Submitted by Ian Howcroft, Vice President (
The Ontario Retirement Pension Plan (ORPP) Act received Royal Assent on May 5th despite strong opposition from CME, the Ontario Chamber of Commerce and other business groups. While employers support efforts to increase retirement income security, the current ORPP framework leaves much to be desired.
It boils down to two main issues: for trade exposed industries (like manufacturing), this adds mandatory costs making us less competitive as a jurisdiction in the near term. Secondly, while the ORPP recognizes that employers already offering pension coverage should be exempt, the current definition of what is comparable is very narrow.
By the government’s own estimation, the program will draw $3.5 billion out of the economy – half of which will be borne by business. So in addition to having among the highest electricity rates in North America and significant new regulatory costs (AODA, Cap & Trade), Ontario businesses will pay $1.75 billion towards a new pension program. That’s $1.75 billion that could be invested in training, productivity and innovation, the cornerstones of an advanced manufacturing jurisdiction.
The ORPP framework appropriately allows for the use of “comparable” plans as an alternate to mandatory employer contributions to the ORPP. However, the governments stated “preferred” approach would be that only Defined Benefit (DB) or pooled target benefits plans would qualify as “comparable” to the ORPP. The rationale is that the ORPP provides guaranteed benefits for life, thereby eliminating longevity risk (outliving retirement savings). Therefore, comparable plans should also provide guaranteed benefits for life and eliminate longevity risk. However, the preferred approach fails to capture the vast majority of new private plans that are Defined Contribution – having fixed contribution with variable returns depending on market conditions. Also, many of these plans are very robust, offering a significantly better standard of living in retirement. There is a risk that such robust plans will be wound-down rather than taking on multiple retirement offerings. This outcome would not be in the interest of Ontarians.
DC plans have multiplied in recent years because they allow employers to provide a retirement benefit without the unmanageable risk and costs associated with a defined benefit program. As we saw through the recession, the cost and risk of maintaining defined benefits programs contributed to a number of employers filing for bankruptcy – clearly this was not a desired outcome for any involved. Defined contribution programs offer many benefits that should be given consideration including allowing for inevitable volatility in the market, offering portability for employees who are likely to have multiple employers throughout their lifetime and the potential for a higher standard of living and quality of life in retirement.
While CME continues to support efforts to improve retirement income security, we remain very concerned with the impact that mandatory contributions would have on small and medium sized companies and their employees. We are continuing to press government to fundamentally rethink their approach to retirement income security which starts with rescinding the ORPP and follows with a redoubled incentive based approaches to encourage individuals to save more for retirement. Failing that, government must consider a less prescriptive approach to what constitutes a comparable plan under the Act and implement further offsets in the form of tax credits or reduced regulatory burden.
The broad consultation and public discourse that is taking place on the issue of retirement income security is positive and timely. If we don’t get this right, I am very concerned with the unintended and potentially far reaching consequences to the
We would welcome further input from members on the ORPP consultation framework and we will be providing a submission. Please provide comments to email@example.com.