Ontario’s new pension plan gets big federal boost
Ontario has secured its new pension plan by winning Ottawa’s agreement to collect premiums through its CPP setup.
Feb. 16, 2016
By Martin Regg Cohn
Ontario has secured the launch - and long-term future - of its new pension plan by winning support from Ottawa to collect payroll premiums through its existing CPP framework, the Star has learned.
The long-sought agreement bolsters the Ontario Retirement Pension Plan (ORPP) at a critical time - by avoiding costly duplication of services and red tape, streamlining the process for nervous employers and sparing the province massive startup costs.
The two sides reached an understanding over the holiday weekend after months of talks, kicked off shortly after Justin Trudeau’s federal Liberals won the last election. Trudeau had promised to overturn former Conservative prime minister Stephen Harper’s public vow to thwart the provincial pension plan.
Sources say Ontario Finance Minister Charles Sousa will announce Tuesday that he has won support from his federal counterpart, Bill Morneau, to piggyback the ORPP on the foundations of the Canada Pension Plan. After a half-century in operation, the CPP has the data collection and back office setup in place to keep track of Ontario employers and employees, at minimal extra cost (to be reimbursed by the province).
The news comes just ahead of the provincial budget that Sousa is expected to deliver as early as Feb. 25 - far sooner than in recent years and well ahead of a closely-watched federal budget. Despite Trudeau’s mandate from the last federal election to run deficits for the next few years, Sousa will reiterate in a noontime speech Ontario’s intention to stick with its own election commitment to achieve balance by the 2017-18 fiscal year.
Despite the deficit disconnect, the federal-provincial pension deal will remove much of the uncertainty for Queen’s Park and the business sector, given the time lost to Harper’s pre-election antics last year. Amid continuing uncertainty about the fine print of the ORPP, large corporations faced a fast-approaching deadline of next Jan. 1, 2017 - barely 10 months away — to begin collecting premiums under the first stage of a phased implementation.
Now, Ontario’s government has decided to take one step back even while advancing two steps forward: After falling behind because of the federal-provincial spat, Queen’s Park will announce a one-year delay for the first wave of the plan’s implementation, which was originally staged to begin first with large corporations (more than 500 employees) in 2017, followed by medium-sized companies in 2018 and small business in 2019.
At the same time, sources say Ontario has agreed to continue negotiations with Ottawa and other provinces on a nationwide expansion of the CPP, which is saddled with an outdated benefit formula paying a maximum of $13,100 a year - far less than other industrialized nations, including the U.S. The political message, helpful to Ottawa, is that Ontario will be supportive of Trudeau’s campaign promise to win the required backing of most other provinces to enhance the CPP.
It is being sold as a two-track strategy: ORPP and CPP reforms both taking place simultaneously.
But Ontario’s underlying stance - still widely misunderstood - is not to collapse the ORPP into any future CPP expansion that is predestined to be modest, lagging far behind the province’s plan for more robust and targeted payouts. Instead, Queen’s Park is agreeing to co-operate with any provinces that wish to follow its lead, and remains doubtful of any progress on CPP reform given the lack of enthusiasm from many Western provinces at a December meeting of finance ministers.
If there is to be any national consolidation on pension policy, the view is that other provinces will have to catch up to Ontario’s new pension vehicle, rather than expect Canada’s biggest province to do a U-turn. But the one-year delay in collecting ORPP premiums will be described as providing more time for a still-elusive breakthrough on CPP reform.
(Instead of forking over premiums next Jan. 1, large corporations will merely be required to register with the ORPP as of that date, and will only have to remit premiums as of Jan. 1, 2018. Essentially, the government is consolidating the start dates for both large and medium-sized companies, while the phase-in for small businesses with less than 50 employees will continue as planned for 2019.)
Ontario believes it can ease the start-up period for large companies without delaying the firm deadline of Jan. 1, 2020, for the plan to be fully phased in and operational. The 12-month delay in remitting premiums will assuage many in the private sector who had been asking for more time to prepare.
The ORPP was a major plank in Premier Kathleen Wynne’s 2014 provincial election victory, but her majority mandate was flouted by Harper when he vowed to block any legislative recognition of the provincial plan - until his own election defeat. Trudeau’s appointment of Morneau as federal finance minister late last year gave Ontario encouragement because he had previously served on a technical advisory panel for the ORPP, appointed by Wynne in 2014.
Despite the positive political will from the federal Liberals, it has taken months for the two levels of government to align on pension co-operation because of concerns that the legacy CPP administration system was more technologically outdated and fragile than first thought. Ontario’s other ask is to win special legislative status from Parliament to extend ORPP coverage to federally-regulated employees (banking, broadcasting and transportation). Wynne’s government also wants the ORPP to gain tax treatment from the Canada Revenue Agency similar to the CPP, allowing it to provide similar pension coverage for self-employed workers.
But after months of study by federal officials, Morneau shifted Ottawa’s stance from confrontation to negotiation. The federal finance minister seems confident that he can deliver on what appears to be an agreement in principle to let Ontario take advantage of the CPP’s vast database and collection mechanisms, and to instruct the CRA to co-operate with the province.
As for Sousa, he has his work cut out for him in not just rolling out the ORPP, but reining in some of the mythology about the pension plan. Despite a provincial law passed last May stipulating it will be run at “arm’s length” from the government, critics keep seizing on a maladroitly-worded passage in the 2014 budget that they interpreted as a licence to beg, borrow or steal from the ORPP’s assets to fund the pet projects of Liberal politicians, such as road-building or transit expansion.
The offending phrase: “By ... encouraging more Ontarians to save through a proposed new Ontario Retirement Pension Plan, new pools of capital would be available for Ontario-based projects such as building roads, bridges and new transit (my italics).”
In his speech to a business audience Tuesday, Sousa must clear up the confusion about the ORPP serving as a new “pool” of capital for the Ontario government, which opponents and some in the financial press seized on as evidence that provincial Liberals would plunder the fund. In fact, a new ORPP would merely be joining the long lineup among rival pension funds clamouring to invest in reliable, low-risk infrastructure projects across Canada and the world.
A Reuters business story from Ottawa last week reported that the federal Liberals have made precisely such a pitch to inarguably independent Canadian pension funds, encouraging them to consider investing in new government projects. Yet some critics can’t seem to see the difference between courting and compelling stand-alone pension funds to invest in infrastructure.Either way, the legislation for segregation of funds is the law of the land in Ontario. Now, in addition, the ORPP appears to be getting legislation for co-operation from Ottawa.