Law Times

Page 8 August 22, 2016 • LAw times www.lawtimesnews.com CPP enhancements spotlight existing pension plans BY JIM MIDDLEMISS For Law Times A fter spending the past year advising clients on the Ontario gov- ernment's plan to introduce its own Ontario Regis- tered Pension Plan, pension law- yers are scrambling to shift their focus on the Canada Pension Plan. Advising efforts on the ORPP went for naught in late June, fol- lowing the announcement that Ontario was shutting down its ORPP efforts, after striking a deal with other provinces to im- prove benefits under the existing CPP. Now, pension lawyers are focusing their attention on the impact those CPP changes will have on employers. At the same time, it's not clear that the CPP deal is as ironclad as Ontario believes, since British Columbia has indicated it plans further consultations about the CPP changes. Without that province's sup- port, it is unlikely that efforts to hike contributions will pass con- stitutional muster and achieve the necessary support to imple- ment the changes, lawyers warn. Dropping the ORPP was a big about-face for the On- tario government and involved high-stakes brinkmanship, as the province threatened to go it alone if there was no deal. Much of the ORPP was in place and it would have been a mammoth pension plan. The ORPP was expected to serve 4.5 million members and cover 450,000 employers by 2020. It was estimated that the plan would receive $3.5 billion annu- ally in contributions. Moreover, the government had hired staff and was ramping up a new bureaucracy to over- see the effort. Saad Rafi, former CEO of the Toronto Pan Am Games, had been hired as CEO earlier this year, and most of the executive team was in place. When the government shut it down, the ORPP had issued 40 employment contracts and en- tered a five-year, $12-million sublease on space downtown. Pension contributions were to have started in 2018, creat- ing a f lurry of activity given the compressed time frame. For example, the ORPP had already negotiated 22 third- party contracts. In July, the gov- ernment issued a closing report, estimating that costs to shut down the ORPP would reach $70 million, including $3.6 mil- lion for severance under the em- ployment contracts. Some employees had joined from other notable organiza- tions, and they had only been on the job a few months. Whether those who were enticed to leave secure employment to join the ORPP decide to sue remains to be seen. Elizabeth Brown, a pension and benefits lawyer at Hicks Morley Hamilton Stewart Storie LLP, was surprised at how quickly the Ontario government changed course. "It was really fast." She said that Ontario, by steadfastly standing by the ORPP, made it a "credible threat." "Maybe that was needed to get action. It was a huge expendi- ture of money just to shut it all down," she says. However, it wasn't just the government that had made prep- arations for the ORPP; some employers had already modified their pension arrangements in preparation for the new plan, though lawyers say those em- ployers were in the minority. Kathryn Bush, a lawyer at Blake Cassels & Graydon LLP, says, "We certainly had clients who had made changes in prep- aration for the ORPP." They were mostly employ- ers who had in place capital accumulation plans or group RRSP plans that would not qual- ify as a pension under the ORPP. "They had gone through the effort to set up a new plan," Bush says, though she doubts they will now unwind those efforts and rather leave the plans in place. Ironically, the move to scrap the ORPP and adopt enhanced CPP benefits means that every Canadian employer will now be impacted, whereas the ORPP was confined to employers who did not have a pension plan in place that met the ORPP re- quirements. That means pension lawyers and employment lawyers across the country will be called on to advise clients on the changes. The attention is now on the enhanced CPP benefits and what the changes mean for exist- ing pension plans, says Brown. For employers, it is a "switch in gears," she says. "They are going to realize that enhanced CPP has implications for their overall cost structure." Because an expanded CPP will result in better benefits for workers upon retirement, law- yers say that employers need to examine whether they should al- ter the funding formula in their existing plans, as employers will now be required to pay more into CPP. Brown predicts that em- ployers will be looking at "re-jig- ging" their defined benefit plans to integrate better with the CPP. If it's a unionized workplace, Bush warns that means "you have got to go back to the union through collective bargaining" to secure changes under the col- lective agreement. That could lead to more labour strife, suggests Brown. "I'm not sure how easy it will be to negotiate reductions in a defined benefit plan. The reality is that these formulas are very hard to change," she says. She notes that pensions are a touchy subject in contract ne- gotiations. Recently, she had one client whose group RRSP didn't qualify under the then-proposed ORPP. During collective bar- gaining, the parties agreed that "if the ORPP came into effect and was implemented, they would go back to the bargaining table." Now, under the CPP en- hancements, she says, "Net-net there will be an increase in cost to employers that they will be challenged to recover in the form of reduced pension benefits from the workplace plan." LT FOCUS ON PENSIONS LAW FOCUS Elizabeth Brown says attention is on enhanced CPP benefits that have led to a 'switch in gears' for employers that result from them, said Brown. The annual Canadian Lawyer Corporate Counsel Survey canadianlawyermag.com/surveys In-house counsel – weigh in on your relationship with external law firms. SURVEY IS OPEN AUGUST 15 - SEPTEMBER 12 LEGAL OPINIONS WANTED! Untitled-4 1 2016-08-16 2:06 PM

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