Pension plans: getting on the bandwagon.

• Author: Bissonette, Laurie
• Position: Business Sense

Finding and keeping the right employees is important for the success of your business; while there is no shortage of talent in the job market these days, smaller enterprises often have to compete with larger firms to attract and retain talent. To help even the playing field, many smaller firms end up weighing the pros and cons of offering some sort of pension plan. Since there are a number of types of pension plans, employers who want to provide this benefit usually need to consider the cost associated with the different types of plans, figure out what they can afford, and then factor that into the total compensation package for their employees.

Although the Ontario government has announced a mandatory new provincial pension plan, putting together a plan within your own company may be helpful in retaining long-term employees. However, if you ultimately decide to adopt a pension plan, it will be important to understand Ontario's requirements once they're released to avoid any overlap.

For example, the Ontario Retirement Pension Plan (ORPP) will be funded by phased-in equal co-contributions from both employers and employees, starting in 2017 and reaching 1.9 per cent each from employer and employee when fully phased in by 2021. Every employee in Ontario will be part of the ORPP or a comparable workplace pension plan by 2020. Benefits will be paid starting in 2022.

Employers and employees who participate in a comparable pension plan will not be required to participate in the ORPP. (Note that Group Registered Retirement Savings Plans and Deferred Profit Sharing Plans are not considered comparable plans for this purpose.)

While a defined benefit plan may be out of your financial and administrative reach, another popular type of plan these days is a defined contribution pension plan. With this plan, individual employees essentially assume the risk of the return realized by the assets in the pension. Depending on the plan, both you and the employees would contribute a certain percentage into it. Unfortunately, these plans can sometimes be onerous and costly to manage. Although a small employer would have to do their homework to ensure the cost-benefit exists, a defined contribution plan is a very good option for a private business with a larger number of employees.

The employer's contributions to the defined contribution plan are not considered a taxable...