Introduction

Effective in January 2025, the Healthcare of Ontario Pension Plan (HOOPP) is allowing incorporated Ontario physicians with Medical Professional Corporations (MPCs) to join their plan. HOOPP is a defined benefit Multi-Employer Pension Plan (MEPP). Incorporated physicians would participate in the plan with investments and administration pooled and overseen by a Board of Trustees.

An Individual Pension Plan (IPP) is also a defined benefit plan, held in a trust set up for the incorporated physician. IPP Investments can be handled by a financial advisor of the physician’s choosing and administration can be handled by the actuarial firm on behalf of the trustees. HOOPP is a retirement savings tool, while an IPP is both a tax planning tool and a retirement savings tool.

This guide aims to provide key information which may help a physician incorporated in Ontario decide between joining HOOPP or implementing/maintaining an IPP.

Structure of Plan

HOOPP is a pooled pension plan, with assets and risk shared among all participants. Its centralized administrative function makes the MEPP a very safe and structured option, but with this comes greater rigidity and less flexibility compared to an IPP.

An IPP is held in a trust set up by the MPC for the physician. The IPP is the most tax-effective registered retirement arrangement permissible and allows for business owners to accumulate more registered assets through higher employer contributions than any other registered vehicle. Unlike HOOPP, an incorporated physician’s spouse or other family member can also become a member of the IPP if they are employed by the corporation, thereby resulting in opportunities for higher tax-deductible funding room and all members to receive a defined benefit pension.

Contribution Flexibility

Employer contributions for an MPC are entirely optional in an IPP, allowing for the business to have flexibility in times of economic uncertainty or variable cashflow situations. In addition, unused contribution room may also be carried forward to subsequent years. Additional funding opportunities can arise due to a variety of other circumstances, such as underperforming assets, purchasing of past-service, and terminally funding the plan. The annual contribution room ranges between 18% to 30% of income, increasing as a physician gets closer to retirement. While the IPP offers contribution and investment flexibility, contributions would need to be made to sustain the lifetime pension promise.

With HOOPP, funding is a requirement. As of the date this article was written, the employee contribution rate is 6.9% of salary up to the Year’s Maximum Pensionable Earnings (YMPE) and 9.2% on annualized baseline earnings above the YMPE. The Employer contribution rate is 126% of employee contributions.

The contribution requirement may increase if HOOPP plan assets underperform as the plan must meet the promised defined benefit pension payments, which are years of contributory service multiplied by the sum of 2% of average earnings above YMPE and 1.5% of average earnings up to YMPE.

The average annualized earnings are measured over the physician’s best five consecutive earning years. More details will be discussed in a later section. Contributions are remitted to HOOPP monthly whereas contribution frequency for an IPP can be determined at the physician’s leisure.

	Individual Pension Plan	Healthcare of Ontario Pension Plan
Required Contributions	No	Yes
Flexibility	High	None
Tax-Deductibility	High due to higher contributions	Low Due to lower contributions
Security	Depends on contributions and investment returns	Hight due to required contributions

Control of Assets and Surplus

One of the main reasons to set up an IPP is to take advantage of the higher contribution limits offered by pension regulations while still retaining control over the assets, similar to how one has with an RRSP.
There is significant loss of control over the assets with HOOPP and less opportunity for residual assets distributed to the individual physician’s beneficiaries. The IPP member (i.e., the physician), or their beneficiaries, always retain the funds they put into an IPP. If the IPP is well funded, any surplus can be retained in the IPP indefinitely or paid out to the members to supplement their income. Any residual surplus upon the passing of the member and spouse would be paid to the estate or beneficiaries of the last to die.

In HOOPP, surplus belongs to the plan and can be used to increase the benefits of other members. However, in times of economic downturn, if there is no surplus, it would likely lead to increased contribution requirements from members paying into the plan to fund the promised benefit. Upon passing of the physician and their spouse, no residual assets will be paid to the beneficiaries. In the event of an untimely death of both the physician and spouse where they are unable to reap benefits of the contributions made, any remaining assets would essentially be forfeited and HOOPP will continue to administer the pooled assets of all other participants.

Retirement Benefits

The HOOPP pension will be smaller than what an IPP provides, which is consistent with the lower average funding level compared to the IPP.

It is worth noting that in a physician’s first year of membership, the member’s baseline earnings of income must be set through the MPC’s participation agreement, which is the member’s expected income for the year. Baseline earnings cannot be more than actual employment earnings. Contributions made will be based on employment earnings, but within the range of the upper and lower earnings limits of baseline earnings. Each subsequent year, the baseline earnings increase based on the annualized income from the year prior. This may further suppress the size of the retirement benefit from HOOPP compared to an IPP.

An IPP’s benefit formula is years of service multiplied by 2% of indexed earnings, subject to CRA’s benefit maximums (and not by the baseline earnings determined in a participation agreement). If investment assets underperform and there is an unfunded liability identified in the IPP, a physician will have the opportunity to make further tax-deductible contributions to bring up the funded status of the plan even after pension has commenced. If the IPP does not continue to be funded (as funding is optional), the member may outlive the plan assets and the plan would naturally collapse at that point.

This risk does not exist with HOOPP as assets are pooled and contributions can be increased to meet the
plan liabilities. No contributions should be expected from a HOOPP member once they commence pension.

Past Service

IPPs can recognize all T4 employment income paid by the MPC back to the latter of 1990 or the company incorporation date (“past service”) to generate significant pension benefits and contribution room under the IPP.

HOOPP may allow certain periods of past service to be recognized under the plan, however significant limitations may be imposed based on the amount of T4 income paid in past years. Deviations in past T4 income from the “base earnings” used for the HOOPP benefit may be the cause of these expected limitations.

Terminal Funding

Terminal funding allows the IPP to generate significant additional top-up funding room after pension has commenced, usually in the range of $500K to $1M for a single-member plan and fully tax-deductible to the corporation. This additional funding helps ensure the sustainability of the IPP for the duration of the member’s life while also helping shelter the MPC’s earnings from taxation. With additional consultation and planning, this strategy can also be used during a business sale to shelter the proceeds of the sale from taxation.

There is no terminal funding opportunity with HOOPP. It is designed such that there is no need to make a large top-up contribution to sustain the member’s lifetime pension. It would be the responsibility of HOOPP as a whole to ensure sufficient pension assets are available to pay out the pension promises made.

Summary

An IPP is often the most suitable vehicle for incorporated physicians who are looking to maximize their retirement assets and retirement income, prefer to retain control of their retirement assets, and are comfortable with being responsible for funding their own retirement.

HOOPP may be a good option for incorporated physicians who prefer the security of a guaranteed lifetime pension benefit, and are comfortable with the more rigid structure, required funding, smaller pension, and lower contribution room offered by HOOPP.

The table below is meant to assist in summarizing the above discussion.

	Individual Pension Plan	Healthcare of Ontario Pension Plan
Amount of Pension Income	Larger	Smaller
Annual Contribution Room	Larger	Smaller
Required Annual Contributions before Retirement	No-contributions are optional	Yes
Contributions after Retirement	Actuary may certify optional contributions to sustain the pension	None required
Ability to Provide Lifetime Income	Subject to sufficient funding from the sponsoring corporation	Guaranteed lifetime pension *Amount of pension is subject to the health of the pooled plan assets
Increases to the Pension after Retirement	Yes – Standard increases referencing annual inflation	Inflation increases may be provided, subject to the health of the pooled plan assets
Benefits for Beneficiaries After Retirement	Survivor pension for an eligible spouse. Residual assets after death of member and spouse are distributed to beneficiaries	Only survivor pension for eligible spouse. No residual assets after member and spouse death
Investment Options	Many types of investment strategies accommodated	None – Pooled assets are invested according to the HOOPP plan terms
Fees	Annual fee invoiced directly to sponsoring company and corporately deductible	Embedded in contributions to the asset pool

Westcoast Actuaries has been administering IPPs for over 30 years. If you or your client are interested in how an IPP can provide a robust tax-efficient strategy to fund retirement, please contact us for a complimentary consultation at NewIPP@WAInc.ca.