2017 Employment Insurance Premium Rate

Official title: Summary of the Actuarial Report on the Employment Insurance Premium Rate

Pursuant to section 66.31 of the Employment Insurance Act, the Canada Employment Insurance Commission (the Commission) is pleased to present the following summary of the results of the Actuary’s Report prepared by the Commission’s Chief Actuary, Employment Insurance (EI) Premium Rate Setting, in respect of the 2017 EI premium rate.

The Canada Employment Insurance Commission

The Commission is a departmental corporation of the Department of Employment and Social Development Canada (ESDC) and plays a key role in administering the EI program, including through the making of regulations, with the approval of the Governor-in-Council. In addition to its role in EI premium rate setting, the Commission produces the annual EI Monitoring and Assessment Report in order to monitor and assess the impact and effectiveness of the benefits and other assistance provided for in the Employment Insurance Act for individuals, communities and the economy.

The Commission is a tripartite organization that has been overseeing the EI program for 75 years. The Commission has four members, three of whom are voting members representing the interests of workers, employers, and government. The Commissioner for Workers and the Commissioner for Employers are appointed by the Governor in Council for terms of up to five years. They are mandated to represent and reflect the views of their respective constituencies. The Deputy Minister of the Department of ESDC, representing government, acts as the Chairperson, while the Senior Associate Deputy Minister of the Department of ESDC and Chief Operating Officer for Service Canada acts as the Vice-Chairperson and has voting privileges only when acting on behalf of the Chairperson.

Premium Rate Setting

To ensure transparency and accountability in the EI premium rate setting process, the EI Chief Actuary is required to submit to the Commission an actuarial report forecasting the EI premium rate for the following year, based on a seven-year break-even rate. In turn, the Commission is required to prepare a summary of that report and make both the actuarial report and its summary publicly available. In addition, the EI Act requires the Minister of Employment and Social Development to table in both Houses of Parliament the Actuary’s report and the Commission’s summary report within 10 sitting days of September 14th.

In addition to its reporting obligations, the Commission is also responsible for the publication of the annual Maximum Insurable Earnings (MIE), as well as the premium reductions related to the Quebec Parental Insurance Plan (QPIP) and employer wage-loss plans under the Premium Reduction Program (PRP).

The legislative provisions of the Department of Employment and Social Development Act require the Commission to engage the services of a Fellow of the Canadian Institute of Actuaries who is an employee of the Office of the Superintendent of Financial Institutions (OSFI) to perform the actuarial forecasts and estimates for the purposes of EI premium rate setting.

On March 14, 2013, Mr. Michel Millette was appointed as the Commission’s Chief Actuary, EI Premium Rate Setting. Mr. Millette, who is a fellow of the Canadian Institute of Actuaries and of the Society of Actuaries, is a managing director at OSFI with over 30 years of actuarial experience, including recent experience working on the EI program and premium rate setting.

Context

Beginning with the 2017 premium rate, the EI Commission has assumed responsibility for setting the annual EI premium rate. The Commission will set the premium rate each year based on the seven-year break-even rate, which is a rate forecasted by the EI Chief Actuary that is expected to result in a balance of $0 in seven years in the EI Operating Account, including the elimination of any cumulative surplus or deficit in the Account.

The seven-year break-even mechanism was adopted as a result of public consultations undertaken in 2011 with key stakeholders, which indicated that Canadians wanted more stable and predictable premium rates, and greater transparency in the rate-setting process.

To ensure stability and predictability for EI premium payers, annual adjustments to the premium rate will continue to be subject to a legislated limit of five cents. However, in 2017 there is an exception which places no limit on how much the rate can decline to accommodate the significant reduction of the premium rate as a result of the introduction of the seven-year mechanism, which is intended to set a premium rate that achieves balance in the EI Operating Account over a period of seven years.

Through Budget 2016, the Government announced immediate action to improve EI so that more Canadians get the help they need when they need it. These changes included:

  • Expanding access to EI for new-entrants and re-entrants to the workforce;
  • Reducing the EI waiting period from two weeks to one week, effective January 1, 2017;
  • A new Working While on Claim pilot project starting in August 2016 until August 2018, that will allow claimants a choice of two options that will better support their job prospects;
  • Temporarily extending the duration of EI regular benefits by 5 weeks, to a maximum of 50 weeks, for claimants in the 15 EI economic regions that have experienced the sharpest and most severe increase in unemployment;
  • Temporarily offering an additional 20 weeks of EI regular benefits to long-tenured workers in the same 15 regions, up to a maximum of 70 weeks; and
  • Temporarily extending the maximum duration of Work-Sharing agreements from 38 to 76 weeks.

Under the Small Business Job Credit, any firm that pays employer EI premiums equal to or less than $15,000 in 2015 and/or 2016 will be eligible for the credit in those years. The credit is equivalent to a reduction of 39 cents per $100 of insurable earnings in EI premiums paid by small employers. This program will expire effective December 31, 2016.

2017 Actuarial Report –Main Findings

The Chief Actuary’s forecasted EI premium rate for 2017 is $1.63 per $100 of insurable earnings, a reduction of 25 cents from the legislated rate of $1.88 in 2016. In addition, the premium rate for residents of Quebec in 2017 is $1.27, as residents of Quebec remit premiums at a reduced rate because the province administers its own parental insurance plan.

In 2015, the EI Operating Account, which records all amounts received or paid out under the Employment Insurance Act, returned to a cumulative balance of $0.9 billion. The Account is forecast by the EI Chief Actuary to reach a cumulative surplus of $2.0 billion as of December 31, 2016.

The EI Operating Account had been recording annual surpluses since 2012, after reaching a cumulative deficit of $9.2 billion in 2011, which was a result of the global recession. The surplus in the EI Operating Account accumulated after the Government froze the EI premium rate at $1.88 per $100 of insurable earnings from 2013-2016, until the Account returned to cumulative balance.

In 2017, employers and their employees will pay EI premiums on their insurable earnings up to the MIE of $51,300, an increase of $500 or 1%, from the 2016 MIE of $50,800.

Summary of Actuary’s Report

Pursuant to section 66.31 of the Employment Insurance Act, this summary presents the results of the EI Chief Actuary’s report in respect of the 2017 EI premium rate. In accordance with the legislation, the actuarial forecasts and estimates included are for the purposes of the calculation of the EI premium rate, the annual MIE, as well as the premium reductions related to the QPIP and employer wage-loss plans under the PRP.

Premium Rate for 2017:

  • Section 66 of the Employment Insurance Act requires the EI Commission to set the annual premium rate each year this rate will ensure that EI cumulative revenues and expenditures break even at the end of the seven-year period, subject to a five-cent limit on year-to-year changes.
  • The forecast seven-year break-even EI premium rate for 2017 is $1.63 per $100 of insurable earnings. The break-even premium rate is the rate determined by the EI Chief Actuary that is expected to generate a projected balance in the EI Operating Account of $0 in seven years. Therefore sufficient premium revenue must be generated to cover EI expenditures over the next seven years, eliminating any existing surplus or deficit in the EI Operating Account over that period.
  • It should be noted that the annual expected pay-as-you-go-rate (PayGo), which is the premium rate forecast to cover the expected EI program expenditures for the coming year, is $1.78.

QPIP Premium Reduction:

  • The Employment Insurance Act and Regulations provide for premium reductions for residents of a province that administers its own insurance plan for the payment of special benefits, whereby those provincial benefits replace federal EI benefits. As a result, EI premium rates are lower for residents of Quebec, because the province of Quebec administers its own parental insurance plan, known as the QPIP, which is financed by Quebec workers and their employers. The 2017 QPIP reduction is 36 cents, meaning the premium rate that could be set for residents of Quebec in 2017 is $1.27 per $100 of insurable earnings.

Maximum Insurable Earnings:

  • Section 4 of the Employment Insurance Act provides for the annual calculation of the MIE, which is the maximum annual amount of employment income on which EI premiums are paid by workers and their employers and for which benefits may be paid. The MIE for 2017 is $51,300, up from $50,800 in 2016.
  • The MIE is indexed to the annual percentage increase in the average weekly earnings of the industrial aggregate in Canada, as published by Statistics Canada, to ensure that the level of income insured maintains its relative value.
  • As a result of the MIE and premium rates for the year, the maximum amounts of premiums paid by workers and employers (per employee) for 2017 are shown in the table below.
  Premium Rate

(per $100 of insurable earnings)
Maximum Annual Contribution Difference in Maximum Annual Contribution from 2016
Workers $1.63 $836.19 -$118.85
Employers $1.63 x 1.4 = $2.282 $1,170.67 -$166.39
Workers in Quebec $1.27 $651.51 -$120.65
Quebec Employers $1.27 x 1.4 = $1.778 $912.11 -$168.91

The Self-Employed:

  • Self-employed individuals who have opted into the EI program in order to access EI special benefits pay the same premium rate as salaried employees and pay premiums up to the MIE.
  • Eligibility for benefits is a key feature of the EI program and ensures that those who receive benefits have a minimum level of attachment to the workforce. Pursuant to section 152.07 of the Employment Insurance Act, a self-employed person who opted into the EI program may qualify for EI special benefits providing they meet prescribed requirements, which includes a minimum amount of self-employed earnings. For 2017, the prescribed amount of self-employed earnings is $6,888.
  • The level of earnings required by self-employed persons to be eligible for special benefits is indexed annually to the growth in the MIE to ensure that the level of self-employed earnings required to be eligible for special benefits maintains its relative value over time.

Premium Reduction Program:

  • The Employment Insurance Act and Regulations also provide for premium reductions for employers who provide their employees with qualified wage-loss plans that meet certain requirements and reduce EI special benefits payable. There are four categories of qualified plans, and for each category a rate of reduction is calculated annually. The corresponding rates of reduction reflect the average rate of savings for EI generated by plans in each category. This is administered through the PRP.
  • In 2017, it is estimated that the reductions will provide registered employers and their employees with $955 million in premium relief. The premium reductions are shown in the table below. Employers registered in the PRP will be notified individually, as individual premium reductions may vary.
  • There are approximately 31,300 employers registered in the PRP, covering about $287 billion in insurable earnings for 2017.
  Category 1 Category 2 Category 3 Category 4
Premium Reduction (per $100 of insurable earnings) $0.21 $0.36 $0.35 $0.39

EI Operating Account Projections:

  • Based on the premium rates described above, the EI Operating Account is projected to record an annual deficit of $2.1 billion for 2017. As a result, the cumulative deficit in the Account is forecast to be $68M as of December 31, 2017. Forecast EI revenues and expenditures for 2017 are shown in the table below.

Summary of the EI Operating Account ($ million)

Calendar Year Premium Rate

(%)
Net Premium Revenues Expenditures Annual Surplus

(Deficit)
Cumulative Surplus

(Deficit)

December 31
2016 1.88 23,564 22,415 1,149 2,016
2017 1.63 21,174 23,258 (2,084) (68)
2018 1.63 21,947 22,751 (804) (872)
2019 1.63 22,790 22,955 (165) (1,037)
2020 1.63 23,598 23,600 (2) (1,040)
2021 1.63 24,528 24,410 118 (922)
2022 1.63 25,373 25,129 244 (678)
2023 1.63 26,241 25,867 374 (304) Footnote 1
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