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Associate Minister of Finance Mitzie Hunter (who is in charge of the Ontario Retirement Pension Plan), left, walks to be officially sworn in at Queen's Park in Toronto on Tuesday, June 24, 2014.Nathan Denette/The Canadian Press

The Ontario government's latest update to its new mandatory pension plan system has raised strong objections from life and health insurers.

Canadian Life and Health Insurance Association Inc. (CLHIA) took issue with a recent consultation paper on the key features of the Ontario Retirement Pension Plan (ORPP). The provincial ORPP system aims to increase retirement incomes of those enrolled by nearly as much as the benefits paid by the federal Canada Pension Plan (CPP). Employees who already have "comparable" workplace pension plans are not required to enroll, and the self-employed and those in federally regulated sectors are also exempt.

The issue stems from the government's latest definition of a "comparable" plan. The consultation paper says it would not include the defined contribution (DC) plans many companies have adopted to help employees save for retirement – both the employer and employee contribute a regular sum each year, which is invested for the employee to use in retirement. Insurers such as Manulife Financial Corp. and Sun Life Financial Inc. often act as plan providers and administrators.

That definition means that employers currently offering a DC plan would have to offer ORPPs as well.

The government's reasoning for excluding the plans is that they don't offer a "predictable stream of retirement income that is paid for life" the way the ORPPs will. The DC plans don't necessarily protect people from outliving their savings, the paper states, adding that employee contributions aren't always equally matched by employers and those enrolled often run the risk of lower-than-expected returns.

CLHIA argues that more than 600,000 Ontario residents are using DC plans for retirement savings successfully, and that the introduction of ORPPs may cause companies to drop existing DC plans.

"This stance would negatively impact DC plans and savings rates not only in Ontario, but across the country," said Frank Swedlove, chief executive of CLHIA, in a statement. "Employers who took the responsible approach and established these types of plans for their employees would now also be obliged to participate and contribute to ORPPs. In too many cases, we fear that they will either cut back the benefits of their DC plans or abandon them entirely."

The CLHIA also takes issue with some of the government's reasoning for the definition, arguing that employers contribute more to plans than their staff, on average.

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