ONTARIO HOME BUILDERS ASSOCIATION SUBMISSION ON THE ONTARIO RETIREMENT PENSION PLAN ---FEBRUARY 2015---
ABOUT OHBA The Ontario Home Builders Association (OHBA) is the voice of the new housing, land development and professional renovation industry in Ontario. OHBA represents over 4,000 member companies, organized through a network of 31 local associations across the province. Our membership is made up of all disciplines involved in development and residential construction including: builders, land developers, professional renovators, trade contractors, manufacturers, consultants, services professionals and suppliers. The residential construction industry employed over 322,000 people and contributed over $44 billion to the province s economy in 2013. 1
The Ontario Home Builders Association is pleased to respond to this consultation package on the Ontario Retirement Pension Plan (ORPP). OHBA recognizes the important public policy objective the government is trying to address through this proposed plan in order to tackle the undersaving challenge in order to ensure additional income security for Ontarians when they retire from the workforce. We also recognize the ORPP was a main component of the 2014 Liberal election platform. However, OHBA members are concerned by the narrative of this consultation and message of the ORPP which implies that employers are solely responsible for the employee s retirement future. OHBA represents over 4,000 member companies from across Ontario, accounting for approximately $43 billion worth of economic activity. The companies our association represents vary from large and small home builders, along with professional renovation and trade contractors. In particular, this submission highlights the challenges that small businesses face from across the province if implemented incorrectly, the ORPP might be a new significant administrative cost on companies with limited ability to contribute and comply with an increasingly complicated regulatory framework. In addition to concerns by small business, there also might be unintended consequences to collective agreements as well as other payment structures to workers if this program is not implemented carefully. The new home construction and renovation industry has adapted to significant provincial regulatory and legislative changes over the past several years that have added new costs through increases in new neighbour taxes, the costliest workplace safety insurance regime in Canada, a new mandatory WSIB insurance system on small construction firms, new fees and bureaucracy through the Ontario College of Trades and new regulations from a variety of Ministries including Ministry of Environment and Ministry of Labour. Each new regulation and tax is an added cost and may also result in new administrative costs as small employers are forced to comply with added red tape from all three levels of government. The cumulative impact is significant. Unfortunately the proposed ORPP appears to be another significant cost through duplicative administration with other existing pension plans. Therefore, like the provincial government, OHBA s preference would be enhancements to the Canada Pension Plan so employers would not be forced to comply with duplicative mandatory government pension programs. Lastly, we are pleased to see that the government has recognized the unique status of self-employed individuals and OHBA recommends the government exempt the self-employed from an ORPP progam. Our submission responds to questions in the report where our members have raised key concerns. We would be pleased to continue dialogue in future conversations with government on other questions not addressed in this submission. 2
DISCUSSION QUESTIONS: Definition of Comparable Workplace Pension Plan 1. The government s preferred approach remains a CPP enhancement. Therefore, the definition of comparable should be determined with a view to maintaining the potential for integration with the CPP in the future. With this in mind, should the definition of a comparable workplace pension plan mirror the key features of the CPP and ORPP? OHBA agrees with government that enhancements to the CPP are the preferred option for ensuring retirement income security. If the provincial government proceeds with an ORPP, it should do so with the ultimate goal of merging the ORPP with the CPP as soon as enhancements to the CPP are made. 2. Which features of the CPP and the ORPP would be the most important to capture in a comparable plan? As outlined in page 6 of the consultation document. The provincial government has established similar criteria to the CPP. OHBA does not have a position on what is the most important component, only that if the government does go forward with a plan that it is similar enough to be incorporated into the CPP. 3. Are there circumstances under which other retirement savings vehicles such as DC plans should be considered comparable? a. For example, would establishing a minimum employee/employer contribution rate (that would provide for a similar benefit to the ORPP) for DC plans help make DC plans comparable? b. Similarly, would requiring members to convert a portion of savings in a DC plan to an annuity upon retirement help make DC plans comparable? If so, would Ontario s insurance industry have the capacity to offer affordable annuities on this scale? 4. Employers may have multiple and complex retirement savings arrangements. a. How would employers currently offering non-comparable plans expect their plans to work alongside the ORPP? b. How much time would employers need to take stock of their current approaches and make decisions about the right compensation mix going forward? 5. In your view, what would be the best definition of comparable workplace pension plans? The ORPP should not be duplicative to any reasonably parallel retirement savings plan. Otherwise it would create a significant and needless administrative burden on employers (and potentially costly to employees) who may have to transfer funds or switch from existing plans even though may have been receiving the same or more income security through a different plan. 3
OHBA would consider any parallel plan to be a program that an employer contributes towards that insures additional income security for their workers. As identified in page 11, we believe this should include Defined Benefit Pension Plans and Defined Contribution Pension Plans. In terms of how much time employers would need to take stock of their current approaches and make decisions about the right compensation mix going forward, OHBA believes that there should be consideration for the lack of administrative capabilities for small employers to make these decisions. Therefore, OHBA recommends a reasonable phase-in period with government providing clarity for employers to determine if their workplace pension/contribution plans meets the needs of their employees. DISCUSSION QUESTIONS: The Right Minimum Earnings Threshold 1. Does mirroring the CPP minimum earnings threshold strike the appropriate balance between contribution and accruing benefits? 2. If not, what should be the minimum earnings threshold for the ORPP? What are the potential tradeoffs? 3. There will be administrative complexities if minimum earnings threshold is different than that of CPP. How might this affect different employers? 4. Are there other potential implications of a $3500 minimum earnings threshold that are not addressed in this paper? 5. Are there other ways that Ontario could help address concerns about the ability of persistently low-income workers to continue and accumulate benefits? 6. Should Pillar 1 supports, including the GIS and GAINS, be changed so that future low-income seniors do not experience reduced benefits as a result of higher ORPP benefits? OHBA agrees with the premise that the proposed ORPP should include as much compatibility as possible with the Canada Pension Plan (CPP) as possible so that the ORPP can be eventually phased out and incorporated into an expanded CPP. This would ensure worker security regardless of where in Canada an Ontarian chooses to work over their career. 4
DISCUSSION QUESTIONS: ADDRESSING THE NEEDS OF THE SELF-EMPLOYED 1. Self-employed individuals will not be able to participate in the ORPP, given the current rules under the federal Income Tax Act (ITA). Should Ontario engage in discussions with the Government of Canada to amend the ITA rules in order to allow the self-employed participate in the ORPP? 2. What more can be done with regards to improving financial literacy among the self-employed? What role can the financial services sector play in educating the self-employed? 3. How else could the government assist self-employed individuals in achieving a secure retirement future? OHBA agrees with the province that self-employed individuals have unique needs. Therefore, we believe that the province should exempt the self-employed from an ORPP program. As identified, currently individuals who are not in an employment relationship and do not receive a salary or wages as compensation are currently have an exemption under the Income Tax Act from participating in RPPs. Although they cannot participate in RPPs, this doesn t mean that they aren t saving for retirement. Selfemployed individuals can and do take advantage of numerous savings and investment vehicles to ensure they are provided for when they choose to retire. Mandating their participation in a pension plan that they cannot opt-out of could be potentially disruptive to their voluntary contributions in other plans as well as their current income stream. We do recommend that the province should be more active in education and outreach to the selfemployed, so they are aware of different savings and retirement options that are available to suit their individual needs. CONCLUSION OHBA appreciates the opportunity to provide the Ministry comments and recommendation on the ORPP proposal. Considering the magnitude of the ORPP OHBA recommends additional consultative processes across Ontario as additional details are made available. For additional information or clarification on any of the above comments please contact OHBA staff, Stephen Hamilton (shamilton@ohba.ca). 5