Changes to employment insurance: impacts on group benefits plans and some programs offered by employers

In our April 2016 bulletin on the last federal budget, we informed you that, following the introduction of the Budget Implementation Act 2016, No. 1 (S.C. 2016, c. 7), the waiting period for Employment Insurance benefits could be reduced from two weeks to one week effective January 1, 2017. This change has since been endorsed.

The government recently published the Regulations specifying the changes that will be made to the EI Premium Reduction Program (PRP) and to Supplemental Unemployment Benefit (SUB) plans. A transitional period of four years will be provided to employers.

The purpose of this bulletin is to inform you about the impacts of these changes.

Currently, if your organization offers a short-term disability (STD) plan that meets certain requirements, you may be entitled to a reduced EI premium rate. Among the requirements, Section 63 of the Employment Insurance Regulations provides for a maximum elimination period of 14 days for a short-term disability plan to qualify for the PRP.

Effective January 1, 2017, Section 63 will be amended to provide for a maximum elimination period of 7 days. However, if the plan provided for an elimination period of no more than 14 days before January 1, 2017, a transitional provision will apply until January 2, 2021. The maximum elimination period can continue to be 14 days up to this date, and the organization can continue to benefit from the PRP.

As of January 3, 2021, Section 63 will be amended once again to provide for a maximum elimination period of 7 days for all STD plans to qualify for the PRP.

According to the government, close to 4700 plans will need to change their elimination period in the next four years to remain eligible for the PRP at the end of the transitional period. This four-year period will allow organizations to implement the necessary changes to their plans.

No changes will be made to the other basic requirements for PRP eligibility:

• Provide at least 15 weeks of benefits for short-term disability (insured or uninsured plan)
• Match or exceed the level of benefits provided under EI
• Be accessible to employees within three months of hiring; and
• Cover employees on a 24-hour-a-day basis

Some organizations offer benefits in addition to EI sickness, maternity and compassionate care benefits. These benefits are called supplemental unemployment benefits (SUB).

SUB plans are permitted and do not affect EI benefits provided that certain rules are respected. One of these rules is that the combined weekly payment of employer (SUB plan) and EI benefits must not exceed 95% or 100% of the employee’s normal weekly earnings (depending on plan category).

If no changes are made to the SUB plan, the reduction in the waiting period for Employment Insurance benefits could potentially result in benefits exceeding the maximum allowable amount in the second week of disability. During this week, insured individuals could now qualify for EI benefits and for the benefits provided under their Supplemental Unemployment Benefit plan. If the combined payments exceed the maximum allowable amount for this second week, i.e., 95% or 100% of the employee’s normal weekly earnings (depending on plan category), EI benefits would not be reduced because of a transitional provision in place until January 2, 2021.

Because insurers generally integrate EI benefits directly into the disability benefits they pay, this transitional provision should have a limited impact on insured plans. As regards self-administered plans or plans administered by a third party, we suggest that you validate the benefits integration methodology provided for in your plan.

Finally, depending on the provisions of your plan, you may need to adjust rates as of January 1, 2017 to take into account the fact that EI benefits payments will begin in the second week of disability. Because EI will continue to pay 15 weeks of benefits, the total period covered by this plan (waiting period and duration of benefits) will now be 16 weeks. Therefore, the provisions and rates of long-term disability plans may also be affected.

The rate reduction level under the PRP could vary if the organization already meets its new requirements, or if the organization takes advantage of the transitional provision to remain eligible for the program. We are still waiting for additional information on this subject.

The Employment Insurance Regulations should be officially adopted in the coming weeks. The government will continue to communicate with organizations, following up on a first notice enclosed with the letter from the PRP dated November 1, 2016.

Please feel free to contact us for additional information.