Effective date: April 19, 2017
Application: Injury Fund and Reserve Levels
Policy subject: General
To establish guidelines to maintain a fully funded status and set a target range for the Injury Fund.
- The Workers’ Compensation Act, 2013 (the “Act”) requires the Workers’ Compensation Board (WCB) to maintain an Injury Fund sufficient to finance its activities and other obligations under the Act. Therefore, WCB has established a funding policy that provides direction for the management of the revenue necessary to fulfil these obligations (Sections 114, 115, 116).
- While the Act clearly states that the WCB is to be fully funded at all times, the level of the Injury Fund and any reserves is to be left to the discretion of the Board Members.
- The Act also authorizes WCB to establish additional reserves to meet losses arising from a disaster or other circumstance which would, in the opinion of the WCB, unfairly burden employers (Section 145).
- The administration and management of WCB investment funds is determined through WCB’s Statement of Investment Policies and Goals (SIP&G) (ADM POL 02/2017).
- Periodically, the WCB conducts an Asset Liability Study to review the assets held by WCB to ensure they are sufficient to meet current and future benefits liabilities of the WCB and to take into account unexpected claim activity and volatile economic conditions. The Asset Liability Study guides the funding policy.
- The WCB will review the Funding Policy prior to significant changes to accounting standards.
- The objective of WCB’s long term financial strategy is to maintain a fully funded status that:
- Ensures sufficient funds are available to meet required benefits levels based on actuarial standards applied to assumptions which are reviewed by the WCB and approved by the Board Members annually.
- Ensures sufficient funds are available to cover reasonable levels of both foreseen and unforeseen plausible events which, although occurring relatively infrequently, would have a significant financial impact (e.g., occupational diseases, disasters, etc.).
- Supports the long-term financial stability of the WCB.
- Ensures current employers’ premiums reflect the cost of all claims in the current year. These costs include current and future claims costs and administration costs arising from injuries that occur during the year, and
- Minimizes fluctuations in the average premium rate.
- At the end of each fiscal year, WCB’s Funding Percentage will be calculated based on audited financial statements. The Funding Percentage calculation takes into account:
- Benefits liabilities.
- This represents an actuarially determined provision for future benefits payments and administration costs arising from both reported and unreported claims resulting from work injuries that occurred during the fiscal year. This involves reviewing long-term economic and actuarial assumptions and methods.
- Annuity fund payable.
- This represents anticipated annuity funds obligations.
- Injury Fund.
- This represents the cumulative balance of WCB’s comprehensive income and loss, net of reserves and other comprehensive income (loss) in accordance with WCB’s Statement of Financial Position.
- Unrealized gains and losses on investment assets.
- To control significant fluctuations in the market value of investments, unrealized gains and losses on investments are not considered when determining WCB’s Funding Percentage, in accordance with International Financial Reporting Standards (IFRS).
- Benefits liabilities.
- The Funding Percentage is calculated at the end of each fiscal year as follows:
- The objective is to maintain the Injury Fund within a targeted Funding Percentage range between 105 per cent and 120 per cent. This range ensures sufficient funds are available to meet required benefit levels and protects against unexpected claim activity or potential fluctuating economic conditions.
- If the Funding Percentage shifts out of the targeted range, the WCB will replenish or regulate the Injury Fund to return to the targeted range.
- At the WCB’s discretion, any replenishment or surplus distribution will exceed a threshold amount of 2 per cent of the Funding Percentage before WCB processes any adjustments. If the Funding Percentage is above or below the targeted range but within the threshold amount, no actions may be taken.
- The WCB is considered fully funded when the Funding Percentage is 105 per cent. The WCB, at its discretion, will replenish or regulate the Injury Fund as follows:
- Below targeted range:
- If the Funding Percentage falls below 100 per cent, the WCB will take action to replenish the Injury Fund immediately to reach 100 per cent. Generally, industry premium rates will be increased by a percentage that is calculated to allow the Funding Percentage to return to 105 per cent.
- If the Funding Percentage falls between 100 and 103 per cent, the WCB, at its discretion, will take action to replenish the Injury Fund to reach 105 per cent within 3 years. Generally, industry premium rates will be increased by a percentage that is calculated to allow the Funding Percentage to return to 105 per cent.
- If the Funding Percentage falls below 105 per cent but above 103 per cent, the WCB, at its discretion, will not take any action.
- Above targeted range:
- If the Funding Percentage rises above 122 per cent, the WCB, at its discretion, will distribute the surplus funds to employers to return the funding percentage to 120 per cent.
- Generally, surplus funds will be distributed within the year following the WCB’s fiscal year in which the Funding Percentage exceeded 122 per cent. However, if payment of the surplus funds would create future instability in the Injury Fund, the Board would use its discretion to ensure the integrity of the Injury Fund is maintained. The distribution period may be extended beyond the year following the WCB’s fiscal year in which the Funding Percentage exceeded 122 per cent or the amount of surplus funds to distribute in any given period may be adjusted.
- Below targeted range:
- WCB staff will ensure that the WCB website contains up to date information on the Funding Percentage calculation and if any actions to replenish or regulate the fund will be taken. This will also include eligibility rules for any surplus funds distribution.
- The WCB may establish additional reserves to meet losses arising from a disaster or other circumstance which would, in the opinion of the WCB, unfairly burden employers. These reserves are maintained in addition to the Injury Fund.
- The Disaster Reserve is established to meet the requirements of the Act with respect to disasters (POL 12/2014, Disaster Reserve):
- Disaster – Part 1 covers the potential volatility in less severe disasters. This reserve is set at one per cent of benefit liabilities.
- Disaster – Part 2 covers rare but severe disasters. This reserve is set at one per cent of benefit liabilities.
- The Occupational Disease Reserve is established to provide cost relief and protection to employers who may be faced with high costs for diseases caused by past exposure (POL 05/2014, Occupational Disease Reserve). This includes exposure for which the employer may not be responsible or for industries where the employer is no longer in business.
- The Second Injury and Re-employment Reserve provides employers with cost relief on claims that are attributed to an earlier injury, an injury following re-employment and other circumstances established in POL 21/2010. Based on past utilization of this reserve, the Second Injury and Re-Employment Reserve is set at one per cent of benefit liabilities as actuarially determined.
The Workers’ Compensation Act, 2013
Sections 2(1)(o), 114, 115, 116, 117, 118, 121, 134, 144, 145, 149, 150, 151
(1) POL 01/2014, Funding (effective December 31, 2013 to April 18, 2017).
(2) January 1, 2014. References updated in accordance with The Workers’ Compensation Act, 2013.
(3) POL 02/2013, Funding Policy (effective December 31, 2012 to December 30, 2013).
(4) PRO 02/2013, Funding (effective December 31, 2012 to April 18, 2017).
(5) POL and PRO 02/2012, Funding (effective September 1, 2012 to December 30, 2012).
(6) POL 16/2007, Funding Policy (effective December 31, 2007 to August 31, 2012).
(7) POL 01/2005, Funding Policy (effective December 31, 2004 to December 30, 2007).