2018 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 2018 EI premium rate.

The Canada Employment Insurance Commission

The Canada Employment Insurance Commission (the Commission), a departmental corporation named in Schedule II to the Financial Administration Act, administers the Employment Insurance Act (the Act). The Commission is co-managed by Commissioners representative of the Government, workers and employers. The objective of the Act is to provide employment insurance benefits and employment programs and services to eligible workers. The financial transactions relating to this objective are reported through the Employment Insurance Operating Account (the Account).

The Commission is a tripartite organization that has been overseeing the EI program for over 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 following consultation with their respective stakeholders. 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.

The EI Operating Account was established in the accounts of Canada by the Act. All amounts received under the Act are deposited in the Consolidated Revenue Fund and credited to the Account. The benefits and the costs of administration of the Act are paid out of the Consolidated Revenue Fund and charged to the Account. In the financial statements, the Consolidated Revenue Fund is represented by the Balance of the account with Receiver General for Canada.

The Commission, through the officers and employees of the Department of Employment and Social Development (ESDC), is responsible for the delivery of the Employment Insurance program and the day-to-day administration of the Account.

A key duty of the Commission is setting the EI premium rate, the annual maximum insurable earnings and the employer’s premium reduction in respect of wage-loss plans, subject to the legislated parameters in the Act.

Among its regulation-making powers under the Act, the Commission, with the approval of the Governor-in-Council, is required to make regulations to provide a system to reduce employers’ and employees’ premiums when payments under a provincial law would have the effect of reducing or eliminating the special benefits payable under the Act. The Quebec Parental Insurance Plan (QPIP) replaces EI maternity and parental benefits for residents of Quebec, and accordingly, the Commission establishes the premium reduction for employers and employees in respect of that plan.

Starting in 2017, the Commission assumed responsibility for setting the EI premium rate for each year no higher than needed to cover the projected costs of the EI program over a seven-year period, and eliminate any cumulative surplus/deficit in the Account.

In addition to its role in EI premium rate setting and related matters, the Commission produces the annual EI Monitoring and Assessment Report in fulfillment of its legislated responsibility 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. Legislated timelines govern the required tabling of the EI Monitoring and Assessment Report in Parliament.

The Act authorizes the Commission, with the approval of the Minister of ESDC, to enter into Labour Market Development Agreements with each province and territory. Under these agreements, the Government of Canada provides contributions to provincial and territorial governments to be used to pay for all or a portion of the costs of their benefits and measures provided they are similar to the employment benefits and support measures established under Part II of the Act. The contributions can also be used to pay for any administration costs incurred in providing these similar benefits and measures.

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.

The Commission is also responsible for the publication of the annual Maximum Insurable Earnings (MIE), as well as the premium reductions related to the 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

On April 1, 2016, the EI Commission assumed responsibility for setting the annual EI premium rate according to a seven-year break-even mechanism. The Commission is responsible for setting the premium rate according to the seven-year break-even rate, which is a rate forecast by the EI Chief Actuary 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 provides a transparent rate setting process that ensures stable and predictable EI premium rates for Canadian workers and employers. This mechanism is also intended to ensure that EI contributions are only used for EI purposes, which supports the long-term sustainability of the program.

To provide an added measure of stability, the amount by which the premium rate may change from year-to-year is legislatively limited to five cents per $100 of insurable earnings. However, in 2017 there was an exception in the first year in which the seven-year break-even rate was set, when there was no limit on how much the rate could decline.

As a result, in September 2016, the EI Commission set the 2017 base premium rate at $1.63 per $100 of insurable earnings, a reduction of twenty-five cents from the 2016 rate of $1.88.

Through Budget 2017, the Government announced additional improvements to EI, including:

• A new EI caregiver benefit of up to 15 weeks that will cover a broader range of situations when individuals are providing care to an adult family member who requires significant support in order to recover from a critical illness or injury
• Making EI parental benefits more flexible by allowing parents to choose to receive parental benefits over an extended period of up to 18 months at a lower benefit rate of 33 per cent of average weekly earnings, or over the standard period of up to 12 months at a benefit rate of 55 per cent of average weekly earnings
• Increased flexibility to allow pregnant workers to claim EI maternity benefits earlier, up to 12 weeks before their due date, expanded from the current 8 weeks
• Parents of critically ill children will continue to have access to up to 35 weeks of benefits, with additional flexibility to share these benefits with more family members
• Supporting lifelong learning by making better use of existing flexibilities within the EI program that allow claimants to pursue self-funded training and maintain their EI status and,
• The Benefits Delivery Modernization is a strategic multi-year plan that will support modernization of service delivery and benefits processing across EI

2018 Actuarial report – Main findings

The Chief Actuary’s seven-year forecasted EI premium rate for 2018 is $1.66 per $100 of insurable earnings, an increase of 3 cents from the rate of $1.63 in 2017. In addition, the premium rate for residents of Quebec in 2018 is $1.30, as residents of Quebec remit premiums at a reduced rate because the province administers its own parental insurance plan. The increase in the premium rate is mainly attributable to changes to the EI program introduced in Budget 2017 and the corresponding increase in EI expenditures over the seven-year projection period. The projected increases in expenditures over this period include:

• $168 million for expanding parental benefits
• $36 million for providing earlier access to maternity benefits
• $1.1 billion for the new caregiver benefit for critically ill adults
• $231 million for extending flexibilities to encourage lifelong learning
• $1.8 billion in additional LMDA investments over six years and,
• $80 million in EI Part II spending announced in the Softwood Lumber Action Plan

New EI measures introduced in Budget 2017, as well as revised costs estimates for elements of Budget 2016, have increased projected program costs by about $3.6 billion over the forecast period. However, the increase in the forecast break-even rate is partially offset by the 2016 economic experience being better that previously forecast, as premium revenues were higher than projected in the 2017 Actuarial Report while benefit expenditures were lower than expected^{Footnote 1}. The result is an increase in the cumulative surplus in the EI Operating Account to $2.5 billion on December 31, 2016, $498 million higher compared to the projection in the 2017 Actuarial Report. In addition, the projection of total regular benefits paid is smaller than expected in the 2017 Report, also offsetting a portion of the impact of new expenditures on the forecast premium rate.

The actuarial forecast rests on a number of sensitivity assumptions, some of which have a more significant impact on the seven-year forecast break-even rate. For example, a variation in the average unemployment rate of ±0.5% over the 2018 to 2024 period would result in a 7 cent increase/decrease in the 2018 seven-year forecast break-even rate. In addition, a variation in the premium rate of ± 1 cent would result in a $1.14 billion increase/decrease in the cumulative balance of the EI Operating Account at the end of the seven-year forecast period.

In 2016, the EI Operating Account, which records all amounts received or paid out under the Employment Insurance Act, reached a cumulative surplus of $2.5 billion. The Account is forecast by the EI Chief Actuary to reach a surplus of $672 million as of December 31, 2017.

In 2018, employers and their employees will pay EI premiums on their insurable earnings up to the MIE of $51,700, an increase of $400 or 0.8%, from the 2017 MIE of $51,300.

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 2018:

• Section 66 of the Employment Insurance Act requires the EI Commission to set the annual premium rate each year to 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 2018 is $1.66 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.

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 2018 QPIP reduction is 36 cents, meaning the premium rate that could be set for residents of Quebec in 2018 is $1.30 per $100 of insurable earnings.

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 2018, it is estimated that the reductions will provide registered employers and their employees with $981 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 30,400 employers registered in the PRP, covering about $294 billion in insurable earnings for 2018.

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 2018 is $51,700, up from $51,300 in 2017.
• 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 2018 are shown in the table below.

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 2018, the prescribed amount of self-employed earnings is $6,947.
• 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.

EI operating account projections:

• Based on the premium rates described above, the EI Operating Account is projected to record an annual deficit of $423 million for 2018. As a result, the cumulative surplus in the Account is forecast to be $252 million as of December 31, 2018. Forecast EI revenues and expenditures for 2018 are shown in the table below.

Summary of the EI operating account ($ million)