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. The Ontario government has acknowledged the retirement savings challenge faced by many workers and recently passed a bill to create an Ontario Retirement Pension Plan (ORPP).
- 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.
Implementing the ORPP- What it means for nonprofits
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.
|Defined Benefit (DB) Pension Plan
||DB Pension Plans below this threshold|
|Defined Contribution (DC) Pension Plan
||DC Pension Plans below this threshold|
|Pooled Retirement Pension Plans (PRPPs) (new)
||PRPPs with insufficient employer contributions or insufficient contribution rates.|
|Hybrid Pension Plans (such as Target Benefit)
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.
New legislation: 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.
Other newly-announced design features
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.
Keeping in mind the political context
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.
A sector-wide pension plan for Ontario nonprofits
ONN is also 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 a sector-wide plan?
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.
What’s next on the pensions journey?
While we wait to hear more details about the ORPP, 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 ORPP implementation issues and 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.
“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.
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
Retired nonprofit CEO (Independent), Toronto, Ontario
From his start as a youth member of the Toronto Central YMCA, Rich Bailey has held progressively senior positions in the Y organization, culminating in his tenure as CEO of YMCA Canada, CEO of the YMCA of Greater Toronto in the 1990s and CEO of the YMCA World Urban Network in the 2000s. His accomplishments include employment programs, international programs, and creating new YMCAs in smaller cities. Rich served as Trustee of the YMCA Retirement Fund for 17 years prior to his retirement in 2003.
Dr. Isla Carmichael
Retired pensions consultant, Toronto, Ontario
Dr. Isla Carmichael is a consultant on public sector pension reform, plan design, governance and investment strategies. She has been a union-appointed member of the Investment Advisory Committee of the Canada Post Pension Plan since 2004. She served as the Corporate Secretary to the OPSEU Pension Trust from 2011 to 2014 where she specialized in board governance. From 2006 to 2008 she was the Director of Policy for the Ontario Expert Commission on Pensions, also known as The Arthurs Commission. She has several books and articles to her credit, in particular Pension Power, published by the University of Toronto and based on her dissertation. Isla was a post-doctoral fellow at OISE/UT where she taught at both graduate and undergraduate levels. For seventeen years, Isla occupied various senior posts at the Ontario Public Service Employees Union including Chief of Staff and Director of Research, Campaigns and Education Services.
Jennifer Closs (co-chair)
Team Leader, DeafBlind Ontario Services, York Region, Ontario
Jennifer Closs is a Team Leader at one of the locations within DeafBlind Ontario Services, where she has worked for six years. She also works part-time at Community Living York South. Jennifer has a BA in Psychology (with Kinesiology) from York University and graduated with honours from Humber College’s Paramedicine and Emergency Telecommunications programs. Previously, she served as a cadet with the Toronto Police Service.
Executive Director, North York Women’s Centre, Toronto, Ontario
Iris Fabbro has worked in the nonprofit sector for over twenty years and is currently executive director of North York Women’s Centre. She is an active volunteer in the sector, having served on several nonprofit boards and as a peer reviewer for Imagine Canada’s Standards Program.
Howard Green (co-chair)
Consultant (Independent), Toronto, Ontario
Howard Green has held senior positions in the Government of Canada, including Assistant Deputy Minster (Service Canada) and Director-General, Privy Council Office. He was a federal government representative on the United Way Toronto’s Campaign Cabinet and was seconded to United Way Toronto as a Senior Advisor, where he continues to consult part-time. Howard also serves as a volunteer on the board of St. Stephen’s House (Toronto) and the Ontario Nonprofit Network’s board policy committee.
Documentary film-maker and retired lawyer (Independent), Toronto, Ontario
Prior to his second career as a documentary film-maker, Michael Kainer worked as a lawyer for 30 years, specializing in pension and benefit law and nonprofit organizations. Early in his career, he was a co-founder of the Toronto Community Law School (now Community Legal Education Ontario, CLEO). Michael assisted in the establishment of the Multi-Sector Pension Plan which serves nonprofit workers organized by CUPE/SEIU. More broadly, he has acted as counsel to a number of Multi-Employer Pension Plans (MEPPs), advising on all aspects of the establishment and maintenance of pension plan governance structures and plan rules and regulations. Outside his law practice, Michael has volunteered with his local residents’ association and various non-profit boards. He has a BA from McGill University and an LLB from Osgoode Hall.
Project Lead, Public Policy Forum, Orangeville, Ontario
James McLean is a Project Lead with Canada’s Public Policy Forum. Since joining the Forum in 2010, he has led projects on improving internal trade in Canada, understanding the socio-economic effects of schizophrenia, attracting global investment, and enhancing retirement income for Canadians. Prior to joining the Forum, James worked as a researcher for the Centre for International Governance Innovation (CIGI), where he conducted primary research at the International Monetary Fund. James has also worked for the Hudson Institute (Washington, DC), the Canadian Constitution Foundation and the Town of Shelburne. James holds a Master’s degree in International Public Policy from the Balsillie School of International Affairs at Wilfrid Laurier University, and a BA (Honours) in Political Science.
Social policy consultant, Tristat Resources, Manotick (Ottawa), Ontario
Richard Shillington has post-graduate degrees in statistics from the University of Waterloo. He has been engaged in the quantitative analysis of health, social and economic policy for the past 30 years. His research has covered several policy fields; health human resources planning, program evaluation, income security, poverty, tax policy and human rights. Richard has worked for several provincial and federal departments as well as commissions studying the economy, unemployment insurance, human rights and tax policy.
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