Ontario Is Building Its Own Pension Plan

A group of Canadian pension experts is building a first-of-its-kind provincial pension fund for the Ontario workforce.


Galit Rodan

On June 27 Ontario Premier Kathleen Wynne called a historic meeting of two of her lieutenants and the pension advisory group she first tapped back in January. The purpose: to begin work on creating a new defined benefit pension plan for the more than 60 percent of Canadian workers who have either only a defined contribution savings plan or no plan at all.

Wynne’s June 13 return to office following her re-election has given Canada’s most populous province the opportunity to pass a budget that would allow the newly installed Liberal Party–majority Ontario provincial government to move forward with its plans to provide retirement security for all of its citizens.

The budget, which included a section called “Strengthening Retirement Security in Ontario,” clarified Wynne’s objective to create a new defined pension plan that would work in conjunction with the present national Canadian Pension Plan. Some Canadians deem the present CPP annual maximum payout of C$12,500 (about $11,755) an inadequate benefit.

According to the description of the Ontario Retirement Pension Plan (ORPP) in the 2014 budget, the new plan would initially cover 3 million working Ontarians, who with their employers would split a 3.8 percent contribution up to a maximum annual earnings threshold of C$90,000. Like other Canadian plans, it would be administered at arm’s length from government. Ontarians might not be the only folks to participate in their new pension. Too small to build their own pension fund, the provinces of Manitoba and Prince Edward Island are planning to join the ORPP.

The push to design a new Ontario provincial pension plan began when Canadian Prime Minister Stephen Harper refused to enhance the CPP benefits last December, with the Ontario government’s May 1 unveiling of its 2014 budget further kicking things into motion.

The failure of the then Liberal-minority Ontario parliament to pass Wynne’s budget triggered an election to determine a government that could overcome the impasse. After Wynne’s decisive victory nearly two months later, one of her first public statements addressed the urgent need to put the ORPP into effect by 2017.

Whereas Conservatives object to a new pension plan because of the added expense to employers, who would have to match their employees’ contributions, a poll conducted by the Gandalf Group, a Toronto-based public opinion research and communications firm, found that a majority of Canadian citizens want a more secure pension than the CPP, launched in 1966, is now able to provide.

More than 3 million Ontario residents rely on three sources of retirement funds: the CPP; the Old Age Security program (a government-run program that is managed separately from the CPP and offers benefits similar to those of programs in developed countries such as the Social Security system in the U.S.); and personal savings, which average at 5.5 percent of income. “If these people don’t save and aren’t in a saving vehicle, they’ll be on social welfare,” explains Jim Keohane, the CEO and president of the Healthcare of Ontario Pension Plan (HOOPP).

With $51.6 billion in net assets available for benefits as of the end of 2013, HOOPP is the largest private pension plan and the fourth-largest plan overall in Canada. It provides a defined benefit to health care workers at an all-in annual cost of 31 basis points, or 0.31 percent, which is paid from plan assets that belong to the plan members. Keohane questions the ability of Canada’s Pooled Registered Pension Plan (PRPP) schemes, preferred by Conservatives, to match HOOPP or other low-cost, professionally managed pension schemes like the Ontario Teachers’ Pension Plan or the Ontario Municipal Employees Retirement System. The PRPP schemes are in fact not pooled but individual, defined contribution savings plans that usually come with much higher fees than true pension schemes.

Along with his full-time duties at HOOPP’s helm, Keohane has been a member of the Wynne-appointed, Ministry of Finance–overseen, Technical Advisory Group on Retirement Security since its inception in January 2014. He was present at the group’s June 27 meeting that included Ontario Finance Minister Charles Sousa and Keith Ambachtsheer, the director emeritus of the Rotman International Centre for Pension Management. Also attending were corporate director of the Royal Bank of Canada and former president and CEO of the CPP Investment Board David Denison; general counsel of the Ontario Teachers’ Pension Plan Melissa Kennedy; and four other Canadian pension experts.

“Canadian pension plans’ success is based on independent governance models,” says Keohane, pointing to HOOPP’s 114 percent funding status, which means the plan has 14 percent more assets than needed to match its future liabilities. The Canadian system is unlike public pensions in the U.S., where governors and legislators can easily take money out of pension trust funds and deploy those assets elsewhere, as well as decide not to fund the plan in a given year. In New Jersey, for example, Governor Chris Christie decreased previously allocated pension payments by nearly $2.5 billion over a two-year period, starting in 2011, after cutting a deal that promised more state contributions to pensions in exchange for concessions from public unions. When he signed the new 2014 New Jersey state budget on June 30, Christie vetoed tax increases that would have offset pension costs. Canadian plans are buffered from government raids because the trust structure is like that of a mutual life insurance company: The members own it, and the trustees must act on behalf of the plan.

Ambachtsheer would like to expand the advisory group to plan for the ORPP. He is also calling for the creation of a personal accounts delivery authority such as the one the U.K. established to design and implement the government-run retirement savings scheme created for its new auto-enrollment program, National Employment Savings Trust (NEST). There is a dichotomy between fund providers and the public need for a utility, says Ambachtsheer. NEST, announced in 2010 and rolled out the next year, is a “public good utility,” he says.

The question is, says Ambachtsheer, “How do we create a public good utility in North America?” Answering himself, he muses, “The lead looks like Ontario.” With 13.6 million residents out of 35.34 million across the country, Ontario has the scale to do it.

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Follow Frances Denmark on Twitter at @francesdenmark.