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Job Security Paramount to Retirement Income Security: CME

Published by Brad Fougere on December 20, 2014

Ontario needs to be focused on securing good jobs and growing the economy to pave the way for retirement income security.  Some of the key elements of the Ontario Retirement Pension Plan released recently would put the pension cart before the jobs horse. 

The Ontario government has identified a legitimate issue: Ontarians are not saving enough for their retirement.  However, the ORPP approach could put further strain on the viability of many small and medium sized companies already struggling to remain competitive in the Ontario market.  We have to give priority to measures that will immediately increase competitiveness for Ontario’s small- and medium-sized enterprises (SME) such as streamlining regulation, lowering electricity rates and property tax equity for manufacturers.  

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.  

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, unintended and potentially far reaching consequences to the Ontario economy may result from this well intentioned piece of legislation.

We would welcome further input from members on the ORPP consultation framework and we will be providing a submission. 

Please provide comments to by January 16, 2015.

You can access the consultation paper here: Ontario Retirement Pension Plan: Key Design Questions.   

You can access CME's letter to Finance Minister Charles Sousa here

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