The Canadian Bankers Association (CBA) is pleased to provide comments on the Ontario government’s
consultation document titled Ontario Retirement Pension Plan – Key Design Questions which was issued for
public comment in December 2014.
The CBA works on behalf of 60 domestic banks, foreign bank subsidiaries and foreign bank branches
operating in Canada and their 280,000 employees. The CBA advocates for effective public policies that
contribute to a sound, successful banking system that benefits Canadians and Canada's economy. The
Association also promotes financial literacy to help Canadians make informed financial decisions and works
with banks and law enforcement to help protect customers against financial crime and promote fraud
The CBA has long been supportive of the goal of promoting adequate retirement income security for
Canadians and has engaged in research and advocacy over the years to support this goal. The CBA has
written several papers on this subject such as Modernizing Canada’s Retirement Savings System (2009) and Enhancing Canadians’ Savings Options: Strengthening the Third Pillar in Canada (2010). The CBA has also
supported the creation of the Pooled Registered Pension Plan (PRPP) as a means of appropriately targeting
an expansion of the options available to Canadians to save for retirement.
Banks provide Canadian households and businesses with products, services and advice to assist them with
saving and investing all throughout their lifecycle − from saving for education and purchasing homes to
starting businesses and planning for retirement. Banks are trusted advisors and stewards of Canadians’
wealth, relying on strong relationships to help them make important financial decisions tailored to the
personalized needs of each client.
The banking industry understands that its workforce has an important role to play in offering advice and
information to Canadians. Banks are widely recognized leaders in Canada in providing their employees with
a competitive and comprehensive package of compensation and benefit programs, including generous
defined benefit plans and defined contribution pension plans. The marketplace for employees is highly
competitive and banks must ensure that these programs are attractive in order to recruit and retain this talent.
While banks’ employee retirement strategies vary among institutions and, in some cases, among subsidiaries
within each bank financial group, the objective is always the same – to ensure that employees are given
resources to help adequately finance their retirement.
It is within this context that we are concerned about the proposal by the Ontario Government to exclude
defined contribution plans (DC plans) from the definition of “comparable plans”. While pension plans
sponsored by federally regulated industries such as banks would be exempt from the ORPP, banks’
investment, trust, wealth management, and insurance subsidiaries that are provincially regulated would be
subject to the ORPP proposals. Furthermore, the ORPP will have an impact on other types of retirement
savings vehicles such as group and individual registered retirement savings plans (RRSP), deferred profit
sharing plans (DPSP), and the pooled registered savings plans (PRPP) – a savings vehicle for which the
provincial government recently introduced legislation.
Defined Contribution Plans
There is concern that a certain segment of Canadians are not saving enough for retirement, particularly those
middle-income earners without a workplace pension plan. In attempting to target the segment of the
population that do not participate in workplace pension plans, the ORPP has also captured workers of all
incomes that are participating in DC plans. Employees that are provided with a comprehensive package of
compensation and benefit programs, including generous DC plans, are not the identified segment of the
population that is in need of augmented retirement savings.
The government’s current proposal to exclude DC plans from the definition of “comparable plan” appears to
rest on the assumption that defined benefit pension plans (DB plans) and target benefit multi-employer
pension plans are exclusively able to assist employees in adequately preparing to meet their retirement
income needs. We do not believe this is the case. Well-designed DC plans can appropriately assist
employees in meeting their retirement needs. Such well-designed DC plans would include a combination of
features such as: a minimum employer contribution rate; an employer matching program that incents
employees to save; targeted replacement rates; an advisory and educational component; an appropriate
investment menu accounting for longevity and investment risks; cost-effective administration; estate planning
flexibility (including access to acquire an annuity); among other features.
DC plans can provide opportunities for individualized investor choice, education, customized product features
and advice. Not only can these opportunities be tailored to educate the plan member on features of the DC
plan itself, they can also educate the member about how the DC plan fits into that individual’s overall
retirement strategy. This educational and advisory component of DC plans works collaboratively with the
broader financial literacy objective that is central to ensuring that Canadians are adequately saving for their
retirement. Access to education, customized products and advice can help individuals plan for the long-term,
set realistic and reasonable goals for post-retirement income, balance risk and return in an efficient manner
and consider taxes, liquidity requirements and investment time horizons, helping the employee tailor their
respective retirement plans to their current circumstances and needs.
There are certain categories of workers, such as young workers, who may have financial priorities that are
more important to them in the near-term than retirement savings. Such workers may prefer to allocate more
disposable income towards education payments or savings for a first home. With a DC plan, such employees
would receive some retirement benefit in the form of contributions from their employer without having to
contribute their own savings. In contrast, mandatory contributions to the ORPP could take away from the
savings that some employees have allocated to what they view as their near-term financial priorities.
Policymakers will also need to consider the impact of ORPP contributions on total contributions and the
registered plan deduction limit of participants enrolled in DC plans, as well as other registered retirement
savings vehicles. In some cases, employees might choose to reduce other retirement savings in light of their
ORPP participation. In other cases, employees who are already at their permissible tax-sheltered limit, will be
forced to reduce their contributions and employers would be forced to adjust their plans. If a critical mass of
employees did this, employers would be compelled to reduce contributions or other features, or eliminate
these pension plans altogether to account for the ORPP.
The government’s consultation paper asks about different options to “make DC plans comparable” to the
ORPP. While the banking industry believes that the well-designed DC plans that are offered to their
employees should be considered as comparable to the ORPP, we nonetheless offer the following
commentary in response to specific questions posed in the consultation paper:
- Requiring plan members to convert a portion of savings in a DC plan to an annuity upon retirement
would considerably limit the flexibility of plan members to make choices about their retirement
savings based on their personal circumstances, the prevailing interest rate environment, estate
planning needs and other pertinent factors. Rather, DC plan sponsors can provide their plan
members with the option to enroll in an annuity at various points over the course of a member’s
participation in the plan. This would enable the DC plan member to take into account their own
particular circumstances, and the economic environment. In establishing a minimum
employee/employer contribution rate for DC plans, all the features of pension plans should be
considered including those that have been highlighted above.
- It is proposed that ORPP benefits would be indexed to inflation and there is a presumption that this
would make DC plans non-comparable with the ORPP. It is important to note that inflation indexation
is not a feature of many private sector DB plans. Furthermore, a well-designed DC plan with a wellcalibrated
minimum employee/employer contribution rate could deliver retirement benefits just as
generous as a DB plan, even one that provides inflation indexation. Like all other features, inflation
indexation is costly to provide and means that participants in an indexed plan must pay higher
premiums during their working lives or be guaranteed a lower basic benefit when they retire.
Consequently, well-designed DC plans should be viewed as comparable for the purposes of the
Ultimately, DC plans offered by some bank subsidiaries are more generous than the ORPP, which is being
designed to top-up individuals with insufficient savings for retirement. If the provincial government proceeds
with excluding DC plans from the “comparable plan” definition, it risks forcing employers of well-designed DC
plans to migrate their employees over to the ORPP.
Pooled Registered Pension Plans and Other Retirement Savings Options
Careful consideration needs to be given to the impact of the ORPP on other retirement savings vehicles such
as individual and group RRSPs and DPSPs. The CBA believes that it is essential to ensure that all Ontarians
will continue to have access to the diversity of retirement savings options currently available to help prepare
for their retirement.
The government’s proposed package of pension reforms includes two new initiatives – the creation of the
ORPP and the creation of PRPPs. The PRPP is aimed specifically at firms, mostly small and medium-sized
enterprises (SMEs), and the self-employed who do not have an employer pension plan. It is a targeted,
administratively simple, low-cost product that offers a new opportunity for the self-employed or SMEs to
participate in a structured pension plan. This is a product that the Government of Ontario clearly supports
with the introduction of Bill 57, the Pooled Registered Pension Plans Act in 2014. We believe that to achieve
the government’s objective of having both approaches available to Ontario residents, it is important that the
two work in a complementary fashion. This can only be achieved if well-designed PRPPs are considered as
a comparable plan.
As discussed above, we believe that the overly restrictive definition of “comparable plan” could result in
negative consequences for Ontarians and thus limit the benefits that the government seeks to achieve. There
are a wide variety of DC plans across workplaces and a well-designed DC plan can meet the goal of
retirement income security that the government is striving for with the introduction of the ORPP. We are also
concerned about the downstream impact of “comparable plan” definition on other retirement savings options.
As noted above, the banking industry has been strongly supportive of the PRPP and we believe that well-designed
PRPPs should be considered comparable.