Clancy Zeifman, spokesman for Mitzie Hunter, Ontario associate finance minister and the provincial government's executive in charge of creating ORPP, said the finance ministry is analyzing the feedback received at the hearings on key design questions, “including the issue of comparable plan.”
“We are designing the ORPP to mirror and build on the strength of the CPP,” Mr. Zeifman said. “The entity will have a strong governance structure and investment strategy to ensure that the plan is efficiently managed, accountable, transparent and fair.” He said that the ministery is “leveraging the expertise” of Ontario's public-sector pension plans and financial sector “as we move forward with implementation.”