The Outlook for the EI Operating Account

The COVID-19 pandemic has led to record job losses, straining Employment Insurance (EI) and necessitating other federal income support programs. In the 2020 Fall Economic Statement (FES), the Government projected that EI benefit payments would rise in 2020 and 2021.

The EI Operating Account is established under the Employment Insurance Act for the purpose of segmenting EI revenues and expenses from the Government’s revenue and spending in the Consolidated Revenue Fund.[i] Under the Act, the Government must set EI premium rates to generate just enough revenue to ensure that, at the end of a seven-year period, EI revenues equal EI expenses. The EI program is designed to be self-sustaining, so by law, every dollar paid out of EI must be recouped through EI premiums within seven years. Hence, higher benefit payments in 2020 and 2021, along with the premium rate freeze in 2021 and 2022, should require higher premium rates over the remainder of the seven-year breakeven period (2023 to 2027).[ii]

By convention, the Government provides an outlook for the EI Operating Account in its budgets and fall statements. The outlook contains an annual forecast of revenues, expenses, the Account balance and assumed premium rates levied to employees and employers.[iii] Fall Economic Statement 2020 (FES) does not provide an outlook for the Account, although it does provide enough information to approximate the Government’s outlook through 2025-26.

This blog post highlights the implicit assumptions used in FES 2020 and approximates a 7-year outlook for the EI Operating Account.

As part of its COVID-19 pandemic response, the Government committed to freeze the EI premium rate for 2021 and 2022 at the 2020 level of $1.58 per $100 of insurable earnings. In FES 2020, the Government assumes that starting in 2023, the EI premium rate will increase under current policy settings by up to $0.05 annually—the maximum permissible increase under current legislation—until the Account is projected to balance over the seven-year break-even period.

PBO estimates that, based on assumptions set out in the FES, the EI Operating Account will balance over seven years if the EI premium rate is set at $1.63 per $100 of insurable earnings in 2023, rising to $1.73 by 2025 (Table 1).[iv]

Critically, the above rate-setting calculation excludes $36.8 billion in CERB payments paid to individuals who would have otherwise received EI.[v] The Government has signaled its intent to exclude all CERB expenses from the calculation of the EI Operating Account balance, including individuals that would have otherwise been eligible for EI in 2020.

The decision to exclude EI-eligible CERB payments from the Account materially reduces the EI premium rate required to balance the Account. The decision to credit the Account for the entirety of EI-eligible CERB payments corresponds to an EI premium rate that is $0.43 lower, on average from 2023 to 2027, than would have otherwise been required to balance the Account in 2027 (Table 2). Instead, the roughly $36.8 billion in CERB payments paid to individuals who would have otherwise received EI will be deficit-financed or funded through general revenue.

Methodological notes

This analysis relies primarily on the Government’s projections from the 2020 FES for EI revenues and expenses until 2025. To complete the seven-year outlook, PBO used data published in the Office of the Chief Actuary’s 2021 Actuarial Report on the Employment Insurance Premium Rate (OCA 2021), supplemented by PBO projections from Economic and Fiscal Outlook – September 2020 (EFO).

In the extended outlook for 2026-27 to 2027-28, PBO assumes that:

• Insurable earnings grow by 3.5 per cent per year, broadly consistent with assumptions in OCA 2021.
• EI benefits expenses grow in-line with the annual rate of growth of benefits in OCA 2021 until 2027, and in-line with the annual rate of growth PBO projections for EI benefits expense in 2028.

Estimates of the Government’s annual contribution for federal employees and administration expenses are based on PBO projections from its September 2020 EFO.