Human Resources Committee on Nov. 26th, 2009

[The Chair, Conservative, Dean Allison]

Mr. Taillon, I'll just let you know you have 50 seconds.

[Yves Lessard, Bloc, Chambly—Borduas, QC]

Mr. Chair, I would appreciate it if you could give him a little more time. This is critical. Over there, you have the only witness who can corroborate or contradict our information, and here, just now, we had people doing their best to prevent him from speaking. We decided that we were going to hear the testimony from the witnesses here in its entirety.

I would like to hear from Mr. Taillon. He is the Chief Actuary. We invited him here today. It is his responsibility to enlighten us, all the more so because he says he agrees with the figures and with Bill C-56.

[The Chair, Conservative, Dean Allison]

You have 10 seconds now.

[Luc Taillon]

First, I would like to say that the figures in Mr. Bédard's document are for the most part correct, except for the qualitative comments that I do not agree with. I have the English version of the document in front of me. When he says that the Quebec premium rate of 1.36% is excessively high, I feel that Mr. Bédard is comparing apples and oranges.

We are not dealing with a compulsory plan here. We must be very careful with the figures that Mr. Bédard is using. Many of those figures are actually taken from the most recent report of the Chief Actuary, published last October 14. They all deal with a compulsory plan. Employment Insurance is a compulsory plan.

However, Bill C-56deals with a voluntary plan. The actuarial dynamics change considerably. My first reaction is that he is comparing apples to oranges.

[The Chair, Conservative, Dean Allison]

I'm sorry, that's all the time we have on that. Thank you very much.

Mr. Martin, the floor is yours, for seven minutes.

[Tony Martin, NDP, Sault Ste. Marie, ON]

You've heard from colleagues and others, and from reading the transcript of questions with regard to the witnesses, I'm sure there's some concern about the ability of the fund to be fully funded. Also, because this piece of the new EI will be collected from those who participate, a difficulty may be created for people in the regular EI, in that it will be tapped into in order to pay for the costs.

The question I have is this. Does the premium rate for self-employed persons reflect the benefits they will receive? Also, do you think it should be calculated independently of the rate for employed persons in order to better reflect the benefits they will receive? Should we be going there, as opposed to simply leaving it where it is?

[Frank Vermaeten]

Thank you very much for the question.

I think both this question and the question by Monsieur Lessard are really about whether the proposed premium rate is fair. As I said, the rate was chosen for three reasons. Maybe I'll take a moment to explain.

One was the principle of the current system, under which we apply a uniform rate for everyone. You have some people who you know are likely to claim a lot of EI regular benefits and others who will never claim those benefits, but they all pay the same premium rates. It is the same thing for people who claim maternity and parental benefits. Some have a high probability of claiming them, and others will never do so. I've been lucky enough to never have had to claim benefits, but I still pay the same rate. I think that's the one principle the minister really wanted to uphold. If at all possible, we should have a uniform rate, rather than having a different rate for different people. If we could have a uniform rate, that's the principle to uphold.

A second principle was administrative ease. Again, it pointed to having an identical rate. Imagine somebody with mixed income. As we've said in the material provided, in the circumstance in which an individual has mixed income, if the person signs up for the self-employed system and makes a claim, we'll be combining the income of the self-employed and the regular employment income, and that person will also be paying the premiums of both systems. It would be fairly odd to pay one dollar that's earned on the one hand at one rate and then to pay another rate for the self-employment income. Administratively there are a lot of advantages in having one rate for each pair.

The third aspect is one that you spoke to, Mr. Martin. It's about the principle of trying to balance fairness with respect to the individuals who are going to be signing up for this and the general premium ratepayers. There really is a tension between those two. You can imagine having a rate that's extremely high, and then you'd have a system that would make a profit. That would be very good for the general premium payer. Alternatively, you could have a rate that's way too low, and the system would lose a lot of money. That would require a rate increase for other payers.

This system tries to balance all of those. Having a uniform rate meets the first principle in terms of keeping a uniform rate for all payers, it meets the principle of administrative simplicity, and I think it meets the principle of fairness.

I might add that if we go to the information provided here, our principle of fairness was that the average person should more or less receive in benefits what he or she pays in over the long run. That's a typical person. Not everybody will. You'll have some people who claim a lot and you'll have some people who claim a little, but on average they will. If we look at the rate for what Quebec's paying, it's based roughly on our assumption that one in ten people who sign up will make one claim per year. If you look at it another way, if somebody pays into it for ten years, that person will make a claim for one of those ten years. At that point it's actuarially fair.

[Tony Martin, NDP, Sault Ste. Marie, ON]

In reality, Mr. Vermaeten, you have two sets of workplaces, one paying conceivably twice as much for the benefit to that worker. And of course there's also the unemployment piece of it that goes along with that.

Now you have a new set of entitlements, for which they pay half. So the government is now entering into the business, by way of what you've chosen to do here, of determining the value of different work out there, as opposed to leaving it to the market to determine, in my view.

This brings me to my second question, which is this question of the $6,000. The regular EI payer has to work 600 hours. It doesn't matter how much they make; they have to work 600 hours. Now you have a set of people out there who, once they hit $6,000.... Some self-employed whom I know make $1,000 an hour, so in six hours they could become fully vested, to the point where they then can make calculations after that first year.

Are you concerned about this disparity? Is there not something we should be doing with this before we actually put it in place, or that we should be considering down the road quite quickly to make sure this disparity doesn't exist anymore?

[The Chair, Conservative, Dean Allison]

We have about 30 seconds left.

[Frank Vermaeten]

Very quickly, an hours-based threshold wouldn't work, because we don't have any way to monitor how much an individual works. So you need a dollar threshold.

I think what we've chosen is a very fair and a very low threshold: $6,000. An individual has a full year to make that $6,000. I think it is quite a low and quite a generous threshold. Yes, some people will work a long time to make $6,000, and others will work a short time. There's really nothing we can do about that unless we were to revert to an hours-based threshold, but as I said, that's really impossible to do, just administratively not feasible.

[The Chair, Conservative, Dean Allison]

Thank you very much.

We're now going to move to Mr. Vallacott as the last questioner of the first round.

Mr. Vellacott, you have seven minutes.

[Maurice Vellacott, Conservative, Saskatoon—Wanuskewin, SK]

Thank you, Mr. Chair.

I direct my questions to the chief actuary or to assistants as required. There are basically three questions here, and I'll go back to them if I need a nudge in the direction of the next question.

Mr. Taillon, I appreciate your being here. Thank you so much for your presence today.

The first question is, how did you derive the number of participants in this measure? Second, how did you derive the number of claims of this measure? Last, how did you derive the financial impact of this bill?

I'll nudge you along, but start in terms of how the number of participants was derived.

[Frank Vermaeten]

Again, to speak to the outset of the meeting in terms of the roles and responsibilities here, I want to be clear again that it was the policy people who did the primary work in deriving these. It was our actuarial team who confirmed the reasonableness of the numbers, double-checking them, making sure all the calculations were correct, etc. I think in that case it might be more appropriate for me to calculate, and I would ask Mr. Taillon or Mr. Beauséjour to comment if they feel I mischaracterize it in any way.

In terms of the number of participants, I think it's set out fairly clearly in this piece of paper. In terms of how we actually did it, we did it in two ways.

First, we looked at the number of mat-pat participants and we derived that number in two ways. First we looked at the QPIP model and said, look, there are 7,300 people making a claim there, so let's nationalize that. That basically means multiplying that number by four, and it gets you to around 29,200. Then you have to recognize that that's your upper bounds. If everybody were to sign in, that's how many people would want to make a claim per year. Then we had to reduce that, recognizing that this is a voluntary system and that there is a threshold of $6,000. So essentially we multiplied the number by two-thirds. You end up with an estimate of 20,000 claims per year, and from that you can derive how many people need to sign up to get 20,000 claims a year.

That was one part of the calculation. That was the easy part, and the part in which we have the most confidence in terms of being firm.

The second part was much more challenging. How many people will sign up for the primary purposes of claiming sickness and compassionate care benefits? This is a bit challenging, because we don't have any information on that in terms of a voluntary system. What we did was take the self-employed who made over $6,000 and we divided it by occupation, the type of self-employed income, and we did an assessment of what the probability was for each group. This was done in Louis Beauséjour's area. He's got a team of about 30 people who are quite experienced in this. They looked at this and did their best calculations, added it all up with spreadsheets, etc., and that gave us an assessment of how many people we think would join, which would be about 500,000 over five years.

That was the total number of people joining. As for the claim rate. I think we were fairly confident about the number of claims based on the QPIP model with respect to mat-pat, which is the primary cost driver here. Then we had to make an assumption about what the claim rate was for those joining primarily for sickness and compassionate care.

Our assessment was looking at the fact that this is a voluntary system, where you're going to have self-selection, where you don't have an employer to turn to for the insurance program. About one in 10 people would make a claim, so a typical person would make a claim every 10 years; or in a typical year, one out of 10 people would make that claim. After that, it's basically just spreadsheets to derive the premiums, to derive the costs, and to derive the net impact on the account.

So that is what was done, and it was done in Louis Beauséjour's area. It was then passed on to the actuarial group. Sure, there was some interaction in between, of course, in deriving this. The actuarial group looked at it, thought it was very sound, and looked at that. There was, of course, a little bit of back and forth in that, but overall it didn't change the numbers very much. Then it went through a rigorous process, with all these measures. Whether it's a budget item or EI, it goes through the cabinet process, which means that central agencies are looking at these numbers, and they're vetting them and they're scrubbing them, as we say in this line of work, and they're making sure the numbers are right.

[Maurice Vellacott, Conservative, Saskatoon—Wanuskewin, SK]

Do I have any time left? I'll pass it to my colleague Mr. Komarnicki.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

Thank you.

Obviously, when you look at the EI program as it is, there's one premium but different types of benefits for different groups of people. In this particular case, you said you were guided by a number of principles. Some of that was administrative simplicity, perhaps easy to understand, making the premiums for the self-employed similar to what employed people now pay. All of that adds to the picture, I gather, thus the reason for setting the rate as we have it. Is that correct?

[Frank Vermaeten]

Absolutely, and in the end you have the principles and you have administrative simplicity, but it also has to have fairness. This is a voluntary system, and it has to be affordable to individuals to say--

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

I'll just interject there.

One of the witnesses--I think it was the Canadian Federation of Independent Business--said the voluntary portion was a very significant part for the large number of self-employed that they represent, and they wanted to have that principle there. When you have that, you then have to start making some assumptions, as you did, so you'll never be right on. There's going to be some variation through that process, is there not?

[Frank Vermaeten]

You're never going to be right on. I'll give you an example of Louis' battle with some of his best work on work sharing. That was a very important initiative through which we extended the period for which companies can be on work sharing. We made it easier for companies to be able to use work sharing. As it turns out, the number of companies that actually want to participate in work sharing was much higher than we thought. It turned out to be almost twice as many. We have over 165,000 participants in work sharing, a much greater participation than we thought. Of course, it's also much more costly than we thought. On the other hand, they're providing a lot more benefits, and a lot more jobs have been protected.

Yes, when you have a voluntary system like this, it's much more difficult to predict the rate of participation, and we'd be the first to say so.

[The Chair, Conservative, Dean Allison]

That's all the time you have.

We'll start our second round. Maybe we can get two quick rounds in.

Ms. Minna, I'll take it over to you.

[Maria Minna, Liberal, Beaches—East York, ON]

Thank you, Mr. Chair.

Thank you for coming.

This question is to Mr. Taillon. Last summer, when did you get involved with the file, Mr. Taillon? I was out of the room, but my colleagues said you got involved last summer. What month was it, exactly?

[Luc Taillon]

Actually, when I said last summer, I think I was mistaken. It was after Labour Day. After Labour Day I was away for a couple of weeks because I injured my shoulder. While I was gone, my staff was working on this modelling for the self-employed.

[Maria Minna, Liberal, Beaches—East York, ON]

When did you yourself become more involved with it? At what point did you yourself become more involved with it?

[Luc Taillon]

It was when I returned to work at the end of September.

[Maria Minna, Liberal, Beaches—East York, ON]

It was the end of September.

With regard to the voluntary versus the compulsory aspect, my sense is that because this is voluntary, the people who are expecting to be using it, such as someone who is expecting a child, someone who is ill, or what have you, are more likely to opt in than someone who is younger or someone who is not expecting a child. That person may not bother with it. Given the fact that this might keep the numbers down, will it be financially actuarially sound?

In a compulsory system, everyone shares the load. It's a collective risk. Here it's not. It's actually a self-selective group that could end up being small, and the employer side is being picked up by others. In some cases, women who work part time can't access EI now. Can you give me your assessment on whether or not it's a sound way to go?

I would rather Mr. Taillon answer that. I'm asking him the actuarial question. I appreciate his input.

[Luc Taillon]

I understand your question.

I think that's one of the reasons for keeping the premium rate relatively low. It's to make sure enough people are interested in joining this program. By keeping the premium rate relatively low, you will have an influx of contributors, which will make this an overall break-even, but there's always some danger involved with a voluntary program. It's a balance to make sure there are enough people joining the program, not just high-risk people.