Canadian HR Reporter Weekly

May 2, 2018 Published weekly by Thomson Reuters Canada Ltd. CUSTOMER SERVICE Tel: (416) 609-3800 (Toronto) (800) 387-5164 (outside Toronto) Fax: (416) 298-5106 customersupport.legaltaxcanada@tr.com www.thomsonreuters.ca One Corporate Plaza 2075 Kennedy Road, Toronto, Ontario, Canada M1T 3V4 Director, Media Solutions, Canada: Karen Lorimer Publisher/Editor-in-Chief: Todd Humber todd.humber@thomsonreuters.com (416) 298-5196 Editor/Supervisor: Sarah Dobson sarah.dobson@thomsonreuters.com (416) 649-7896 News Editor: Marcel Vander Wier marcel.vanderwier@thomsonreuters.com (416) 649-7837 Sales Manager: Paul Burton paul.burton@thomsonreuters.com (416) 649-9928 Circulation Co-ordinator: Keith Fulford keith.fulford@thomsonreuters.com (416) 649-9585 ©2018 Thomson Reuters Canada Ltd All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, photocopying, recording or otherwise without the written permission of the publisher (Thomson Reuters, Media Solutions, Canada). Most employers not prepared for expanded CPP in 2019: Survey BY MARCEL VANDER WIER Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) enhancements will come into effect next year, yet only 17 per cent of employers have taken action to prepare, according to an Aon survey. "A lot of employers out there have not stopped to really think about the consequences of those changes that are significant on the long-term," said Jason Malone, a partner at Aon in Montreal. e main concerns for employers are higher organizational costs (68 per cent), the impact on retirement programs (46 per cent) and the potential for a greater administrative burden (40 per cent), found the survey of 325 employers. Phased-in approach As of 2019, non-Quebec employees and employ- ers will contribute a matching 5.1 per cent to the national plan, followed by similar increases over the next four years — 2020 (5.25 per cent), 2021 (5.45 per cent), 2022 (5.7 per cent) and 2023 (5.95 per cent), as part of a gradual one per cent rise. In Quebec, rate changes have not yet been an- nounced, though the government has indicated it will phase in an increase over the next seven years. e current contribution rate is 5.4 per cent. en, in 2024, Canadian employees will begin contributing four per cent on an additional range of earnings up to an estimated $79,400 — an increase of 14 per cent by 2025. e additional contributions simply need to be incorporated as a rate increase within payroll sys- tems, said Rachel de Grâce, director of advocacy and legislative content at the Canadian Payroll As- sociation in Toronto. But employers would be wise to consider ways to integrate the higher CPP and QPP rates in terms of the overall budget, she said. "Some organizations are looking at their group RRSP plans or registered pension plans to see if they need to make up for the increased costs through capturing savings in another area." But pension plan reduction is not the intent of the enhanced CPP and QPP, said Malone. "e main reason why CPP was enhanced is the coverage is not sufficient," he said. "e gov- ernment and experts believe that, going forward, these plans are not sufficient to provide a healthy retirement for the population." Rethinking retirement Currently, the CPP works to replace one-quarter of a worker's average earnings, while the increases intend to shift retirement coverage to one-third, ac- cording to the government. e rise of contribution minimums could require employers to rethink pension formulas if they are based on yearly maximum pensionable earnings, said Malone. e fundamental issue is not the increased cost burden for employers and employees, but rather the purpose of company-led pension plans, he said. "We often forget why these defined benefit plans were put forward," said Malone. "e objective was to offer employees a certain replacement ratio… It assumed that the employee worked in Canada and had a certain replacement ratio from the CPP or the QPP. (With) the combina- tion of those two elements, as well as personal sav- ings, this employee would have been able to retire with a decent wage." "ere is a process that needs to take place to understand whether or not we need to change the objective of the defined benefit plan. I think it is an important thing to look at... not only employee communication, but also as a business, as an HR representative to ensure that the business under- stands the consequences of these changes." Any discussion ahead of alterations to company- led pension plans or formulas needs to be wide- ranging, said de Grâce. "at becomes a decision between the employer and, potentially, the union," she said. "Certainly, an employer would not be able to just arbitrarily make any kind of reductions to retirement or benefit plans without going through the union." In non-unionized workplaces, employers would need to consider the impact to employee morale and potential repercussions for employee con- tracts, said de Grâce. Communicating the changes Only six per cent of employers have communicated to employees about the coming changes to CPP and QPP, according to Aon's survey. It is important that employees understand the effect on their retirement savings, said Malone, "and make sure the business understands the con- sequences of this." "At the minimum, employees and employers will have to contribute more next year. So, what we rec- ommend is to have a simple communication." The 4.95 per cent contribution rate has not changed in many years so employees will see a differ- ence on their very first pay in January, said de Grâce. "ey'll see the increased CPP and so employers and the government should be starting to commu- nicate to employees to explain why CPP is going up, and what the intention of the enhancement is."

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