Canada: Frequently Asked Questions about the Ontario Registered Pension Plan
Canada’s province of Ontario recently released a pension plan for all employees in the province, the Ontario Registered Pension Plan. While details are still being finalized, Asinta’s Canada partner, The Williamson Group – A Cowan Company released a series of frequently asked questions which should help you or your clients. You can read Asinta’s post on the ORPP here. If you have any more questions, please do contact them for assistance with your query.
#1 Why is the benefit accrual rate not the same when comparing ORPP vs DB plan?
The Ontario Government say the ORPP will meet a benefit accrual rate of .375% while private DB plans are expected to deliver a .50% benefit accrual rate to be comparable. The difference between the ORPP prescribed benefit and that for a comparable plan is mainly due to the fact that the ORPP payout is indexed to the cost of living whereas under a comparable plan this requirement does not exist.
#2 Are Federally incorporated firms exempt from ORPP? Does this relate to federally regulated businesses and industries in any way or are the two completely different factors?
Federally-incorporated firms are different from federally-regulated businesses or industries. The 2 main reasons to incorporate a business federally are one, to allow for business across the country and two, to choose the type of incorporation for tax and legal consideration, i.e. sole proprietorship, partnership, etc. For ORPP purposes, the eligibility rules for federally incorporated firms would be the same as for any other companies, i.e. employees reporting to work at an establishment of the employer in Ontario, etc.
Note: Federally-regulated employees (such as those working in telecommunication, banks, inter-provincial transportation, shipping, etc.) do not presently qualify for ORPP but the Ontario government is looking to the federal government to make appropriate amendments to legislation that would allow ORPP to include federally-regulated employees.
#3 What is the definition an Ontario-based employer?
Generally speaking, an Ontario-based employer would be an employer whose main office is based in Ontario. However this notion under the ORPP is mainly used when referring to out-of-province employees working for such an employer but not reporting to any office of the employer outside of Ontario and who get paid from that main office. Otherwise, all other employees working in Ontario are covered by the ORPP with the exception of the exempted groups.
#4 If an Ontario-based employer has numerous branch offices in other provinces (outside Ontario), are all the employees/workers outside Ontario included as Ontario employees? Employees/workers for an Ontario-based employer working outside Ontario are only included as Ontario employees if they are paid from the Ontario-based employer and do not report to work at any establishment of the employer outside of Ontario, i.e. working from home office, sales representatives, etc.
#5 Let’s say an ‘Alberta-based employer’ has people working for it in Ontario, are they exempted from ORPP since these workers could be considered employed in Alberta?
They would be exempted if they don’t report to any establishment of the employer in Ontario and are paid from the Alberta-based employer. Employees working for the Alberta-based employer but reporting to that employer’s branch office within Ontario fall under Ontario’s employment rules and are considered Ontario employees for purposes of the ORPP (and pension plans in general).
#6 Is it true that the ORPP’s 3.8% contribution (by employer/employee) is based on salary, overtime and bonuses while the RPP contribution (8%, with at least 50% from the employer) is calculated only on the base salary? If so, considering employees making hourly wages, are RPP contributions only calculated on the based wages earned? Extra financial incentives, overtime etc are not included – correct?
That is correct. The ORPP contribution is based on pensionable earnings, whereas the contribution rate for a comparable RPP would be based on basic salary.
#7 Can an employer contribute 6% to an RPP, allowing the employees to only contribute 2% and still qualify as a comparable plan?
Yes, the minimum from the employer is 50% of the required combined minimum of 8%, i.e. minimum 4% employer, etc.
#8 Will ORPP contributions create a pension adjustment (i.e. reduce RSP contribution room) similar to contributions made to an RPP?
Yes, ORPP contributions will be accounted for pension adjustment calculation reducing RSP contribution room for the following taxation year.