Pensions and Nonprofits

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Nonprofit Sector Pension Plan

We know that Ontario’s nonprofit workers are having a hard time saving enough for retirement in the context of a tough economy and the disappearance of workplace pension plans. The Ontario government has acknowledged the retirement savings challenge faced by many workers and will help to fill the gap with the new Ontario Retirement Pension Plan (ORPP) starting Jan. 1, 2018 (Jan. 1, 2019 for workplaces under 50 employees). But with the ORPP replacing only 15% of a worker’s income after 40 years of contributing, many nonprofit workers without a workplace pension could still experience a significant drop in their standard of living when they retire.

[Note: the June 20 CPP enhancement deal will mean the ORPP is cancelled, but the new CPP benefit level will provide about 33% of your earnings (up to a threshold of $63K in 2016 dollars) as a retirement benefit – as compared to the 40% that the combined CPP + ORPP would have provided (up to a threshold), and this level will not be reached right away.]

Why a sector-wide plan?

Some people think they can manage with RRSPs, or a Group RRSP, but two-thirds of Canadians aged 45-64 have less than $50,000 invested in these vehicles–hardly enough to retire on! What’s more, the mutual funds in our RRSPs have management fees that average five times as much as those for pension plans! The high cost of mutual funds means that, according to a recent study, “the average mutual fund investor will have to work until age 72 to accumulate the same amount as the pension plan holder had by age 65.” *  We also know that managing a workplace plan is more than most nonprofits can manage on their own in terms of time and financial risk.

ONN’s pensions task force is exploring the feasibility of a multi-employer pension plan for Ontario’s nonprofit and charitable sector. We aim for this plan to be affordable for workers and nonprofits, to share risks carefully, to provide adequate benefits, and to be easy to administer.

UPDATE

June 22, 2016: Ontario Retirement Pension Plan (ORPP) officially on ice in the wake of national agreement to enhance the Canada Pension Plan (CPP)

The federal and provincial governments (all but Quebec and Manitoba) have reached a deal on CPP enhancement. The press release can be found here.

This CPP agreement will result in a more modest increase in retirement benefits than the ORPP would have provided, but it represents an overall improvement for the retirement income security of Canadian workers.

Ontario Finance Minister Charles Sousa and Associate Minister for the ORPP Indira Naidoo-Harris have issued a statement and Premier Kathleen Wynne has officially announced that the ORPP will be cancelled. The CPP deal is an agreement in principle, so there are details to be worked out (including the exact timeline for premium and benefit increases).

ONN will monitor these developments and our pensions task force will adjust its work to take into account the new policy context. The more modest CPP enhancement (compared to ORPP) means that there may be even greater scope and need for a low-cost, efficient sector-wide pension plan.

Nonprofits and pensions: What’s the way forward?

Ontario workers are having a hard time saving enough for retirement in the context of a tough economy and the disappearance of workplace pension plans. This is especially true for those in precarious employment, working on a casual, short-term or part-time basis.

ONN is exploring the feasibility of developing a sector-wide pension plan, whether stand-alone or building on an existing multi-employer pension plan. The task force will be asked to examine options for a sector plan and listen to our network partners on what would be a good fit for the sector. We’ll share more on the way forward as we explore these options.

Why is the ONN exploring a sector-wide plan if the ORPP is being introduced? The short answer is: the ORPP is necessary, but not sufficient. The ORPP aims to replace 15% of a worker’s pre-retirement income based on steady contributions for 40 years. Even with other public programs (like Canada Pension Plan and Old Age Security), a worker with no workplace pension plan could still experience poverty and/or a significant drop in income after they retire, especially if their participation in the labour force has been part-time, seasonal, or intermittent. And we know that almost half of workers in the nonprofit sector are working on part-time, casual, or short-term contracts. Read more in our report Shaping the Future: Leadership in Ontario’s Nonprofit Labour Force (page 15).

A decade or two of stringing together contracts, part-time jobs, and the odd spell of unemployment—which is particularly common for the millennial generation—will significantly lower a worker’s ORPP benefits upon retirement because they will not have been contributing regularly. Meanwhile, as the ORPP matures, a generation of workers will draw smaller benefits after retiring in 10, 20, or 30 years because they will not have paid into the ORPP long enough to receive what will eventually become the maximum benefit after 40 years of contributions.

ONN’s task force will explore options for a sector-wide pension plan that would close more of these gaps, help nonprofit employers attract and retain the leaders with skill sets needed now for the sector, and support the nonprofit sector’s decent work movement.

Timing is everything: the ORPP (and the Canada Pension Plan debate federally) has put pension issues at the top of mind for government and the public. Having talked about the need for better pensions in the nonprofit sector for years, we’re hearing from the network that the time is right to take action. Not all nonprofits will be willing or able to join us right away in our journey towards a sector-wide pension plan, but we will start with a “coalition of the willing” and watch it grow.

While we wait to hear more details about CPP enhancement, ONN will be working to support our Task Force on Pensions in the Nonprofit Sector. Stay tuned as we post updates on what the Task Force has to say about the feasibility of a sector-wide pension plan. We’ll make sure the Task Force considers all the options, including reaching out to existing multi-employer pension plans, such as those in the broader public sector (OMERS, HOOPP, or Teachers’) and the Multi-Sector Pension Plan (serving nonprofit workers organized by CUPE and SEIU), to determine whether one of them might be a good fit.

Watch our Sector Financing page for updates on the broader Funding Reform process that aims to deal with underlying funding issues that affect our sector’s ability to offer competitive compensation to our workers. We’re advancing this agenda with government partners and will look for opportunities to discuss with other funders, too.


A task force on nonprofit pensions

The Ontario Nonprofit Network announced this spring that it would establish a Pensions Task Force to develop recommendations in two main areas:

1. A recommended option for a sector-wide pension plan, based on factors such as:

  • the costs and benefits for nonprofit employers and employees,
  • potential governance features,
  • ease of administration for nonprofits,
  • phase-in provisions, and
  • adaptability to suit the diverse needs of the sector.

Options include existing pension plans available to Ontario nonprofits (Multi-Sector Pension Plan, OMERS, HOOPP, etc.) as well as several models from other jurisdictions (notably Quebec’s Régime de retraite des groupes communautaires et de femmes), upon which a new plan may be modelled.

2. Implementation issues as the ORPP is rolled out in the sector, including:

  • identifying and addressing gaps in labour market information (especially data on compensation and workplace pension plans) for the sector,
  • meeting the need for financial literacy on pensions in and through the sector, including boards of directors, staff, and clients,
  • building increased staffing costs into discussions with funders, and
  • transition issues facing nonprofits with existing retirement benefit plans that do not qualify them for ORPP exemption (e.g., Group RRSPs, defined-contribution pension plans below the government’s stated threshold).

Read the ONN Pensions Task Force Terms of Reference.

ONN has recruited eight participants for its task force. These participants have agreed to develop recommendations on its dual mandate, supported by the ONN staff and network. The members include:

Rich Bailey

  • Retired CEO of YMCA Canada

Dr. Isla Carmichael

  • Retired pensions consultant, current member of Canada Post Pension Plan Investment Advisory Committee (union-appointed).
  • PhD from OISE (dissertation on worker control of pension funds and social investment)

Jennifer Closs

  • Team Leader, DeafBlind Ontario Services (Simcoe County)

Iris Fabbro

  • Executive Director, North York Women’s Centre (Toronto)

Michael Kainer

  • Retired lawyer, now a documentary film maker, who assisted in the negotiation of the Multi-Sector Pension Plan terms for CUPE/SEIU.

Richard Shillington

  • Social policy consultant, Tristat Resources

Several members of the Pensions Task Force met informally in October 2015 when ONN invited Michel Lizée, a spokesperson for Quebec’s Régime de Retraite, to present at its annual conference. The members of the Pensions Task Force met privately with M. Lizée to discuss how the Quebec plan was developed and how it could be a model for the Ontario sector.

The Task Force’s first official meeting will take place on November 25, 2015, at which time they will have an opportunity to select a chair, confirm their terms of reference, establish a workplan, and begin deliberations.

ONN is in the process of securing resources to support the policy research and actuarial estimates needed to underpin the Pensions Task Force’s recommendations, which will be costed and presented with a roadmap for implementation. ONN submitted a letter of interest for this work, to be undertaken in 2016, to Atkinson Foundation’s Decent Work Fund and was recently invited to submit a full proposal.

ONN is monitoring pension policy and regulatory developments to ensure that the Task Force’s recommendations are aligned with the implementation of the ORPP and the broader pension regulatory climate. In September, ONN provided a submission to the Ontario Ministry of Finance for its consultation on the development of a regulatory framework for target-benefit multi-employer pension plans.


The "other" pension bill

The ORPP’s companion piece, Bill 57, creates a legal framework for Pooled Registered Pension Plans (PRPP). It has received Royal Assent. PRPPs are a type of pension plan for employees and the self-employed that lowers fees by pooling the assets in members’ accounts, administered by a bank or insurance company, to get lower investment and administration costs. A worker can stay in a plan when they change jobs, but these plans don’t pool longevity risk or investment risk in the way that the CPP/ORPP does. So there are no guarantees as to how much income you will receive when you retire and it’s still possible to outlive your savings.

Aside from the self-employed, these plans are being pitched to small and medium-sized businesses that have no workplace plan. Employers can set up a plan for their employees and (optionally) contribute to their accounts. The main advantage of PRPPs is supposed to be lower plan administration costs compared to a private or group RRSP. But “lower” is relative- a much greater economy of scale can be obtained with multi-employer pension plans or, better yet, workforce-wide plans like the CPP.

The other incentive for employers is that they get a tax break on contributions they make to their employees’ plans (contributions which nonetheless count against employees’ RRSP room). But if your organization is a nonprofit, that incentive does not apply. There are also some important downsides to PRPPs: for instance, unlike with RRSPs, individuals will not have the flexibility of being able to withdraw their investments early in case of a personal financial crisis or for a home purchase. While there may be nonprofit workers who choose to invest via an independent (non-employer-based) PRPP administrator, it is unlikely that there will be significant take-up, given the low savings rates and unused RRSP contribution room we see amongst the working population.

Resource: Canada Revenue Agency page on PRPP Withdrawals


Additional resources

“Unfortunately, we just don’t have the labour market information to answer that.”

When ONN spoke to the Ontario Legislature’s Standing Committee on Social Policy about Bill 56, Committee members were very keen to know more about how the ORPP could affect the nonprofit sector. MPPs indicated they knew well the funding situation for nonprofits and the conditions of precarity that this created for our workers. They asked (rhetorically) how nonprofits that had seen their funding frozen for five years were going to come up with another 1.9% of salary costs. They wanted to know how many workplaces would have pension plans that would be considered “comparable” to the ORPP. And they were curious as to what proportion of nonprofit workers could be considered on track to maintain their standard of living when they retire. However, because of the state of labour market research on the sector, we had to say, “We don’t know.”

ONN’s experience at the Standing Committee further reinforced our conviction that the sector must work in partnership with government to develop better labour market information on the nonprofit sector, and that we need this information before we can address some of the ORPP implementation issues that will undoubtedly arise as it rolls out. We look forward to the Task Force recommendations on how this work should unfold.

“What does defined contribution mean?”

Personal finance guru Gail Vaz-Oxlade says of investing: “If you can’t explain it to a 12-year old, you can’t buy it.” Her advice is for individual investors, but the same should apply to nonprofit boards deciding whether to offer a pension plan, nonprofit staff choosing fund options within a group RRSP, or community program participants deciding whether to start drawing Canada Pension Plan early.

Supporting retirement security requires that we work to improve pensions literacy through and throughout the sector, including nonprofit boards, staff, and clients, including the low-income and marginalized Ontarians who are most effectively reached through the community organizations that serve them. Engaging the sector’s boards and staff on pension issues will not be easy, given all the other issues they must address in their work. But policy decisions are being made that will have a profound effect on the current and future nonprofit workforce, as well as the whole next generation of retirees, and we must find a way.

A key issue for our task force will therefore be to propose a strategy for meeting the needs for financial literacy on pensions in and through the nonprofit sector.


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The ORPP - now cancelled

  • Mandatory in most workplaces, starting in 2017 with large employers and phased in over two years to medium and small employers
  • Similar in design to the Canada Pension Plan (CPP) – providing a steady income upon retirement, based on earnings (up to a ceiling)
  • Costs employers and workers (each) up to 1.9% of earnings – that’s $855 per year for a worker with a salary of $45,000
  • Provides that same worker with a retirement benefit of about $6,410 per year, indexed to inflation, until death (after paying into the plan for 40 years)

The ORPP is expected to help to close some of the gap that has opened up in retirement income security as many of Ontario’s workers have experienced more precarious working conditions, stagnant wages, and the disappearance of workplace pension plans over the past few decades.

ONN is in support of the ORPP. We know it will increase compensation costs in the sector, but we also know that our sector’s workers deserve retirement income security after dedicating their working lives to serving the public good. To help mitigate the impact, we are making the case on all fronts that agreements between funders and the nonprofits that deliver services on their behalf must reflect the true cost of operating- including the increased compensation costs associated with the ORPP.

As details about the ORPP are unveiled and rolled out, ONN will continue to engage the Ministry of Finance on ORPP implementation issues in the nonprofit sector. Two implementation issues we’d like to see addressed:

  1. Better labour market information (LMI) about and for the nonprofit sector.
  2. Develop a broad pensions literacy strategy to reach nonprofit staff, boards, and clients, recognizing that pensions literacy is critical to good decision-making on pensions for both organizations and individuals.

Funding and costs: ONN will emphasize at every opportunity that the province must support the sector in implementing the ORPP, not least of all in terms of managing the new compensation costs that will have to be included in agreements with all funders, public and private.

The Ontario Government will introduce an Ontario Retirement Pension Plan (ORPP) across most Ontario workplaces in 2017 to 2020, starting with large employers. Aside from organizations that have a “comparable” plan, employers and employees will each pay mandatory premiums of up to 1.9 percent of earnings.

The largest workplaces (500 employees and up) with no workplace pension plan will be enrolled in Wave 1 of the ORPP, starting in January 2017. Medium-sized workplaces (50-499 employees) will start in Wave 2, starting in 2018. Most nonprofits (those with 50 or fewer employees and no workplace plan) will be included in Wave 3 of the ORPP implementation, with contributions beginning in January 2019 and ramped up to the maximum in 2021. Workplaces with pension plans that are not deemed “comparable” to the ORPP will be pushed back to Wave 4, starting January 2020, to allow them time to determine whether to adapt their plans or join the ORPP. (Note: Having a Group RRSP will not push a workplace to Wave 4).

The ORPP will be important but not sufficient for nonprofit workers. For this reason, nonprofit organizations are interested in exploring options for a sector-wide pension plan that would go further towards providing adequate retirement income.

The ONN Task Force on Pensions will offer advice on implementation issues as the ORPP is rolled out in the sector, including:

  • identifying and addressing gaps in labour market information (especially data on compensation and workplace pension plans) for the sector,
  • meeting the need for financial literacy on pensions in and through the sector, including boards of directors, staff, and clients,
  • building increased staffing costs into discussions with funders, and
  • transition issues facing nonprofits with existing retirement benefit plans that do not qualify them for ORPP exemption (e.g., Group RRSPs, defined-contribution pension plans below the government’s stated threshold).

Further background reading:

The ORPP aims to replace 15% of a worker’s pre-retirement income based on steady contributions for 40 years. Even with other public programs (like Canada Pension Plan and Old Age Security), a worker with no workplace pension plan could still experience poverty and/or a significant drop in income after they retire, especially if their participation in the labour force has been part-time, seasonal, or intermittent. And we know that almost half of workers in the nonprofit sector are working on part-time, casual, or short-term contracts.

A decade or two of stringing together contracts, part-time jobs, and the odd spell of unemployment—which is particularly common for the millennial generation—will significantly lower a worker’s ORPP benefits upon retirement because they will not have been contributing regularly. Meanwhile, as the ORPP matures, a generation of workers will draw smaller benefits after retiring in 10, 20, or 30 years because they will not have paid into the ORPP long enough to receive what will eventually become the maximum benefit after 40 years of contributions.

For this reason, ONN is exploring the feasibility of developing a sector-wide pension plan, whether stand-alone or building on an existing multi-employer pension plan. The task force will be asked to examine options for a sector plan and listen to our network partners on what would be a good fit for the sector.

The Government of Ontario announced further details on the roll-out of the Ontario Retirement Pension Plan (ORPP). ONN participated in the press conference and a technical briefing with Ministry of Finance staff where we learned some key information affecting our sector.

Details have been released on which existing employer pension plans will be considered “comparable” to the ORPP- meaning these workplaces (and their employees) will be exempt from contributing to the ORPP. To be comparable, a plan must offer:

  • a predictable retirement income until death
  • pooled longevity and investment risk
  • mandatory contributions by employers
  • a target replacement rate of at least 15% of a worker’s earnings over their career
  • mandatory “locked-in” contributions

This means that Group RRSPs will not be considered comparable. However, the new Pooled Registered Pension Plans (enabled by the Ontario Government’s Bill 57) will be eligible for exemption.

Comparable Not Comparable
Defined Benefit (DB) Pension Plan

  • Minimum benefit accrual rate of 0.5 per cent (the rate at which a member builds up benefits in a plan).
DB Pension Plans below this threshold
Defined Contribution (DC) Pension Plan

  • Minimum contribution rate of 8 per cent (of which at least 4 per cent must be an employer contribution)
DC Pension Plans below this threshold
Pooled Retirement Pension Plans (PRPPs) (new)

  • Similar threshold to DC plans (details TBD)
  • Must have employer contributions to be comparable (voluntary in PRPPs)
PRPPs with insufficient employer contributions or insufficient contribution rates.
Hybrid Pension Plans (such as Target Benefit)

  • Threshold determined according to the mix of DB and DC components, as above.
Group RRSPs

The Government’s Technical Bulletin has further details on other types of plans. Decisions about particular thresholds for the comparability of Multi-Employer Pension Plans have yet to be made.

The largest workplaces (500 employees and up) with no workplace plan will be enrolled in Wave 1 of the ORPP, starting in January 2017. Medium-sized workplaces (50-499 employees) will start in Wave 2, starting in 2018.

Most nonprofits (those with 50 or fewer employees and no workplace plan) will be included in Wave 3 of the ORPP implementation, so contributions will begin in January 2019 and ramped up to the maximum in 2021.

Every wave will see contributions introduced gradually over three years with:

  • 0.8% contributed by employers and employees (for a combined total of 1.6%) in the first year of enrollment
  • 1.6% in the second year (for a combined total of 3.2%) and
  • 1.9% (for a combined total of 3.8%).

All workplaces with plans deemed “not comparable” (see chart above) will be included in Wave 4 of the phase-in to allow time for either improving the plan or deciding to enroll in the ORPP.

Workplaces with some employees who are members of a comparable plan and others who are not will be placed in Wave 4 to allow time to determine whether to enroll all employees in the workplace plan or to have the workplace join the ORPP.

ONN will review the second piece of ORPP legislation, likely tabled this fall, to determine whether a workplace can have only some of its employees enrolled in the ORPP if they are not covered by a comparable plan. This provision may prompt some serious calculations on the part of any nonprofits that have, for instance, part-timers, seasonal workers, or summer students on the payroll who are excluded from the workplace plan.

*Note: having a Group RRSP will not push a workplace to Wave 4. For instance, small nonprofits with a Group RRSP would be part of Wave 3 along with other small nonprofits with no workplace plan.

There is no news for the self-employed in this update. It is still a matter of “wait and see” as to whether the Province can convince the federal government to amend the Income Tax Act to make the self-employed eligible to benefit from the ORPP.

The ORPP will include all Ontario employees not otherwise covered by a comparable workplace plan by 2021. Benefits will start to be paid out to retirees in 2022- but note that initial benefits will be very small, based on only one to three years of contributions. The Ontario government will create a “buyback” mechanism to allow employees to purchase credits for time worked when not eligible to contribute to the ORPP. The Province is also considering a possible opt-in for workplaces with comparable plans.

If an employer, or group of employers, decides to create a new pension plan after the ORPP is introduced, those employers would no longer have to contribute to the ORPP if the new plan was deemed comparable.

The newly-created ORPP Administration Corporation will be contacting ALL Ontario employers in 2016 to verify information about existing workplace pension plans. At that point, employers will receive confirmation of which wave they will be enrolled in- unless they are exempt.

Anyone attending the technical briefing alone could forget that there was a big question mark hanging over the ORPP implementation. But it was clear from the press conference that the possibility of a change of government in Ottawa- leading to a willingness to expand the Canada Pension Plan- would have a significant impact on the ORPP. Premier Wynne acknowledged that her first choice remained CPP expansion, but she declined to commit to cancelling the roll-out of the ORPP if CPP was expanded as it was still a “hypothetical situation.” We won’t know until at least this fall whether the federal scene may prompt a change of direction on the ORPP. In the meantime, we have to assume that the plan will proceed.