There has been a lot of concern over whether Canadians are saving enough for retirement. One reaction to this is the gradual enhancement of the Canadian Pension Plan, which starts in 2019. Another is the new defined benefits pension plan for the Ontario nonprofit sector, OPTrust Select, which was launched April 2018.
OPTrust Select is run by a legal trust which exists at arm’s length from both the Ontario Public Service Employees Union (OPSEU) and the Government. In a nutshell, the plan takes 3% of an employee’s salary from the employer-organization (plus an extra 0.2% in the first two years) plus 3% from the employee, and invests it in a fund. After the age of 65, the employee receives a steady stream of retirement income to supplement their government benefits.
Because the pension plan is shared across the sector, it is billed as an affordable plan for small charities and other not-for-profits that would not be able to afford a pension plan otherwise. It also presents a lower risk than single-employer defined benefits plan—assuming that the plan is widely adopted. To the best of my knowledge, the OPTrust Select pension plan hasn’t been widely adopted, but we’re still in very early days.
Is adopting the OPTrust Select pension plan right for your nonprofit organization?
Have the talk
As the employer, the nonprofit decides which classes of its employees will be part of the pension plan. Fulltime employees will continue to contribute to the OPTrust Select pension plan, unless your organization places them into an exempt category or they leave. Ultimately, this should be an in-house conversation. In addition to the hassle of adjusting salaries to reflect the organization’s contributions the pension plans of employees in the participating class(s), the employees may have their own opinions.
- On one hand, the ease and certainty offered defined benefit pension plan means one less thing to worry about. For employees who feel this way, the pension plan will free up time and energy that they can spend on things that matter to them. Plus, there is a payroll reduction, lowering the amount of taxes withheld from their paycheques.
- On the other hand, some employees may be unhappy with the lack of control that a defined benefits plan presents. They cannot lower (or raise) their contributions to the pension plan, so they may object to participating in favour of putting the money towards their own investments, towards paying down debt, or towards an RRSP in order to take advantage of the first time home buyers plan.
Myth bust: Attracting and Retaining Talent
Common wisdom says that pension plans are a tool for attracting and retaining talent. But this is a sector-wide plan. Assuming that the pension plan is widely adopted, employees will be able to bring it with them as they move around in the sector during their careers.
If your nonprofit doesn’t have a pension plan, joining this one may have a small impact on your organization’s ability to retain talent that would otherwise leave for the Ontario nonprofit sector. If your organization already has a plan, you’ll have to balance the loss of any talent retention effect it may have against the benefits of rolling it into the OPTrust Select plan. Perhaps it will help Ontario’s nonprofit sector as a whole to attract and retain talent, but don’t expect to see a radical difference. In any event, it’s nice to see an affordable option out there.
By: Lex Klombies, Articling Student