Vol. 149, No. 12 — June 17, 2015

Registration

SOR/2015-128 June 5, 2015

EMPLOYMENT INSURANCE ACT

Regulations Amending the Employment Insurance Regulations

P.C. 2015-755 June 4, 2015

His Excellency the Governor General in Council, on the recommendation of the Minister of Employment and Social Development, pursuant to paragraph 54(s), subsection 69(2) (see footnote a) and section 153.2 (see footnote b) of the Employment Insurance Act (see footnote c), approves the annexed Regulations Amending the Employment Insurance Regulations, made by the Canada Employment Insurance Commission.

The Canada Employment Insurance Commission, pursuant to paragraph 54(s), subsection 69(2) (see footnote d) and section 153.2 (see footnote e) of the Employment Insurance Act (see footnote f), makes the annexed Regulations Amending the Employment Insurance Regulations.

Gatineau, April 27, 2015

REGULATIONS AMENDING THE EMPLOYMENT INSURANCE REGULATIONS

AMENDMENTS

1. Subsection 36(17) of the Employment Insurance Regulations (see footnote 1) is replaced by the following:

(17) The weekly amount shall be calculated in accordance with the following formula, according to the claimant’s age on the day on which the lump sum payment is paid or payable:

A / B

where

A is the lump sum payment; and

B is the estimated actuarial present value* of $1 payable at the beginning of every week starting from the day on which the lump sum payment is paid or payable and payable for the claimant’s lifetime, as calculated each year in accordance with the following formula:

Detailed information can be found in the surrounding text.

where

tPx is the probability that the claimant will survive for “t” years from the claimant’s age “x” using the latest Canadian mortality rates used in the valuation of the Canada Pension Plan prorated in equal parts between males and females,

i is the annualized long-term Government of Canada benchmark bond yields averaged over the 12-month period ending on August 30, 2014, expressed as a percentage and rounded to the nearest one tenth of a percentage, and

t is the number of years that the claimant survives according to the claimant’s age for which the probablity of survival is estimated by tPx.

* Note: The estimated actuarial present values are published annually on the Service Canada website.

2. Subsection 36(17) of the Regulations is replaced by the following:

(17) The weekly amount shall be calculated in accordance with the following formula, according to the claimant’s age on the day on which the lump sum payment is paid or payable:

A / B

where

A is the lump sum payment; and

B is the estimated actuarial present value* of $1 payable at the beginning of every week starting from the day on which the lump sum payment is paid or payable and payable for the claimant’s lifetime, as calculated each year in accordance with the following formula and effective on January 1 of the year following its calculation:

Detailed information can be found in the surrounding text.

where

tPx is the probability that the claimant will survive for “t” years from the claimant’s age “x” using the latest Canadian mortality rates used in the valuation of the Canada Pension Plan prorated in equal parts between males and females,

i is the annualized long-term Government of Canada benchmark bond yields averaged over the 12-month period beginning on the September 1 and ending on the August 30 before the January 1 on which the estimated actuarial present values are effective, expressed as a percentage and rounded to the nearest one tenth of a percentage, and

t is the number of years that the claimant survives according to the claimant’s age for which the probablity of survival is estimated by tPx.

* Note: The estimated actuarial present values are published annually on the Service Canada website.

3. Section 76.07 of the Regulations is replaced by the following:

76.07 The premium reduction rate determined under section 76.06 is to be published in Part 1 of the Canada Gazette by the Commission as soon as feasible after it is determined.

4. Section 76.35 of the Regulations is replaced by the following:

76.35 The premium reduction rate of the self-employment premium determined under section 76.06 is to be published in Part 1 of the Canada Gazette by the Commission as soon as feasible after it is determined.

5. Schedule II to the Regulations is repealed.

COMING INTO FORCE

6. (1) These Regulations, except section 2, come into force on the Sunday after the day on which they are registered.

(2) Section 2 comes into force on January 1, 2016.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

Canadian workers who receive a lump sum payment in lieu of a pension annuity, and qualify for employment insurance (EI) benefits have the lump sum converted into a weekly annuity for the purposes of calculating EI benefits. This conversion uses coefficients found in Schedule II of the Employment Insurance Regulations (the EI Regulations), which were derived using a fixed interest rate of 9.5%. Currently, interest rates are much lower. As a result, claimants who receive lump sum pensions have their EI benefits reduced by more than those receiving annuities, and more than would be the case if the coefficients were derived using current interest rates.

In addition, due to the repeal of section 66.5 of the Employment Insurance Act (the EI Act) in 2013, a reference to that provision in subsections 76.07(2) and 76.35(2) of the EI Regulations is no longer accurate. As a result, there is no statutory authority to publish the premium reduction in respect of the Quebec Parental Insurance Plan (QPIP) in the Canada Gazette, Part I. This increases the risk of uncertainty for stakeholders with respect to where current and past premium rates will be published, reduces transparency, and is inconsistent with the publication standard established in the Canada-Quebec final agreement on the Quebec Parental Insurance Plan.

Background

Lump sum pensions

A significant proportion of Canadian workers participate in employer-sponsored retirement plans. For the most part, these are paid as pensions or as annuities. However, a small number of these workers (approximately 300 individuals in 2011) receive a lump sum payment in lieu of a pension. Additionally, upon retirement from their employment, they may also be eligible to collect EI benefits, if they continue to be available for work and meet eligibility requirements.

Under EI, moneys that are paid to claimants in lieu of a pension are earnings arising from employment and are deducted from EI benefits as provided in section 36 of the EI Regulations. Where a pension is paid as a lump sum, rather than a monthly or annual amount, subsection 36(17) of the EI Regulations provides for the conversion of the lump sum into weekly annuity amounts to be allocated for each $1,000 of the lump sum. The weekly annuity amount is calculated with the coefficients in Schedule II of the EI Regulations, which were in turn calculated using an equation based on the age of the claimant and interest rates. Using this equation, the higher the interest rate and the older the claimant, the higher is the weekly annuity equivalent, and the greater the amount deducted from an individual’s EI benefits.

Schedule II has not been updated since it was introduced in October 1986; however, interest rates have decreased from 9.5% in October 1986 to 3% in October 2013. Since Schedule II has not been updated since 1986, the weekly annuity equivalents are greater than would be the case using current interest rates, and claimants have more money deducted from their EI benefits than if current interest rates applied. This means that claimants with lump sum pensions have their benefits reduced by more than those receiving annuities. In 2010, the average lump sum pension for which an allocation was made against EI benefits was approximately $32,000 with the highest lump sum being $500,000.

Publication of the premium rate reduction for residents of Quebec

The EI Act and the EI 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. The province of Quebec administers its own parental insurance plan, known as the QPIP, and the EI program, therefore, does not pay maternity and parental benefits to Quebec residents. As a result, EI premium rates are lower for residents of Quebec.

Prior to December 12, 2013, and royal assent of the Economic Action Plan 2013 Act, No. 2, section 66.5 of the EI Act required that premium rates be published, as soon as possible after they are announced, in the Canada Gazette, Part I. Subsections 76.07(1), 76.07(2), 76.35(1), and 76.35(2) of the EI Regulations reference section 66.5 of the EI Act, and clarify that this publication must include the annual premium rate reduction for residents of Quebec related to the QPIP, consistent with the Canada-Quebec final agreement on the QPIP.

The Economic Action Plan 2013 Act, No. 2 enacted a number of changes to the EI premium rate setting mechanism in the EI Act, including the fixing of 2015 and 2016 rates at $1.88 per $100 of insurable earnings.  The rates for these years were therefore published in the Canada Gazette, Part III, on February 13, 2014, and to avoid redundancy, section 66.5 of the EI Act was repealed. Subsections 76.07(1), 76.07(2), 76.35(1), and 76.35(2) of the EI Regulations now contain references to a section of the EI Act that no longer exists, and there is no longer a legal requirement for publication of the annual premium rate reduction for residents of Quebec in the Canada Gazette, Part I.

Objectives

The objectives of the amendments are to ensure that EI claimants are treated fairly and consistently, whether they receive their pension as a lump sum or an annuity; and, to ensure the continued transparency of the EI premium rate for residents of Quebec and their employers.

Description

The amendments repeal Schedule II of the EI Regulations, and include the formula for calculating the weekly annuity equivalents in subsection 36(17) of the EI Regulations, to provide for the annual calculation of the weekly amounts using current interest rates (3% as of October 2014). This will ensure that lump sum pensions are treated the same as an annuity on an ongoing basis.

The amendments also remove a reference to section 66.5 of the EI Act, and establish a separate requirement to publish the annual premium rate reduction in respect of the QPIP in the Canada Gazette, Part I.

“One-for-One” Rule

The “One-for-One” Rule does not apply to this proposal, as there is no change in administrative costs to business.

Small business lens

The small business lens does not apply to this proposal, as there are no costs to small business.

Consultation

The Canada Employment Insurance Commission (the Commission), which includes a representative for workers and a representative for employers conducts ongoing consultations and receives representations from their constituents. The amendments were initiated by the Commission based on representations from their constituents during such consultations.

A Notice of Intent to bring forward the amendments was published in the Canada Gazette, Part I, on October 4, 2014, followed by a 15-day public comment period. No comments or concerns were received.

Rationale

The amendments are technical and corrective in nature and necessary in order to update provisions related to the treatment of lump sum pensions. The amendments ensure that EI claimants who receive lump sum pensions have their EI benefits reduced by an amount derived using current interest rates, ensuring fairness relative to EI claimants who receive their pensions as annuities. This change will increase benefits for approximately 380 claimants by, on average, $16 per week, over a 26-week average claim, for an estimated total cost of $159,000 per year. Due to the small size of the affected population, the increase in benefits paid to these claimants will not have any impact on actuarial calculations of the EI premium rate and will not result in changes to that rate.

The amendments also provide certainty that publication of the EI premium rate and the premium reduction for residents of Quebec would continue to be published in the Canada Gazette, Part I, as soon as possible once the premium rate is announced (by September 14 of each year), consistent with past practice and commitments under the Canada-Quebec final agreement on the QPIP.

Implementation, enforcement and service standards

The calculated weekly annuity equivalents, by age, will be published on the Service Canada Web site on an annual basis, effective January 1 of each year. This does not change the process for claimants who will continue to submit claims as they did before. Service Canada will use the new calculated equivalent when allocating the lump sum pension.

Publication of the QPIP related to the EI premium reduction in the Canada Gazette, Part I, will begin in September 2015 with the publication of the 2016 EI premium rate.

The amendments do not change existing service standards. Standard investigation and control measures will apply to ensure EI program integrity and enforcement of the EI Regulations. The Department’s existing compliance mechanisms will ensure that the provisions contained in the amendments are properly implemented.

Contact

Helen Smiley
Director
Revenue and Regulatory Policy Design
Employment Insurance Policy
Employment and Social Development Canada
140 Promenade du Portage
Phase IV, 5th Floor
Gatineau, Quebec
K1A 0J9
Telephone: 819-654-3092
Fax: 819-934-6631
Email: helen.smiley@hrsdc-rhdcc.gc.ca