Will Ontario opt out of Canada Pension Plan expansion? 84 per cent of business owners surveyed think the government should delay CPP increases.

Canada Pension Plan (CPP) expansion remains controversial with business leaders, especially small business. Under Federal Legislation Bill C-74, which took effect June 21, 2018, the first of several CPP increases is set for January 1, 2019. The plan, from the Federal Government, forces higher contributions — with more money to be deducted from paychecks and lowered take-home pay — to increase retirement benefits in the future. However, the new Ontario Government may want to put the brakes on CPP expansion, especially after a survey of business owners that indicated 84% wanted the implementation delayed. [1]

Expansion of CPP

Any changes to CPP required two-thirds of the population to agree, here represented by two-thirds of the provinces. While it has met these terms, business owners have pressured the Ontario government to act. According to Dan Kelly, CFIB president:

“Small business owners are calling on Premier Ford and Finance Minister Fedeli to press pause on the previous government’s decision to raise payroll taxes on small employers.”

The combination of mandatory increased CPP, with an increased minimum wage, is difficult for many business owners. Plamen Pletkov, VP at CFIB explains, “Massive hikes in the costs of energy, the minimum wage and new labour rules will have negative effects for many years, and small firms simply cannot afford to pay even higher payroll taxes.”

What should Payroll Managers consider?

Given bill C-74 is law and in force, Payroll Managers and outsourced Payroll Management Services will have to proceed on the assumption the increase will happen — January 1, 2019. If there is a challenge from Ontario, there is bound to be issues with implementation. This is where a good Payroll Management Service can give the edge.

Increases as of 2019

Incremental changes planned for 2019 to 2023:

• January 1, 2019: 5.95% in employer and employee contributions on earnings up to the Year’s Maximum Pensionable Earnings; up from the current 4.95%
• According to Morneau Shepell [3]: “An increase from 25% to 33.33% in the replacement rate for pensionable earnings will be phased in from 2019 to 2024. This enhancement will only apply to years after the implementation of the increased contributions; it is not retroactive.”
• New contributions of 4% on earnings above the YMPE up to the Year’s Additional Maximum Pensionable Earnings (YAMPE) are to commence in 2024.

Regarding benefits programs, plan sponsors will want to review their plan and the company’s objectives. Morneau Shepell gives an example: “For example, the sponsor of an integrated plan intended to provide a specific replacement ratio may want to adjust the contribution formula to reflect the improved CPP retirement benefit. Another important consideration is whether the plan sponsor is willing to absorb the increased cost of CPP contributions or would rather remain cost neutral by reducing the retirement program to offset the additional expense.”

Communication with employees

Your Payroll Management Service provider, or your Human Resources Management Service — or your internal managers if you self-manage — should begin the process of communicating CPP changes with employees, if they haven’t already.  The changes will reduce take-home pay for the employees. As a best practice, describing the new rules and its implication to employees now is probably still the best course of action, even if there’s a chance Ontario will delay the CPP expansion.

Survey of 2,065 business owners

Eighty-four per cent of business owners think Canada should delay CPP expansion — and review other options. [1] Fifty-two per cent of business owners believe CPP expansion should be suspended, while 32 per cent think it should be scrapped altogether.

Since CPP reform requires two-thirds of the population, Ontario technically holds the balance of power in any move to delay or scrap the reform.

Will Ontario try to opt out?

Advocacy groups are pushing for the new Ontario Government to pull out of the deal, or at least delay it. Research studies and reports from the Fraser Institute [2] are presenting data that suggests most Canadians are better prepared for retirement than the government acknowledges. They point to the $9.5 trillion in assets owned by Canadians, which far out weights the $3.3 trillion of assets in the Canadian Pension system. Does that mean Canadians save enough? On average, the indications are they do — but many Canadians don’t.

Given the pressure from business groups, and advocacy from large groups, it seems likely the new Ontario government will at least review the commitment and, possibly, move to delay the expansion of CPP.

Other benefits included in expanded CPP

There’s more to the expanded CPP than increased contributions. Included in Bill C-74 is:

• improved death benefits
• expanded disability provisions
• earnings “drop-in” for disabled CPP contributors
• earnings “drop in” for parents of young children

Death benefits

Under the new plan, after January 1, 2019, the current reductions for survivors under the age of 45 will be removed. Under current rules, there is a ten per cent reduction for each year a survivor is under the age of 45 — with the exception of disabled persons or people raising dependent children at the time of death.

Expanded disability

Under the new rules, a CPP recipient who is eligible for CPP disability will now receive additional payments — while still receiving their regular CPP benefit. This is subject to early commencement adjustments. Currently, any CPP recipient who is disabled after beginning their pension, if before the age of 65, is not eligible for CPP disability pension.

Do you have questions about the expansion of CPP coming on January 1, 2019? Ask the experts at Pivotal’s Payroll Management Service.

NOTES

[1] “Put CPP expansion on hold: Ontario employers” (HR Reporter)

[2] For instance, see this article from Fraser Forum, the blog of Frazer Institute, “It’s a myth that most Canadians aren’t adequately prepared for retirement.”

[3] Morneau Shepell “Additional Canada Pension Plan enhancements adopted”