Underfunded liability at $19.7 billion: Report
Ontario faces a $19.7 billion unfunded liability at its Workplace Safety Insurance Board (WSIB) based on a fair-value accounting approach, according to a report from the C.D. Howe Institute.
In The Hole in Ontario's Budget: WSIB's Unfunded Liability, authors Colin Busby and Finn Poschmann said the WSIB, which levies employer premiums intended to fund benefits for employees injured in the workplace, has a problem that needs addressing: the WSIB's pace of revenue collection and asset accumulation has not matched growth in current and expected benefit entitlements.
“The WSIB has not, over time, set premiums to match benefit costs,” the report said. “To compound matters, unexpected shocks to premium and investment revenues have increased the size of the unfunded liability.”
The WSIB reports an unfunded liability of $12.3 billion: to arrive at that number the board discounts its current benefit liabilities at a seven per cent nominal interest rate. However, a fair-value accounting method would use a much lower discount rate, implying a much higher true liability, the report said.
"The WSIB is an elephant-sized problem for employers, employees and potentially taxpayers that will not be reported in the upcoming Ontario budget,” said Busby, a senior policy analyst. "And it urgently needs corrective action."
Were the WSIB to discount benefit liabilities at a rate that better reflected the cost of guaranteeing benefits, it would report an unfunded liability about $7.4 billion higher, at $19.7 billion, implying a shortfall of about $4,100 per insured worker in Ontario, the authors find.
Protecting taxpayers from bearing the costs of unfunded benefits will require fixing the WSIB's financing problems, through increased employer contributions — implying lower wage growth for employees — benefit adjustments, or both. To facilitate these changes, more stringent financing rules are required, the report said.
The WSIB gradually increased premium rates by two per cent in both 2011 and 2012, according to the report.
“Further increases are needed if the WSIB is to meet benefit obligations. Premiums would need to rise in the short term to protect taxpayers from immediate financial risks, and stabilize in the medium term, then fall once the fund achieved actuarial balance.”
