TORONTO—Ontario faces a $19.7-billion unfunded liability at its Workplace Safety Insurance Board (WSIB), according to C.D. Howe Institute, a Toronto-based think-tank.
In a report titled: The Hole in Ontario’s Budget: WSIB’s Unfunded Liability, authors Colin Busby and Finn Poschmann say the pace of revenue collection and asset accumulation at WSIB has not matched growth in current and expected benefit.
The study says a fair-value accounting method would result in an unfunded shortfall of about $4,100 per insured worker in Ontario or $2,900 per taxpayer.
The WSIB reports an unfunded liability of $12.3 billion. It arrived at this figure by discounting future benefits by 7 per cent, reasoning that its investments have averaged returns of 7 per cent over the last 15 years. But this formula does not take into account the thrashing all investments took over the past several years nor does it account for the guaranteed nature of its future payouts.
The study’s authors say if a more realistic 3 per cent rate is applied, the WSIB would post total liabilities of $31.3 billion.
WSIB defends its accounting, with a spokesperson responding via email saying: “We are confident that our estimates of the size of the [unfunded liability] are based on sound actuarial and generally accepted accounting principles. This has been confirmed by an independent audit of the WSIB’s consolidated financial statements.”
The spokesperson also said the CD Howe report is “generally supportive of the current direction we’re taking to reduce system costs while improving the services we deliver to the workers and employers of Ontario.”
That may be the case, but uncertainty surrounding WSIB payments, rates and structure represent trouble not only to Ontario taxpayers and businesses already operating, but on businesses considering locating or investing in Ontario.
“The WSIB is an elephant-sized problem for employers, employees and potentially taxpayers that will not be reported in the upcoming Ontario budget,” says Colin Busby, Senior Policy Analyst, “and it urgently needs corrective action.”
Indeed, someone is going to have to pay for these liabilities at some point.
WSIB is raising its rate by 2 per cent in 2012 to an average of $2.40 per $100 of payroll. Busby estimates that to pay the total $12.3 billion liability estimated by WSIB, it would take a rate of $2.80 for about 15 years.
To pay off the liability estimated by C.D. Howe, rates would have to jump to $3.10 per $100 of payroll and they would have to stay that high for up to 25 years.
“The prospects of rising premiums could change our provinces attractiveness to businesses or change a company’s preference of investing in capital equipment versus hiring workers,” says Busby. “This has lots of impacts on business decisions here in Ontario.”
The WSIB is an independent trust agency that administers compensation and no-fault insurance for Ontario workplaces. It is funded entirely by employers and receives no government funding. About 1,100 claims are registered each working day.