< Previous11. WORKERS’ RETIREMENT ANNUITY FUNDAccounting policy In accordance with Section 42(2) of the Act, where wage loss benefits are paid to a worker after a qualifying period, the WCB is required to invest on a worker’s behalf an amount equal to a percentage between five per cent and seven per cent, to provide an annuity for the worker at retirement. In addition, the worker may contribute an amount of not more than the amount contributed by the WCB. This annuity fund is part of the WCB investment portfolio and is intended to establish or replace lost pension entitlement resulting from a work-related injury or illness.The changes in the workers’ retirement annuity fund were as follows:20212020Balance as at January 1$ 40,979 $ 38,353 Investment income 3,703 3,151 WCB contributions 1,876 1,816 Workers’ contributions 561 553Benefits paid (2,818) (2,894) Balance as at December 31$ 44,301$ 40,979 12. EMPLOYEE BENEFITSAccounting policy The WCB has several employee benefit plans:Short-Term Benefits Short-term employee benefits are measured on an undiscounted basis and are expensed when the services are rendered. These benefits include wages, salary, vacation entitlements and group health plans. Retirement plans The retirement plans, comprised of the WCB Retirement Plan and the Supplementary Employee Retirement Plan, are funded by employee and employer contributions. The WCB Retirement Plan is a defined benefit pension plan that provides indexed pensions (two-thirds of the Consumer Price Index for Canada) based on years of service and the best five consecutive years’ average earnings in the last 12 years of employment. The Supplementary Employee Retirement Plan provides that the employees of the WCB, whose pension benefits exceed the maximum pension benefit permitted under the federal Income Tax Act, will receive pension benefits based on their total pensionable earnings.Sick leave plan The WCB sick leave plan is a multi-faceted benefit plan. Sick leave credits are earned and payable in the form of sick leave in the current year. Unused sick leave credits are accumulated and carried forward to future periods, and are available to be taken as sick leave when the current year entitlement is exhausted. For employees that meet established criteria upon termination or retirement, the sick leave plan represents a post-employment benefit plan that provides for payment of sick leave credits. 70 2021 WCB ANNUAL REPORTFor accounting purposes, it is treated as a defined benefit plan and the liability is valued on the basis of discount rates and other estimates that are consistent with the estimates used for defined benefit obligations. For this unfunded plan, where the WCB funds the obligation directly from its own resources, employee contributions are not required.WCB Retiree Healthcare Spending Account (RHCSA) The RHCSA is a defined benefit plan. Eligible retirees receive a predetermined annual credit amount which may be used to cover healthcare expenses not covered by other plans. The WCB funds this plan directly via the plan administrator.Recognition and measurement The WCB measures its accrued benefit obligations and the fair value of plan assets for accounting purposes as at December 31 of each year, using actuarial assumptions that are unbiased and mutually compatible. The assumptions represent management’s best estimates of the variables that will determine the ultimate cost of post-employment benefits. Actuarial assumptions are comprised of demographic assumptions on matters such as mortality and employee turnover, and financial assumptions on matters such as salary and benefit levels, interest rates and return on investments. Given the long-term nature of the plan and the use of these assumptions, the resulting estimates are subject to significant uncertainty.The Projected Unit Credit Method is used to calculate the defined benefit obligations and current service costs. This method reflects service rendered by employees to the date of valuation and incorporates actuarial assumptions regarding discount rates used to determine the present value of benefits, projected rates of salary growth and long-term expected rate of return on plan assets.Discount rates are based on the market yields of high-quality corporate bonds.In accordance with IAS 19 Employee Benefits, the net interest approach is used to disaggregate the costs of the retirement plans. The change in the net defined benefit liability is disaggregated into the following components:• Service cost, or the additional liability that arises from employees providing service during the period.• Net interest or the interest expense on the net defined benefit liability calculated using the discount rate.• Remeasurements, which are other changes in the value of the defined benefit obligation such as changes in estimates and other changes in the value of plan assets. Service cost and net interest are recognized in operating surplus whereas remeasurements are recognized in other comprehensive income. Employee contributions, which are independent of the number of years of service, are treated as a reduction of service cost.When past service costs arise they are recognized immediately.2021 WCB ANNUAL REPORT 71Components of the employee benefits liability are as follows:20212020Retirement plans$ 139,303 $ 189,144 Sick leave plan 15,266 15,299 Employee vacation entitlements 4,835 5,036 Retiree healthcare spending account 3,617 3,732 Other 641 271 As at December 31$ 163,662 $ 213,482 The key actuarial assumptions used to value the employee benefit liabilities for accounting purposes are as follows:20212020Discount rate3.05%2.60%Rate of compensation increase3.00%1.00% to 3.00%Retirement plans A reconciliation of the retirement plans’ net defined benefit liability and its components is as follows:Defined Benefit ObligationFair Value of Plan AssetsNet Defined Benefit LiabilityNet Defined Benefit Liability20212020Balance at January 1$ 452,041$ (262,897)$ 189,144$ 131,760 Benefit cost recognized in income:Current service cost 19,605 - 19,605 17,356 Interest expense (income) 11,599 (6,808) 4,791 4,007 Employee contributions - (3,394) (3,394) (3,528) 31,204 (10,202) 21,002 17,835 Remeasurements recognized in OCI:Experience loss 3,298 - 3,298 7,916 (Gain) loss from changes in actuarial assumptions (39,023) - (39,023) 43,368 Return on plan assets excluding interest income - (28,819) (28,819) (6,173) (35,725) (28,819) (64,544) 45,111 Other changes:Employer contributions - (6,299) (6,299) (5,562)Transfers to the plan 319 (319) - -Benefits paid (12,145) 12,145 - - (11,826) 5,527 (6,299) (5,562)Balance at December 31$ 435,694$ (296,391)$ 139,303$189,144 72 2021 WCB ANNUAL REPORTThe most recent actuarial valuation of the WCB Retirement Plan for funding purposes, to be filed with the pension regulators, was as at December 31, 2021. This funding valuation showed a funding surplus of $24.4 million (2020 valuation, surplus of $5.3 million). The solvency deficiency as at December 31, 2021, was $125.6 million (2020 valuation, deficiency of $166.1 million). The WCB is not required to fund this deficiency as the WCB is exempt from the solvency and transfer deficiency provisions of the Pension Benefits Act.The fair value of the retirement plan assets as at December 31 is:20212020EquityCanadian$ 74,278 $ 65,551 Foreign (including US) 88,900 79,731 163,178 145,282 Fixed income73,721 65,619 Real estate 59,492 51,996 As at December 31$296,391$ 262,897 The retirement plans’ assets are wholly invested in segregated funds. The fair value represents the retirement plans’ share of the net asset value provided by the custodian and is based on the last market price for the underlying assets. At December 31, 2021, plan assets are categorized as Level 1 with the exception of certain fixed income investments which are categorized as Level 2 of the fair value hierarchy. Sick leave plan A reconciliation of the sick leave plan net defined benefit liability (equal to the defined benefit obligation) is as follows:20212020Balance at January 1$ 15,299$ 14,011 Benefit cost recognized in income:Current service cost 824 776 Interest expense 389 432 1,213 1,208 Remeasurements recognized in OCI:Experience gain (7) (8)(Gain) loss on change in actuarial assumptions (536) 662 (543) 654 Benefits paid directly by the employer (703) (574)Net defined benefit liability at December 31$ 15,266$ 15,299 2021 WCB ANNUAL REPORT 73WCB Retiree Healthcare Spending Account (RHCSA) Details of the WCB RHCSA are as follows:20212020Balance at January 1$ 3,732$ 3,216 Benefit cost recognized in income:Current service cost 142 123 Interest expense 96 101 238 224 Remeasurements recognized in OCI:(Gain) loss on change in actuarial assumptions (289) 339 Employer contributions (64) (47)Change in net defined benefit liability (115) 516 Net defined benefit liability at December 31$ 3,617$ 3,732 Defined benefit plan risks The defined benefit plans expose the WCB to economic and demographic actuarial risk.Economic risk The retirement plans are exposed to investment risk as plan assets are invested in equity, fixed income and other assets. The defined benefit plans are exposed to interest rate risk through assumptions based on economic factors such as discounts determined with reference to bond markets. Demographic risk Demographic factors affect current and future benefits costs with respect to the amount and timing of expected payments. Demographic factors include average age, retirement rates and longevity. Sensitivity of actuarial assumptions The actuarial present value of the defined benefit obligation is sensitive to changes in actuarial assumptions, the most significant assumption being the discount rate. The following table illustrates the sensitivity of the defined benefit obligation to a one per cent change in the discount rate:20212020+1.0%-1.0%+1.0%-1.0%Retirement plans $ (70,707) $ 93,838 $ (77,581)$ 103,732Sick leave plan (1,071) 1,243 (1,165) 1,356 Retiree healthcare spending account (535) 691 (584) 760 Total cash payments for employee future benefits for 2021, consisting of cash contributed by the WCB to the funded pension plan and cash payments directly to beneficiaries for unfunded plans, were $7.1 million ($6.2 million in 2020). Based on historical experience and expected salary expense, the WCB expects to fund $6.2 million in 2022.74 2021 WCB ANNUAL REPORTRelated Party Transactions By definition, the WCB retirement plan is a related party to the WCB. Transactions between the related parties are detailed below: 20212020Contributions from the employees$ 3,394 $3,528Contributions from the employer 6,299 5,562There were no amounts outstanding as at December 31, 2021, or December 31, 2020. 13. BENEFIT LIABILITIES FOR ALL EMPLOYERSAccounting policy Under the provisions of the Act, the WCB has a legislated obligation to accept insurance risk from employers in exchange for premiums paid for WCB coverage.The WCB’s Chief Actuary prepares a valuation of the benefit liabilities of the WCB at each year end. This valuation is conducted in accordance with accepted actuarial practice in Canada, and is subject to peer review by the WCB’s external actuary. The benefit liabilities represent the actuarial present value of all future benefit payments expected to be made for claims or injuries which occurred in the current fiscal year or in any prior year. The benefit liabilities include provisions for all benefits provided by current legislation, policies and/or administrative practices in respect of existing claims, plus provisions for the future expenses of administering the existing claims. Differences arising from actual claims experience and assumptions used for the previous valuation, as well as the impacts of changes in legislation, policy, administrative practice or actuarial methods and assumptions, are recognized in the period that they occur. Benefit liabilities are determined in accordance with standards established by the Actuarial Standards Board (Canada). The actuarial present value of future benefit payments reflects management’s long-term estimates of economic and actuarial assumptions and methods, which are based upon past experience and modified for current trends. As these assumptions may change over time to reflect underlying conditions, it is possible that such changes could cause a material change in the actuarial present value of the future payments. The fair value for benefit liabilities is not readily determinable.The benefit liabilities also include an estimated liability for certain long latent occupational diseases. Due to the nature of the estimated liability for long latent occupational diseases and the extent of related historical claims information currently available, this liability is more uncertain by its nature than other benefit liabilities. As information is accumulated and analysed, adjustments may be necessary to improve precision.The key actuarial assumptions used to value the benefit liabilities as at December 31 are as follows:20212020Discount rate5.25%5.75%Inflation for CPI-indexed benefits2.00%2.25%Inflation for wage-related benefits3.00%3.25%Inflation for healthcare benefits4.50%5.25%2021 WCB ANNUAL REPORT 75An analysis of the components of and changes in benefit liabilities is as follows:20212020Short-Term DisabilityLong-Term DisabilitySurvivor BenefitsHealthcare BenefitsRehabilitation ServicesTotalTotalBalance at beginning of year$ 175,778$ 504,085$ 107,897$ 361,717$ 3,932$1,153,409$ 1,136,067 Add: Claim costs incurredCurrent year 58,221 48,320 3,834 53,060 783 164,218 155,837 Prior years 12,159 22,561 6,828 (2,969) (1,359) 37,220 29,881 70,380 70,881 10,662 50,091 (576) 201,438 185,718 Less: Claim payments madeCurrent year 29,344 927 1,051 19,206 - 50,528 45,374 Prior years 32,724 51,345 10,283 34,137 (108) 128,381 123,002 62,068 52,272 11,334 53,343 (108) 178,909 168,376 Balance at end of year$ 184,090$ 522,694$ 107,225$ 358,465$ 3,464$ 1,175,938$ 1,153,409 The liability for short-term disability claims is an estimate of future wage loss payments for claims that have yet to medically plateau or stabilize. The long-term disability liability includes estimated future wage loss payments for those claims that have medically plateaued and stabilized, estimated future pension payments, and estimated future cost of claims relating to certain long latent occupational diseases. The liability for survivor benefits is composed of estimated future pension payments and other services provided to survivors of those who have lost their lives as a result of workplace injuries or illnesses. Healthcare liabilities are the estimated future medical costs for existing claims. The liability for rehabilitation services is composed of the estimated cost of future rehabilitation services which are externally supplied to the WCB.Included in the benefit liabilities balance is $120.2 million ($114.9 million in 2020) for the estimated long latent occupational disease liability including Post-Traumatic Stress Disorder. Also included in the benefit liability is $105.1 million ($100.4 million in 2020) for the future cost of administering existing claims.76 2021 WCB ANNUAL REPORTSensitivity of Actuarial Assumptions The most significant assumption in the determination of the benefit liabilities is the discount rate. The following table shows the sensitivity of the benefit liabilities to an immediate one per cent increase or decrease in the key assumptions used to determine the liabilities:Change in liability in millions:20212020+/- % change on assumed rates+1.0%-1.0%+1.0%-1.0%Discount rate$ (95)$ 115 $(89)$106Wage inflation rate 65 (55)55(48)General inflation rate 6 (6)7 (6)Healthcare inflation rate 41 (34)43(36)An increase in the discount rate results in a decrease to the benefit liabilities and vice versa.An increase to any of the inflation rates results in an increase to the benefit liabilities. Each inflation rate affects only those benefits that are directly impacted by that type of inflation. For example, healthcare inflation only affects healthcare liabilities.Claims risk Because there is no statutory limit on the benefit amount payable or the duration of the risk exposure related to work-related injuries, the WCB bears risk with respect to its future claims costs, which could have material implications for liability estimation. In determining the WCB’s claim benefit liabilities, a primary risk is that the actual benefits payments may exceed the estimation of the amount of the liabilities. This may occur due to changes in claim reporting patterns, frequency and/or size of claim payments or duration of claims. Compensable injuries and benefits payable may also change due to legislation or policy changes. With potentially long claim runoff periods, inflation is also a factor because future costs could escalate at a faster rate than expected. Liability Adequacy Test IFRS 4 Insurance Contracts requires an insurer to apply a liability adequacy test that meets specified minimum requirements, as follows:a. the test considers current estimates of all contractual cash flows, and of related cash flows such as claims handling costs, as well as cash flows resulting from embedded options and guaranteesb. if the test shows that the liability is inadequate, the entire deficiency is recognized in profit or loss.If these minimum requirements are met, there are no further requirements.The current claim benefit liability valuation meets the liability adequacy testing requirements of IFRS 4. Accordingly, a separate annual liability adequacy test is not required.2021 WCB ANNUAL REPORT 77Claims Development The table below compares actual claims liabilities to previous estimates back to the earliest period for which there is material uncertainty about the estimate and timing of claim payments. Injury YearEstimate of cumulative claims2012 & Prior201320142015201620172018201920202021TotalEnd of accident year$ 2,796,077 211,487 219,081 195,543 192,331 199,311 194,341 196,585 191,616 202,499 1 year later 2,950,734 203,221 187,526 188,020 189,192 204,883 194,005 190,185 174,602 - 2 years later 3,000,742 180,672 180,810 184,957 190,487 204,370 187,014 179,060 - - 3 years later 2,835,260 177,911 178,809 184,791 190,640 185,142 174,306 - - - 4 years later 2,810,525 176,628 178,845 185,050 182,127 187,187 - - - - 5 years later 2,805,792 176,612 178,751 174,553 179,848 - - - - - 6 years later 2,799,570 176,427 166,175 171,393 - - - - - - 7 years later 2,789,755 179,872 161,215 - - - - - - - 8 years later 2,814,964 163,856 - - - - - - - - 9 years later 2,586,620 - - - - - - - - - Estimate of cumulative claims$ 2,586,620 163,856 161,215 171,393 179,848 187,187 174,306 179,060 174,602 202,499$ 4,180,586 Cumulative claim payments(1,705,272)(108,242)(106,873)(106,436)(108,270)(111,357)(98,299)(92,452)(75,300)(52,758) (2,565,259)Current year unpaid and unreported claims 881,348 55,614 54,342 64,957 71,578 75,830 76,008 86,607 99,302 149,741 1,615,327Effect of discounting (664,757)Administration cost within benefit liabilities 105,121Future dated long latency liability 120,246Total benefit liabilities$1,175,93878 2021 WCB ANNUAL REPORT14. BENEFIT LIABILITIES FOR CLASS A THROUGH CLASS D EMPLOYERSNote 13 contains a complete description of the components of the benefit liabilities for all employers. An analysis of the portion relating to Class A through Class D employers is as follows:20212020Short-Term DisabilityLong-Term DisabilitySurvivor BenefitsHealthcare BenefitsRehabilitation ServicesTotalTotal Balance at beginning of year$ 29,456$ 76,516$ 15,480$ 66,150$9$ 187,611$ 174,950 Add: Claim costs incurredCurrent year 13,525 5,466 474 9,726 8 29,199 27,256 Prior years 3,139 (4,356) 1,057 (689) (53) (902) 9,021 16,664 1,110 1,531 9,037 (45) 28,297 36,277 Less: Claim payments madeCurrent year 5,343 349 - 2,132 - 7,824 7,158 Prior years 6,815 3,390 1,966 5,743 (63) 17,851 16,458 12,158 3,739 1,966 7,875 (63) 25,675 23,616 Balance at end of year$ 33,962$ 73,887$ 15,045$ 67,312$ 27$ 190,233$ 187,611 Included in premiums and claim costs for Class A through Class D employers are payments in the amount of $8.2 million ($7.2 million in 2020) made by Class A through Class D employers directly to injured workers on the WCB’s behalf. These amounts are reported to the WCB for inclusion in these financial statements.Included in the benefit liabilities balance is $49.0 million ($51.4 million in 2020) for Class A through Class D employers’ share of the long latent occupational disease liability and $17.4 million ($16.3 million in 2020) for the future cost of administering existing claims.2021 WCB ANNUAL REPORT 79Next >