Ontario physicians recently received notable news that they will be eligible to participate in the Healthcare of Ontario Pension Plan (HOOPP). Jessica Arakgi and Ron Haik, Wealth Advisors | Client Relationship Managers at Nicola Wealth’s Toronto office, share insights into what this means for physicians’ retirement planning.

What is HOOPP?

HOOPP, established in 1960, is a defined benefit pension plan designed to provide a reliable retirement income for individuals working for HOOPP-participating employers. Historically, Ontario physicians’ eligibility depended on their employment status. Physicians employed by hospitals or healthcare organizations participating in HOOPP were eligible, while those in private practice typically were not, unless included through contracting arrangements.

In 2001, physicians were allowed to incorporate, enabling greater control over their retirement planning and the ability to save within their corporation as part of their retirement plan. However, corporate tax reforms introduced in 2018 eroded some of the benefits. Changes included Adjusted Aggregate Investment Income (AAII) rules, impacts on the small business tax rate, and eliminating income splitting with spouses prior to age 65. Incorporated physicians not affiliated with a HOOPP employer have historically been unable to join the plan—until now that is.

How HOOPP Works

HOOPP operates as a defined benefit pension plan, ensuring retirement income based on salary, years of service, and contributions. Both the individual and their employer contribute to the plan. For incorporated physicians, contributions are made by both the physician personally and their Medical Professional Corporation (MPC).

These contributions are pooled into a collective fund, which is professionally managed and invested. Upon retirement, eligible individuals receive regular pension payments that are calculated based on their salary and years of service, with adjustments for inflation over time.

The key factors determining pension benefits are:

Average Salary: Higher salaries lead to greater retirement benefits.
Years of Service: The longer an individual contributes to the plan, the higher their pension.
Contributions: Both the employer and the employee contribute to the fund. Typically, employees contribute a percentage of their salary, with employers matching or supplementing these contributions. The contribution rate is progressive, meaning higher-income earners will contribute a larger percentage of their salary.

Pros of HOOPP for Ontario Physicians

Guaranteed Retirement Income: One of the most significant advantages of participating in HOOPP is the guaranteed income physicians receive in retirement. Since it is a defined benefit plan, the amount a physician receives upon retirement is predetermined based on their earnings and years of service. This provides peace of mind knowing that retirement funds will be available, no matter how the market performs.
Large Pension Pool: HOOPP manages a large pension fund, over $112B, supporting it’s ability to make long-term, stable investments. The plan has historically demonstrated a relatively strong track record of maintaining a high funding ratio and managing risk effectively. For physicians looking for a reliable retirement plan, HOOPP seems to provide access to an approach aimed at supporting financial stability. HOOPP’s underlying investments strategy includes private assets such as commercial real estate, infrastructure and private equity giving participants access to asset classes beyond stocks and bonds they may otherwise not be able to access in retail banking. This diversified approach to investing can smooth returns overtime.
Employer Contributions: Unlike some retirement plans where the individual bears all the burden of funding, hospital employees registered in HOOPP benefit from the employer contributions made on their behalf. This effectively doubles the contributions towards the pension plan and helps accumulate funds more quickly. Note in the case of new physicians joining the plan, they are effectively bearing the full burden of funding as they are the sole shareholder of their MPC (their employer).
Portability: HOOPP is a portable pension plan, which means that if a physician moves from one healthcare organization to another that participates in HOOPP, their pension benefits remain intact. This can provide continuity of retirement savings for physicians who change employers throughout their careers.
Lower Risk: Since HOOPP is a defined benefit plan, the investment risk is largely borne by the pension plan, not the physician. In the event of poor market performance, HOOPP is designed to ensure that retirement benefits are still paid out, unlike defined contribution plans where poor investment returns can directly impact retirement income.

Cons of HOOPP for Ontario Physicians

Lack of Flexibility: Defined benefit plans like HOOPP are less flexible than defined contribution plans or other savings options such as RRSPs or corporate investment accounts. A physician cannot control how the funds are invested or adjust their retirement plan based on personal financial needs or preferences. Physicians who prefer to manage their retirement investments actively may find this structure limiting.
Contribution Caps: HOOPP has contribution parameters that could be viewed as limiting for some individuals. Once you select your desired baseline earnings (within the allowable range), changes to your future contributions may be limited.
Inflexibility in Payout Options: While the guaranteed pension income is attractive, the specific payout options and terms under HOOPP might not be as flexible as some physicians desire. At the time you retire, you will be presented with income payment options, including the residual spousal benefit and guarantee payment periods. The standard survivor spousal benefit is 66.6% for the duration of their life although you can select amounts up to 100% which would then reduce the plan members lifetime benefit.
Liquidity: Physicians who want more control over the distribution of their retirement funds (e.g., in lump sums or at specific times) may find HOOPP’s fixed pension structure less flexible in comparison.
Opting Out and Exit Strategy: While physicians now have the choice to enroll in HOOPP, enrolling may not always be the most financially beneficial decision. Opting out could mean missing out on years of contributory service and it can also limit future retirement security. Furthermore, what if a physician moved from one province to another or left Canada altogether? This may result in undesired tax consequences.
Estate Implications: With a pension, generally at the end of the day once you and your qualified spouse have passed away, the pension income ends and the capital reverts to the pool and other plan members. The pensions do provide a guarantee payout period.
Spousal Pension: Within the 12 months leading up to your first pension payment, you and your qualifying spouse can choose to waive the right to a spousal pension. This choice must be made before your pension payments begin. Waiving this entitlement means your spouse will not receive a monthly spousal pension if you pass away before them. Instead, HOOPP will pay any survivor benefits to your beneficiaries if you pass away before receiving 15 years of payments.

Can I get the best of both worlds?

For physicians seeking the benefits of defined benefit pension plans, access to private assets, and maintaining some level of control and flexibility, an Individual Pension Plan (IPP) may be a suitable option. An IPP is a defined benefit pension plan for an individual (and their physician spouse in cases of a dual physician MPC). With an IPP, only the MPC contributes into the plan on behalf of the employee and IPP contributions are at a higher amount than traditional RRSP contribution limits. IPP’s are a tax efficient retirement vehicle to both the employee and its corporation as the corporation makes tax-deductible contributions and also provides a guaranteed retirement income. If the physician has been receiving a salary from their MPC, they are likely eligible to make a one-time past service contribution into the IPP which is a tax deduction to their corporation. The physician may also be able to roll some or all of their RSP into their IPP.

At retirement one can make a one-time tax-deductible deposit and every three years the plan is reassessed, and further contributions may be made (further tax-deductible contributions to your MPC).

Similar to HOOPP and traditional RRIFs (Registered Retirement Income Funds), during retirement a physician is able to income split the pension income with their spouse. A further benefit of an IPP is that one can income split as early as age 55.

However, unlike Defined Benefit Pension Plans, upon the second death (or first if there is not a qualified beneficiary), the remaining capital within the IPP can be directed towards your beneficiaries.

IPPs generally make the most sense for incorporated physicians between the ages of 45 and 65 who have had a corporation for years and who have been drawing a salary.

What should I do?

As with any new opportunity, this announcement should provide an impetus to physicians to review their current planning and ask the following:

Am I on track to achieve my retirement objectives and do I have a plan in place to do so?
Is my current compensation planning the most tax efficient way to fund my needs now and in retirement? Should I consider salary, dividends or combination of the two and what are the tax implications on a personal and corporate level?
Am I minimizing my tax drag by taking advantage of tax planning opportunities like utilizing my Capital Dividend Account (CDA) to withdraw money tax free from the corporation?
Are my investments structured to optimize tax efficiency, as a result of Adjusted Aggregate Investment Income (AAII) and its impact on my Small Business Deduction (SBD)?
Am I able to access investment opportunities that offer greater customization, access to private assets and liquidity?
Is my estate plan tailored to my unique situation to enhance tax efficiency while leaving heirs in a better position by implementing any other planning strategies?

HOOPP offers Ontario physicians employed in hospitals or other healthcare organizations with a stable pension plan that offers guaranteed retirement income. For eligible physicians, the key benefits include potential financial security, and access to an established pension plan.

However, the plan is not without its limitations. Physicians who prefer more control over their retirement investments may find HOOPP less suitable. It is crucial for Ontario physicians to assess their employment situation and long-term retirement goals before deciding whether to enroll in the plan.

As with medicine, there is no one size fits all and by working with a team of qualified advisors that has both the years of experience and ongoing education, physicians will benefit from a plan unique as they are.

Jessica Arakgi, CFP®, CIM®, CLU®, CHS, FEA Ron Haik, CFP®, CIM®, FCSI®, CIWM, TEP, MBA
Wealth Advisor | Client Relationship Manager Wealth Advisor | Client Relationship Manager

HOOPP for Ontario Physicians: What You Need to Know