Canadian employers generally have made no changes to their retirement plan designs to fund increased contributions to the Canada Pension Plan and Quebec Pension Plan that begin in January, which could mean funding ultimately could come from reductions in staffing or payroll, sources said.
The lack of changes in plan design came as a shock to consultants. "I'm surprised," said Michael Millns, managing director, retirement practice leader, at Willis Towers Watson PLC, Toronto. "As a consultant, I would say that now was the time to take a look at whether your plan is doing what it planned to do. A lot of them already moved from DB to DC 10 years ago. I would have thought (the CPP enhancement) would have been an impetus for change, but it hasn't been."
The enhancement to the C$368.3 billion ($278.7 billion) CPP, Ottawa, which begins at the start of 2019, will gradually increase mandatory employer and employee contributions up to 1 percentage point each by 2025, to as much as 5.95% each from the current 4.95%. The increase will allow benefits to rise to one-third of pensionable earnings from 25% and raise the maximum annual earnings cap to C$82,700 by 2025 from C$54,900.
In Quebec, which is not covered by CPP, the C$72 billion Quebec Pension Plan, Quebec City, will also increase employer and employee contributions starting Jan. 1, but they'll gradually rise to a 6.45% of pay each vs the current 5.45%, because of the higher number of those age 65 and above in Quebec vs. the rest of Canada.
Those incremental increases in CPP and QPP contributions, rather than a large one-time jump, "led plan sponsors to put this on the back burner," added Jason Malone, partner, retirement and investment at Aon PLC, Montreal. "Of 10 priorities they may have, this is ninth or 10th. If you're increasing payroll by 1.5%, am I going to put this in the top 10 priorities? The answer is no. Over the next three or four years, when these contributions start creeping up, there might be more action."