On November 14, 2011, the Canada Employment Insurance Financing Board (CEIFB) released its 2012 Employment Insurance (EI) Premium Rate Report.  It announced that the employee rate for all residents, with the exception of Quebec, would be set at $1.83 per $100 of insurable earnings for 2012, an increase of 5 cents from the rate for 2011.  The employee rate for Quebec residents would be set at $1.47 (Quebec provides maternity, parental and adoption benefits and therefore employees/employers pay a lower rate).  There was little news coverage of this announcement.

The CEIFB must calculate the break-even rate for the EI program.  For 2012, the break-even was estimated at $2.56 per $100 of insurable earnings for residents outside the province of Quebec. Under current legislation, employee premium rates can not change by more than 10 cents per year.  Given that there is a cumulative deficit in the EI Operating Account, the Board should have set the employee rate at $1.88 for 2012.  However, in the November 8, 2011 Economic and Fiscal Update, the Minister of Finance announced that the rate for 2012 would be limited to $1.83, therefore precluding the setting of any other rate.  The Board had no option but to recommend that rate.

Since the creation of the CEIFB in 2008, the Government has set the EI premium rate each year.  This raises the question as to why we need the CEIFB.  Given the status of the EI Operating Accounts and current legislation, the Board has no discretion as to what the rate should be until 2015 or 2016.  In previous reports, we questioned the Government’s rationale for creating the CEIFB[1].  In our view, it was created to provide cover for the Government’s elimination of the notional $57 billion in the EI Account.  Even the Government believes that the current premium rate-setting process is flawed; as it has launched public consultations as to how premium rates should be set in the future. Although the elimination of the CEIFB will not result in any direct savings to the Government, as its costs are financed by employee/employer premium contributions, it has no real role in the current environment.

From the Chief Actuary’s Report[2], limiting the EI rate increase to 5 cents, rather than 10 cents, will still result in an increase in maximum annual premiums of 6.8 per cent for employees outside Quebec (for Quebec residents, the increase is 8.3 per cent).  The 6.8 per cent increase is made up of a 2.8 per cent increase in premium rates and a 3.8 increase in maximum insurable earnings – the base to which the premium rate is applied.  This is fairly hefty increase, given the projected slowdown in economic growth and weak employment growth.   

[1] See “Employment Insurance Rate Setting – Let’s Get It Right This Time”  October 2011  www.3dpolicy.ca

[2] The Chief Actuary’s Report is required even if the CEIFB was eliminated.