January 11, 2013
Progress noted on WSIB unfunded liability: report
The Workplace Safety and Insurance Board (WSIB) is making headway in dealing with its unfunded liability, concluded the Auditor General of Ontario in its 2012 annual report.
“As a result of the government’s commitments to address its unfunded liability, we support the continued classification of the WSIB as a trust for the 2011/12 fiscal year and therefore the exclusion of the unfunded liability from the province’s liabilities,” reads the report by Auditor General Jim McCarter.
“However, we will continue to monitor the progress being made toward meeting the funding sufficiency ratios prescribed by the regulation. Should we feel enough progress is not being achieved, we will re-evaluate our position.”
David Frame, director of government relations at the Ontario General Contractors’ Association (OGCA), said the report is an “extremely accurate” analysis of the WSIB’s situation.
“I don’t view it as confidence, I view it as they’ve bought into the plan, but they will continue to monitor to see if the plan is working. I think it’s the right balance,” he said.
In previous years, the Auditor General has voiced concern about the WSIB’s financial state and suggested if that state did not improve, he would recommend that the WSIB’s unfunded liability be aggregated with the province’s finances.
The unfunded liability has continued to grow. As of Dec. 31, 2011, the unfunded liability totaled $14.2 billion, an increase of $2 billion from its Dec. 31, 2010 balance of $12.4 billion.
Responding to concerns with the recommendations made in the funding review by professor Harry Arthurs, the Ontario government filed Regulation 141/12 under the Act, which, effective Jan. 1, 2013, requires the WSIB to ensure it meets self-funding ratios by specific dates: 60 per cent by Dec. 31, 2017; 80 per cent by Dec. 31, 2022; and 100 per cent by Dec. 31, 2027.
The regulation requires the WSIB to submit a plan to the Ministry of Labour by June 30 outlining the measures it will take to achieve these goals.
Ashley DeSouza, vice-president, policy and government relations at the Council of Ontario Construction Associations (COCA), said they have been encouraged by the transformational changes that are occurring at the WSIB.
“We’re seeing a lot of the key indicators coming down and we do believe the board is going in the right direction. We’re going to continue to work with the board in any way to get it onto sound financial footing,” he said, adding that COCA is actively participating at all levels, such as in the benefits review policy.
The WSIB reports its finances based on International Financial Reporting Standards (IFRS). A proposed new standard for valuing insurance liabilities is expected to take effect at the end of fiscal 2016.
“If approved in its current form, it could increase the unfunded liability significantly because it would require a further reduction in the discount rate WSIB uses to calculate its benefits obligation,” says the report.
“Based on current market interest rates, this could increase the actuarial estimate of WSIB’s benefit obligations by an estimated $3 billion.”
In its response, the WSIB says the new IFRS standard will value insurance liabilities based on prevailing market rates.
In order to reach the legislated dates of funding sufficiency ratios, the WSIB says the IFRS standards are not well-suited for a going concern insurance fund like them.
“The WSIB will consult with the government on the merits of adopting a ‘going-concern basis’ to value the benefits liabilities of the insurance fund, for funding purposes. This will have the effect of using a long-term expected rate-of-investment return with which to value liabilities,” said the WSIB.
It says this method will avoid potentially large multi-billion dollar swings in the valuation of liabilities from year to year.
In addition, the new standard proposes that a new risk margin be included in the benefits obligation, which could further increase it by $1 billion.
“Without any compensating increases in the WSIB’s premium rate, its investment performance or further success in reducing lost-time claims to reduce costs, the combined $4 billion impact of this proposed standard could significantly impair the WSIB’s ability to meet its 2017 legislated funding ratio of 60 per cent,” says the report.
The Auditor General’s report says the WSIB’s ability to achieve funding sufficiency ratios will be affected by changes to certain actuarial assumptions and proposed new accounting standards.
During 2011, a discount rate reduction from seven per cent to 5.5 per cent resulted in an almost $2 billion increase in the unfunded liability. WSIB management said that subject to changes in accounting standards, it would be appropriate to retain the 5.5 per cent discount rate for 2012 to 2015 and increase it to six per cent thereafter.
Looking to 2013, the OGCA hopes the WSIB can get in financial order and continue to move forward.
“We think David Marshall has been doing a sound job of doing that, but it’s an ongoing process and one good year doesn’t turn it all around,” Frame said.
|MOST POPULAR STORIES|
|TODAY’S TOP CONSTRUCTION PROJECTS|
These projects have been selected from 515 projects with a total value of $3,642,725,048 that Reed Construction Data Building Reports reported on Friday.
$47,000,000 Metro Toronto Reg ON Tenders
$40,000,000 Ottawa ON Negotiated
$34,000,000 East Gwillimbury ON Prebid
- Ex-Canadian military bases can be transformed
- Shop and Sleep
- Martin remembered for infectious laugh and mentorship
- Staffing levels and safety drive Ontario elevator worker strike
- Proposed wood-frame use meets opposition
- Provincial MPP supporters of prompt payment legislation excited at prospects
- Concrete airplane in South Dakota takes flight
- Opposition tackle Harper government on lack of youth employment
- Construction Site Arson
- VIDEO: Journal of Commerce Update for the week of May 27th, 2013
- Commercial Construction
- Ruling vindicates company that hired Chinese workers
- Acetylene torch explosion causes significant damage
- Investigation continues in deliberate Vancouver duplex fire
- Ancient First Nations site damaged during BC Hydro work
- On Target
- Global engineering guidelines taking shape
- Fit to Work program being developed
- Dire prediction
- Canada and Ireland sign recognition agreement
|ALEX’S ECONOMICS BLOG|
Reed Construction Data Canada’s Chief Economist Alex Carrick discusses current developments in the North American economic environment with emphasis on the construction industry.
- An Overview of Prices and Sales in the Diverging U.S. and Canadian Housing Markets (April 25, 2013)
- Canada’s Precarious Dependence on the Commodity Price Super-Cycle (April 22, 2013)
- Twenty major upcoming residential and transportation terminal construction projects - April 2013 (April 15, 2013)