Supplementary Information

Financial Information

• Figure 1: Organizational Structure and Departmental Forecast and Planned Spending for the Estimates Year
• Figure 2: Net Cost of Program for the Estimates Year
• Figure 3: Departmental Resources by Service Line - Budgetary
• Figure 4: Summary of Transfer Payments
• Figure 5: Sources of Respendable and Non-respendable Revenues
• Figure 6: Loans - Non-budgetary

Specified Purposed Accounts

• Employment Insurance Account
• Canada Pension Plan
• Government Annuities Account
• Civil Service Insurance Fund

Employment Insurance Part II - 2003-2004 Expenditure Plan

Details on Transfer Payments

Consolidated Report on Canada Student Loans

Regulatory Initiatives

Figure 1: Organizational Structure and Departmental Forecast and Planned Spending for the Estimates Year

1. The net budgetary increase of $1,118.4M between the planning spending 2003-2004 and the forecast 2002-2003 is mainly due to statutory transfer payments. See figure 4 for additional information.

Note: All financial tables within this report are expressed in millions of dollars and may not add due to rounding.

Figure 2: Net Cost of Program for the Estimates Year

1. Respendable Revenues: Revenues netted against Budgetary expenditures.
2. The adjustments for 2002-2003 represent the items approved through the Supplementary Estimates. The adjustments to the planned spending for 2003-2004 and 2004-2005 reflect the impact of the Budget 2003 as well as approvals to date which are not included in the Main Estimates. See figure 4 on for additional information.
3. Planned Spending for benefits does not include the 2003 Budget measures.
4. Non-Respendable Revenues: Revenues against Non-Budgetary or loans. These revenues excludes recoveries associated with the Employee Benefit Plan recoverable from EI Account and CPP.

Figure 3: Departmental Resources by Service Line - Budgetary

1. Excludes Employment benefits and support measures authorized under Part II of the Employment Insurance Act.

Figure 4: Summary of Transfer Payments

1. The operating resources related to these items have yet to be identified, but will be funded from the announced levels.

Figure 5: Sources of Respendable and Non-respendable Revenues

Figure 6: Loans - Non-budgetary

Introduction to Specified Purpose Accounts

Specified Purpose Accounts (SPA) are special categories of revenues and expenditures. They report transactions of certain accounts where enabling legislation requires that revenues be earmarked and that related payments and expenditures be charged against such revenues. The transactions of these accounts are to be accounted for separately.

HRDC is responsible for the stewardship of four such accounts:

• the Employment Insurance (EI) Account;
• the Canada Pension Plan (CPP);
• the Government Annuities Account; and
• the Civil Service Insurance Fund.

The EI Account is a consolidated SPA and is included in the financial reporting of the Government of Canada. Consolidated SPAs are used principally where the activities are similar in nature to departmental activities and the transactions do not represent liabilities to third parties but, in essence, constitute Government revenues and expenditures.

The CPP is a SPA but is not consolidated as part of the Government of Canada financial statements. It is under joint control of the Government and participating provinces. As administrator, the Government's authority to spend is limited to the balance in the Plan.

The Government Annuities Account is a consolidated SPA and is included in the financial reporting of the Government of Canada. It was established by the Government Annuities Act, and modified by the Government Annuities Improvement Act, which discontinued sales of annuities in 1975. The account is valued on an actuarial basis each year, with the deficit or surplus charged or credited to the Consolidated Revenue Fund.

The Civil Service Insurance Fund is a consolidated SPA and is included in the financial reporting of the Government of Canada. It was established by the Civil Service Insurance Act. Pursuant to subsection 16(3) of the Civil Service Insurance Regulations, the amount of actuarial deficits are transferred from the Consolidated Revenue Fund to the Civil Service Insurance Account in order to balance the assets and liabilities of the program.

Employment Insurance Account

Description

The Employment Insurance (EI) Account was established in the Accounts of Canada by the Employment Insurance Act (EI Act) to record all amounts received or paid out under that Act. The EI Act provides short-term financial relief and other assistance to eligible workers. The program covers all workers in an employer-employee relationship. Self-employed fishers are also included under special regulation of the EI Act. In 2001, 15.1 million Canadians contributed to the Program and 2.4 million received benefits.

Employment Insurance provides:

• Income Benefits under Part I of the EI Act as a temporary income replacement to claimants, including self-employed fishers, while they look for work. This includes work-sharing agreements for temporary work shortages to allow employees to receive pro-rated EI benefits while working for part of a week, thus avoiding layoffs. EI also provides three types of special benefits: maternity benefits, payable to biological mothers for work missed as a result of pregnancy and childbirth; parental benefits, payable to both biological and adoptive parents for the purpose of caring for a new born or adopted child; and sickness benefits, payable to claimants who are too ill to work.
• Employment Benefits under Part II of the EI Act through a set of Employment Benefits and Support Measures that can be tailored to meet the needs of individuals and local circumstances. The Government of Canada has Labour Market Development Agreements with the governments of most provinces and territories. These enable provincial and territorial governments to assume direct responsibility for the design and delivery of these benefits or to take part in co-management arrangements with the federal government.

Employers and workers pay all costs associated with EI through premiums. Benefits and administrative costs are paid out of the Consolidated Revenue Fund and charged to the EI Account. A surplus in the Account generates interest at a rate established by the Minister of Finance, which is currently set at 90% of the three-month Treasury bill rate.

Financial Summary

The main financial changes expected in 2003-2004 over 2002-2003 are:

• Benefits are expected to reach $15.6 billion, an increase of $0.6 billion. This increase is mainly due to an increase of $0.5 billion in income benefits resulting from an expected increase in the average weekly benefits (2%) accompanied by an increase in the number of beneficiaries (2%), and a relatively unchanged level of Employment Benefits and Support Measures.
• Premium revenue is expected to decline to $18.1 billion, a decrease of $0.4 billion, as the reduction in premium rates to 2.10% in 2003 as set by the Governor in Council and 1.98% in 2004 as announced in the 2003 Budget is partially offset by rising employment and earnings.

In 2003-2004, the EI Account is expected to have a surplus of $2.4 billion, which would bring the cumulative surplus balance to $45.6 billion by March 31, 2004.

The following figures summarize trends in total costs and revenues of the EI Account from 1991-1992 to 2003-2004 and the status of the EI Account between 2000-2001 and 2003-2004.

EI Account - Cost and Revenues Trend

EI Account - Summary

1. The EI premiums reported in the summary financial statements of the Government of Canada exclude the premium contributions made by the Government of Canada as an employer.
2. Planned Spending for benefits does not include the 2003 Budget measures.

Benefit Payments

Benefits in 2003-2004 are expected to reach $15.6 billion, consisting of $13.4 billion for Income Benefits and $2.2 billion for Employment Benefits and Support Measures.

Income Benefits

EI Income Benefits include regular, special, work sharing and fishers' benefits (For more details refer to the EI website at http://www.hrdc-drhc.gc.ca/ae-ei/employment_insurance.shtml). Major aspects of these benefits are as follows:

Regular Benefits

Amount of Work Required to Qualify for Benefits

• Most claimants require 420 to 700 hours of work during their qualifying period, regardless of whether from full-time or part-time work, or whether the work is with one employer or several. The exact number of hours required is called the "variable entrance requirement". It is determined by the rate of unemployment in a claimant's region at the time he or she applies for benefits. In general, the higher the rate of unemployment, the fewer hours of work required to qualify.

• People who have just entered the labour market ("new entrants") and those returning to the labour force after an absence ("re-entrants") require 910 hours of work. However, if they worked at least 490 hours in the preceding 12 months, or received at least one week of maternity or parental benefits in the four years before that, they will be eligible under normal rules the following year.

• Claimants who commit EI fraud are subject to higher entrance requirements. The degree of violation - minor, serious, very serious or repeat violation - increases the minimum number of hours required to establish a claim to 1.25, 1.5, 1.75 or 2 times the normal minimum hours of work required.

• The 2001 Monitoring and Assessment Report found that 88% of paid employees would be eligible to collect EI if they lost their jobs or quit with just cause (For further information see http://www.hrdc-drhc.gc.ca/ae-ei/loi-law/eimar.shtml).

Determining the Benefit Rate and Entitlement

• Claimants for regular benefits may receive benefits for 14 to 45 weeks, depending upon their hours of insurable employment and the regional unemployment rate.

• Claimants' weekly benefits are 55% of their average insurable earnings during the last 26 weeks. The average insurable earnings are based on the actual weeks of work, subject to a minimum 14 to 22 divisor that is tied to the regional rate of unemployment.

• Claimants with a combined family income of less than $25,921 and who qualify for the Canada Child Tax Benefit (CCTB) receive a Family Supplement based upon:
  • the net family income;
  • the number of dependent children; and

  • the ages of those dependent children.

• The benefit rate for claimants who receive a Family Supplement can be increased to a maximum of 80% of the claimant's average weekly insurable earnings. However, the actual weekly amount of benefits cannot exceed the maximum weekly rate noted below.

• The maximum weekly benefit rate stays at $413.00 (55% of the maximum weekly insurable earnings of $750). The Maximum Yearly Insurable Earnings (MYIE) remain at $39,000 until they are exceeded by 52 times the projected average weekly industrial wages.

Special Benefits

Claims for sickness, maternity or parental benefits require 600 hours of work, and are not affected by the new entrant/re-entrant rule. All claimants may receive sickness benefits for up to 15 weeks. Parental benefits of 35 weeks are available for biological and adoptive parents in addition to the 15 weeks of maternity benefits available to biological mothers.

Work Sharing

Claimants may receive benefits while on work-sharing agreements. These agreements between HRDC, employees and employers attempt to avoid temporary layoffs by combining partial EI benefits with reduced workweeks. They normally last from 6 to 26 weeks.

Fishers' Benefits

Fisher claims have a duration and benefit rate that depend on the earnings from fishing and the regional rate of unemployment. All fisher claims have a 31-week maximum qualifying period and a maximum entitlement of 26 weeks of benefits. These can be claimed from October 1^st to June 15^th for summer fishers' benefits and April 1^st to December 15^th for winter fishers' benefits.

Benefit rates for fisher claims are determined by a minimum of 14 to 22 divisor that depends on the regional rate of unemployment, not actual weeks worked.

Benefit Repayments

When the net annual income of EI claimants exceeds 1.25 times the maximum yearly insurable earnings ("the repayment threshold"), they have to repay the lesser of 30% ("the repayment rate") of the benefits received that make up the excess or 30% of the amount of regular or fishers benefits paid. This does not apply to claimants who did not receive EI regular or fishers benefits in the last 10 years, to recipients of special EI benefits nor to recipients of Employment benefits.

EI Income Benefits - Expenditures

Factors Affecting Income Benefit

Employment Benefits and Support Measures

The Employment Benefits include Skills Development, Job Creation Partnerships, Self-Employment and Targeted Wage Subsidies.

The Support Measures include Employment Assistance Services, Labour Market Partnerships and Research and Innovation.

Part II of the EI Act also authorizes the federal government to make payments to the governments of the provinces and territories for implementing programs similar to Employment Benefits and Support Measures. The planned federal contribution to provinces and territories (i.e., New Brunswick, Quebec, Manitoba, Saskatchewan, Alberta, Northwest Territories and Nunavut) under Labour Market Development Agreements is $894 million for 2003-2004.

The total planned spending for Employment Benefits and Support Measures in 2003-2004 is set at approximately $2.2 billion or 0.6% of the total estimated insurable earnings of $382.391 billion. This is below the 0.8% ceiling set under Section 78 of the EI Act.

Employment Benefits and Support Measures

1. Breakdown by component is not available, as spending will be guided by local labour market needs. Breakdown by provinces/territories is provided in the EI Part II - 2003-2004 Expenditure Plan.

Premiums

Premiums are collected from insured employees and their employers to cover the program costs over a business cycle, based on a yearly premium rate and employees' insurable earnings. The factors affect the premiums are further explained below:

Premium Rate: As indicated in the chart, the premium rate has been gradually reduced from its peak level of 3.07% of insurable earnings in 1994 to 2.20% in 2002 and 2.10% in 2003, for employees. The corresponding employer rates at 1.4 times the employee rate are 3.08% for 2002 and 2.94% for 2003. In the 2003 Budget, the Government has proposed that the premium rate for 2004 be further reduced to 1.98% of insurable earnings for employees and 2.77% for employers. In addition, the Government will undertake a review of how premium rates should be set starting in 2005. The Government's objective is to develop a more transparent and sustainable process for setting EI premium rates. The review process will provide Canadians with the opportunity to express their views by June 30, 2003.

Employee Premium Rate Trend (% of Insurable Earnings)

Maximum Yearly Insurable Earnings (MYIE): Premiums are paid on all employment earnings of insured employees up to the MYIE. Section 4 of the EI Act provides that the MYIE will be $39,000 until the projected value of the average weekly earnings in Canada times 52 exceeds that threshold. Thereafter, the MYIE will be set equal to such projected value times 52, rounded down to the nearest $100. For 2003, the projected value (times 52) was calculated to be $35,586 and, therefore, the MYIE was left at $39,000 (For further information, see http://www.hrdc-drhc.gc.ca/ae-ei/loi-law/max2002.pdf).

Premium Reduction: Employers with qualified wage-loss insurance plans are entitled to premium reductions. They are required to share this reduction with their employees (For further information, see http://www.hrdc-drhc.gc.ca/prp-prtc/).

Premium Refund:

• Workers with annual earnings of $2,000 or less can receive a refund of their EI premiums through the income tax system.

• EI premiums are refunded to employees for the amount of premium deducted from their insurable earnings in excess of the maximum yearly insurable earnings. This situation often arises when a person works for several employers, and the aggregate insurable earnings exceed $39,000.

Factors Affecting Premium Revenue

1. The employers' portion is 1.4 times the employee rate.

Note:

1. The premium rate reduction from $2.20 to 2.10 for the calendar year 2003 represents a saving of $890 million for employers and employees. The 2% decrease between 2002-2003 and the planned revenue for 2003-2004 represents the net impact of the reduction in the premium rate not fully offset by the rise in employment and earnings.

Administrative Costs

Section 77 of the EI Act specifies that the costs of administering the Act are to be charged to the EI Account.

The Minister of Human Resources Development is responsible for reporting on the EI Program to Parliament. However, the Canada Customs and Revenue Agency (CCRA), which collects premiums and benefit repayments and provides decisions on insurability under the Act, shares the administration of the Program. HRDC, CCRA, Treasury Board Secretariat and the Department of Justice all supply services that support management and delivery of programs under the EI Act.

The administrative costs that provincial and territorial governments incur to administer Employment Benefits and Support Measures under the Labour Market Development Agreements are also charged to the EI Account.

Administrative Costs

The $1,473 million in EI administrative costs represents the initial requirements for 2003-2004, which are $67 million less than the forecast for 2002-2003. This variance is mainly due to resources received for Modernizing Services for Canadians for 2002-2003 ($48 million). This initiative is not yet reflected in 2003-2004 Planned Spending.

Canada Pension Plan

Description

The Canada Pension Plan (CPP) is a joint federal-provincial plan that operates throughout Canada, except in Quebec, which has its own comparable plan. The CPP provides for a variety of benefits based on life changes. Best known for its retirement pensions, the CPP also provides disability and death benefits to eligible persons.

As a contributory plan, contributors are employed and self-employed persons between the ages of 18 and 70, who earn at least a minimum amount ($3,500) during a calendar year. Benefits are calculated based on how much and for how long a contributor has paid into the CPP. Benefits are not paid automatically - everyone must apply and provide proof of eligibility.

Approximately 12 million Canadians over the age of 18 currently contribute annually to the Plan and approximately 3.6 million Canadians will receive benefits during 2003-2004.

Benefit Payments

Retirement Pensions: Contributors may begin receiving CPP retirement pensions as early as age 60 or delay receipt until age 70. Applicants who are between 60 and 65 must have stopped working or earn below a specified level when they begin to receive the retirement pension. Contributors over age 65 need not have stopped working to qualify.

The amount of each contributor's pension depends on how much and for how long he/she has contributed and at what age he/she begins to draw the benefits. Pensions are adjusted by 0.5% for each month between the date the pension begins and the month of the contributor's 65^th birthday. Contributors who begin receiving a retirement pension at age 60 will receive 70% of the usual amount that would be payable at age 65, while those who delay receiving a pension until age 70 will receive 130% of the amount payable at age 65.

Spouses and common-law partners who are at least 60 years of age can share their retirement benefits earned during the period of cohabitation as long as they remain together.

Disability Benefits: Disability benefits are payable to contributors who meet the minimum contributory requirements and whose disability is "severe and prolonged", as defined in the legislation. Such a disability would prevent them from working regularly at any job in a substantially gainful manner for a prolonged period of time. In order to ensure that benefits are only paid to eligible beneficiaries, reassessments of a sample of cases are scheduled regularly. A monthly, flat-rate benefit may also be paid to, or on behalf of, the child of a recipient of a CPP disability benefit, if that child is under the age of 18, or up to age 25 if he or she is attending school full-time. The monthly children's benefit amount is not dependent on a parent's past earnings.

Survivor's Benefits: A contributor's surviving spouse/common-law partner may be eligible for a monthly benefit if the contributor has contributed for a minimum period and, if at the time of the contributor's death, the spouse/common-law partner was at least 35 years old or was under age 35 and either had dependent children or was disabled. Payments continue in the event that the surviving spouse/common-law partner remarries. Monthly benefits are also payable on behalf of the children of CPP contributors who die. The amount is a flat rate and is payable until the child reaches age 18, or up to age 25 if he or she attends school or university full-time.

Death Benefits: A lump-sum benefit is payable to the estate of the deceased contributor provided the minimum contributory requirements have been met.

Determining the Benefit Rate

CPP benefits are largely related to earnings. Benefits are adjusted in January of each year to reflect increases in the average cost of living, as measured by the Consumer Price Index.

Benefits such as children's benefits are not based on earnings; they are a fixed amount. Disability and survivor benefits contain a fixed-rate or flat-rate portion in addition to an earnings-related portion. The CPP has a ceiling on earnings that changes every year. This ceiling limits the amount of payments people receive, as well as the amount of contributions that must be paid into the Plan.

CPP - Benefit Payments By Category and Type

Revenues

The CPP is financed through mandatory contributions from employees, employers and self-employed persons, as well as from investment income. Contributions are paid on the portion of a person's earnings that falls between a specified minimum (the Year's Basic Exemption) and maximum (the Year's Maximum Pensionable Earnings) amounts. The minimum remains constant at $3,500, while the maximum amount is linked to the average Canadian industrial wage and is adjusted annually. No contributions can be made once a contributor begins to receive a CPP retirement pension, while receiving a disability pension or reaches the age of 70. Disbursements include the payment of CPP benefits and administrative expenditures associated with managing the program.

When it was introduced in 1966, the CPP was designed as a pay-as-you-go plan, with a small reserve. This meant that the benefits for one generation would be paid largely from the contributions of later generations. However, demographic and economic developments and changes to benefits in the 30 years that followed resulted in significantly higher costs. It became clear that to continue to finance the program on a pay-as-you-go basis would have meant imposing a high financial burden on Canadians in the work force during those years. Plan administrators chose instead to change the funding approach of the Plan to a hybrid of pay-as-you-go and full-funding, where each generation pays for its own benefits.

In 1998, the federal and provincial governments introduced "steady-state" financing. Under steady-state financing, the contribution rate increased incrementally, from 5.6% in 1996, to 9.9% in 2003 and will remain at that rate. The 9.9% long-term contribution rate is the lowest that can be expected to sustain the Plan indefinitely without further increases.

This approach will generate a level of contributions between 2001 and 2020 that exceeds the benefits paid out every year during that period. Funds not immediately required to pay benefits will be transferred to the CPP Investment Board for investment in financial markets. Over time, this will create a large enough reserve to help pay the growing costs that are expected as more and more baby-boomers retire.

Adoption of this diversified funding approach has made the Canadian retirement income system less vulnerable to changes in economic and demographic conditions and a leading edge example of public pension plan management in the world.

Investment Income: Interest is earned on the investments and the CPP Account. The Minister of Finance sets the interest rate for the CPP Account.

Administrative Costs

Human Resources Development Canada, the Department of Finance, the Canada Customs and Revenue Agency, Public Works and Government Services Canada and the Office of the Superintendent of Financial Institutions supply services that support the management and delivery of the CPP and its funds.

Costs incurred by these departments and agencies in administering the Plan are recoverable from the Account based on the costing principles approved by Treasury Board. Essentially, those principles are that costs must be incurred because of CPP responsibilities and must be traceable.

Administrative expenses for 2003-2004 are estimated at $350.7 million, representing a decrease of 12.6% from the forecast for 2002-2003.

CPP - Administrative Expenses By Department

Financial Accountability

The CPP and its resources are divided among three components:

• The CPP Account was established to record the contributions, interest, pensions and benefits and administrative expenditures of the Plan. It consists of an operating balance and a number of short-term investments. The operating balance is maintained at a level designed to cover three months' worth of forecast benefit payments and administrative charges.

• The CPP Investment Fund was established to record investments in the securities of the provinces, territories and Canada.

• The Canada Pension Plan Investment Board is an independent body established by a 1997 act of Parliament and created in 1998 to help the CPP achieve steady-state funding by investing funds not required by the CPP to pay current pensions and earning investment returns on funds transferred from the CPP Account (Information about the Canada Pension Plan Investment Board can be found at http://www.cppib.ca). The Board is accountable to the public and governments through regular reports. It is subject to investment rules similar to other pension funds in Canada.

Financial Summary

Benefit payments are expected to reach $22.4 billion in 2003-2004, an increase of $904 million or 4.2% over 2002-2003. This increase reflects forecasts of client population and average benefit payments. In 2003-2004, it is expected that there will be a net increase in client population of 2.5% and a net increase in average benefit payments of 1.6%.

The CPP is expected to have an increase of $11 billion, bringing the cumulative balance to more than $71 billion by March 31, 2004. At present, the CPP has a fund equal to almost three years of benefits and this is expected to grow to about four or five years of benefits over the next two decades.

The following figures summarize trends in total revenues and expenditures of the Account and its status from 2000-2001 to 2003-2004.

CPP - Revenues and Expenditure Trend

Note 1: CPP - Revenues and expenditures trend is presented for fiscal years 2000-2001 to 2003-2004. Records for prior years were prepared on a modified cash basis of accounting, while records have been prepared on an accrual basis since 1998-1999.

CPP - Summary

More information relating to 2001-2002 is reported in the CPP financial statements which can be found in the 2001 Public Accounts of Canada, Volume 1, Section 6, at http://www.pwgsc.gc.ca/recgen/text/pub-acc-e.html)

Note: Canada Pension Plan Ivestment Board actual amounts are based on their audited financial statements. The CPP Investment Board invests mainly in equities. The investment income is determined by the change in fair values of these investments. It is defficult to forecast the fair value and as a result, the December 31, 2002 investment income has been used.

Long-term Forecast

The CPP legislation requires a schedule of contribution rates with a review every three years by the federal and provincial finance ministers. The review determines whether any adjustments to the schedule are necessary. If so, the adjustments are implemented through legislation or agreement among finance ministers, or automatically under a formula that ensures that the Plan will have a reserve equal to approximately two years worth of benefits. Amendments to the rate schedule or the automatic regulation require the approval of at least two thirds of the provinces with at least two thirds of the population of all the provinces.

The following table shows the forecast of revenues and expenditures affecting the CPP for the period between December 1, 2005 and December 1, 2025 based on the Office of the Superintendent of Financial Institutions' CPP Nineteenth Actuarial Report as at December 31, 2000 (The Nineteenth Actuarial Report can be found at http://www.osfi-bsif.gc.ca/eng/office/actuarialreports/index.asp). The Assets/Expenditures Ratio reflects the size of the year-end assets relative to the expenditures.

Forecast of Revenues and Expenditures

Government Annuities Account

This account was established by the Government Annuities Act, and modified by the Government Annuities Improvement Act, which discontinued sales of annuities in 1975. The account is valued on an actuarial basis each year, with the deficit charged or surplus credited to the Consolidated Revenue Fund.

The purpose of the Government Annuities Act was to assist Canadians to provide for their later years, by the purchase of Government annuities. The Government Annuities Improvement Act increased the rate of return and flexibility of Government annuity contracts.

Income consists of premiums received, funds reclaimed from the Consolidated Revenue Fund for previously untraceable annuitants, earned interest and any transfer needed to cover the actuarial deficit. Payments and other charges represent matured annuities, the commuted value of death benefits, premium refunds and withdrawals, and actuarial surpluses and unclaimed items transferred to non-tax revenues. The amounts of unclaimed annuities, related to untraceable annuitants, are transferred to non-tax revenues.

As of March 31, 2002, there were 5,324 outstanding deferred annuities, the last of which will come into payment around 2030.

Government Annuities Account - Receipts and Disbursements

Civil Service Insurance Fund

This account was established by the Civil Service Insurance Act, under which the Minister of Finance could contract with permanent employees in the public service for the payment of certain death benefits. No new contracts have been entered into since 1954 when the Supplementary Death Benefit Plan for the Public Service and Canadian Forces was introduced as part of the Public Service Superannuation Act and the Canadian Forces Superannuation Act, respectively. As of April 1997, the Department of Human Resources Development assumed the responsibility for the administration and the actuarial valuation of the Civil Service Insurance Act.

The number of policies in force as of March 31, 2002 was 1,884 and the average age of the policy holders was 83.9 years. Receipts and other credits consist of premiums and an amount (charged to expenditures) which is transferred from the Consolidated Revenue Fund in order to balance the assets and actuarial liabilities of the program. Payments and other charges consist of death benefits, settlement annuities paid to beneficiaries and premium refunds.

Pursuant to subsection 16(3) of the Civil Service Insurance Regulations, any deficit will be credited to the Account from the Consolidated Revenue Fund.

Civil Service Insurance Fund - Receipts and Disbursements

Employment Insurance Part II - 2003-2004 Expenditure Plan

Background

Part II of the Employment Insurance (EI) Act commits the federal government to work in concert with provinces and territories in designing and implementing active employment programs that would be more effective in helping unemployed Canadians integrate into the labour market. These programs are called Employment Benefits and Support Measures (EBSMs).

In accordance with the Government of Canada's 1996 offer to provinces and territories to enter into bilateral partnerships on labour market activities, Labour Market Development Agreements (LMDAs) have been concluded with nine provinces and the three territories. The LMDAs involve two types of arrangements:

• Co-management agreements where Human Resources Development Canada (HRDC) and the provinces and one territory jointly assume responsibility for the planning and design of EBSMs, while HRDC continues to deliver programs and services through its service delivery network. Such agreements have been concluded with Newfoundland and Labrador, Prince Edward Island, British Columbia and Yukon. There is also a strategic partnership agreement that is a variation of co-management in Nova Scotia. Furthermore, HRDC delivers EBSMs in Ontario where there is no LMDA.

• Transfer agreements where the provinces and territories assume responsibility for the design and delivery of active employment programs similar to EBSMs. Such agreements have been concluded with New Brunswick, Quebec, Manitoba, Saskatchewan, Alberta, the Northwest Territories and Nunavut.

In addition to locally and regionally delivered EBSMs and similar programs, pan-Canadian activities that are national or multi-regional in scope or purpose are delivered by HRDC in any of the provinces through EBSMs.

Employment Benefits and Support Measures

The five Employment Benefits are:

• Targeted Wage Subsidies - to encourage employers to hire individuals whom they would not normally hire in the absence of a subsidy;

• Self-Employment - to help individuals to create jobs for themselves by starting a business;

• Job Creation Partnerships - to provide individuals with opportunities through which they can gain work experience which leads to on-going employment;

• Targeted Earnings Supplements - to encourage individuals to accept employment by offering them financial incentives; and

• Skills Development - to help individuals to obtain skills for employment, ranging from basic to advanced skills through direct assistance to individuals, and, where applicable, contributions to provinces/territories or provincially/territorially funded training institutions to cover costs not included in tuition fees.

It should be noted that of the Employment Benefits listed above, Targeted Earnings Supplements has not yet been implemented. Pilot research projects were conducted to evaluate the effectiveness of Targeted Earnings Supplements but HRDC has not yet arrived at a feasible design.

Eligibility to receive assistance under the Employment Benefits extends to persons who are insured participants as defined in Section 58 of the EI Act, i.e., active claimants and former claimants (individuals who have received regular benefits in the past three years or maternity or parental benefits in the past five years).

Part II of the legislation also authorizes the establishment of Support Measures in support of the National Employment Service. The three measures are:

• Employment Assistance Services - to assist organizations in the provision of employment services to unemployed persons;

• Labour Market Partnerships - to encourage and support employers, employee and/or employer associations and communities to improve their capacity for dealing with human resource requirements and implementing labour force adjustments; and

• Research and Innovation - to support activities which identify better ways of helping persons prepare for or keep employment and be productive participants in the labour force.

Financial Data

2003-2004 Employment Insurance Plan

1. Funds earmarked for Pan-Canadian priorities, such as Aboriginal programming, youth programming, sectoral and innovations projects. The amount is net of $12.8M funds converted into HRDC operating costs.

For 2003-2004, the EI Part II expenditure authority of $2.2 billion represents 0.6% of total estimated insurable earnings of $382.391 billion. This represents a lower level of expenditures than the 0.8% ceiling imposed under the Act, which is estimated at $3.059 billion.

Some of the savings from Part I income benefits generated by the EI reform are included in these funds to provide job opportunities and help Canadians get back to work more quickly. The amount of re-investment reached maturity at $800 million in 2000-2001.

Expected Results

It is expected that 356,000 active claimants will be assisted in 2003-2004. This target may change, depending on labour market conditions and agreements achieved with provinces and territories.

HRDC will carefully monitor the impact of EBSMs on individuals and communities; the performance of the economy and job markets; and the ways in which workers, employers, industries and communities are affected and adjust.

An accountability framework has been developed that respects the legal responsibility of the Minister of Human Resources Development for the EI Account. Key indicators will measure both the short and long term outcomes of EBSMs.

Notes:

1. Exclusive of Employment Information Services (self-serve) and pan-Canadian results.
2. The targeted results for Clients Employed and Unpaid Benefits for 2001-2002 and 2002-2003 are the totals as submitted by HRDC regions, provinces and territories. However, the targets for Active Claimants Assisted are the result of a combination of targets received from the regions plus 80% of Quebec's target of 130,628 Clients Assisted and 80% of an estimate of Clients Assisted by New Brunswick derived from historical data. The historical data for both of these two regions indicate that slightly more than 80% of the clients assisted are active claimants. The LMDAs of these two provinces do not require an annual target for Active Claimants Assisted.
3. Forecasted results for 2002-2003 are based on an analysis of historical data and the most current 2002-2003 reported data.
4. The 2003-2004 forecasted results are national projections developed by HRDC at NHQ (based on historical client and program data, expenditure patterns, forecasted labour market conditions and expected funding levels). A further target exercise will be undertaken with provinces/territories and regions once final data is available for 2002-03. The need to develop future year targets in this manner explains the difference between the 2002-2003 targets published in the 2002-2003 EI Expenditure Plan and those now stated above.

Explanation of Variances:

1. Actual results for "Employed" and "Unpaid Benefits" are lower than targeted. This variance relates to a slowdown in the economy during the first three quarters of 2001-02.
2. Active Claimants Assisted exceeded the established target as a result of an increase in the number of regular claims when compared to the previous year. This increase relates to the slowdown in the economy during the first three quarters of 2001-02.
3. The forecasted Client Employed Results reflect an increase of 6.6% in the actual number of Clients Employed as of October 31, 2002 compared to the corresponding period in 2001-02. Clients employed results are higher than were anticipated based on the data available at the time of target establishment. Labour market conditions were strong in 2002 as Canada wound up the year with a record 560,000 jobs created.
4. Unpaid Benefits at October 31, 2002 were $111 million (27%) higher than at the same time in 2001. Unpaid Benefits are higher than were anticipated at the time of target establishment. Approximately 35% of the increase relates to higher than expected active claimants counts (the source for unpaid benefits). The remaining 65% increase stems from factors such as average benefits rate and the length of claims established in 2002-03 when compared to 2001-02.
5. The number of Active Claimants Assisted is 73% higher than at the same period last year. This relates to higher than expected use of interventions that are service in nature. These interventions are generally delivered to clients who are job ready. This increase is also reflective of better client documentation.

Of the thirteen formative evaluations scheduled to take place, twelve are completed. A formative evaluation of the Nunavut LMDA is planned for completion in the Spring of 2004. Summative evaluations of the LMDAs, which will provide reliable and valid information concerning a program's impacts and effectiveness are underway in three provinces, namely British Columbia, Newfoundland and Labrador and Quebec (in Quebec, the province is leading the evaluation, in consultation with HRDC). Throughout 2002-2003, summative evaluations are being started in other provinces and territories. Completion of these studies is expected in 2004.

Over the past year, work has been underway in British Columbia and Alberta on the Medium-Term Indicator (MTI) pilot projects. The MTI is designed to test the feasibility of using operational data to monitor and report on EBSM effectiveness on an ongoing basis. The pilot is examining methodologies and indicators that will best measure the impact of EI Part II activities. This project continues to support the department's commitment to monitor and report upon the effectiveness of EBSM programs delivered under the LMDAs.

Details on Transfer Payments

Human Resources Development Canada has a substantial number of transfer payment programs. These support individuals, communities, the private and voluntary sectors, labour, other orders of government and Aboriginal organizations in the achievement of shared human development goals. We are subject to the revised policy on Transfer Payments, which was introduced on June 1, 2000. That policy requires departments to report on those transfer payment programs that are worth at least $5 million. In so doing, we are helping to demonstrate sound management of, control over, and accountability for our transfer payments.

Consistent with this policy, we have developed descriptive material on each program funded from the Consolidated Revenue Fund, including stated objectives, expected results and outcomes, and milestones for achievement. The following table provides a list of the active transfer payments programs. A fact sheet for each program over $5 million is also provided.

Planned spending figures reflect estimated program costs and exclude operating resources necessary to deliver the program.

* Resources announced in Budget 2003 for "Aboriginal Skills and Employment Partnership" are excluded from Fact Sheet 5 ($10M).

** Resources announced in Budget 2003 for "Supporting Community Partnership Initiative" are included in Fact Sheet 8 ($135M).

1. Includes all initiatives using Social Development Partnerships Program (SDPP) terms and conditions, these are: Voluntary Sector Initiative, some of Child Care Visions and SDPP.
2. The SDPP incorporates the former Child Care Visions (CCV) program under a distinct Early Childhood Learning and Care stream.

1. These results and outcomes are based on total program funding through the Consolidated Revenue Fund (CRF) and EI Part II. Specific results derived from the CRF funding only are unavailable.

* Excludes resources announced in Budget 2003 for "Aboriginal Skills and Employment Partnerships" ($10M).

* Includes planned spending announced in Budget 2003 for "Supporting Communities Partnership Initiative" ($135M).

** Pending approval of extended terms and conditions.

* Pending approval of funding.

Consolidated Report on Canada Student Loans Program

In August 2000, the Canada Student Loans Program (CSLP) was shifted from the risk-shared financing arrangements that had been in place with financial institutions between 1995 and July 2000 to a direct student loan financing plan. (For further information on the Canada Student Loans Program, see http://www.hrdc-drhc.gc.ca/student_loans/)

This meant that the Program had to redesign the delivery mechanism in order to directly finance student loans. In the new arrangement, the Government of Canada provides the necessary funding to students and two service providers have contracts to administer the loans.

It also meant that the Program had to use interim arrangements in order to ensure uninterrupted delivery of federal student financial assistance until the Direct Loans program could be fully implemented.

Reporting Entity

The entity detailed in this report is the Canada Student Loans Program only and does not include departmental operations related to the delivery of the CSLP. Expenditures in the figures are primarily statutory in nature, made under the authority of the Canada Student Loans Act and the Canada Student Financial Assistance Act.

Basis of Accounting

The financial figures are prepared in accordance with accounting policies and concepts generally accepted in Canada and as reflected in the Public Sector Accounting Handbook of the Canadian Institute of Chartered Accountants.

Specific Accounting Policies

Revenues

Two sources of revenue are reported: interest revenue on Direct Loans and recoveries on Direct, Guaranteed and Put Back Loans. Government accounting practices require that recoveries from both sources be credited to the Government's Consolidated Revenue Fund. They do not appear along with the expenditures in the CSLP accounts, but are reported separately in the financial statements of Human Resources Development Canada and the Government.

• Interest Revenue on Direct Loans - Student borrowers are required to pay simple interest on their student loans once they leave full-time studies. At the time they leave school, students have the option of selecting a variable (prime + 2.5%) or fixed (prime + 5%) interest rate. The amounts in the figures represent the interest accrued on the outstanding balance of the Government-owned Direct Loans. Borrowers continue to pay the interest accruing on the guaranteed and risk-shared loans directly to the private lender holding these loans.

• Recovery of Interest on Direct Loans - The amounts in the figures represent the recovery of interest on defaulted direct loans.

• Recoveries on Guaranteed Loans - The Government reimburses the private lenders for any loans issued prior to August 1, 1995 that go into default (i.e., lenders claim any amount of principal and interest not repaid in full). The amounts in the figures represent the recovery of principal and interest on these defaulted loans.

• Recoveries on Put-back Loans - Under the risk-shared agreements, the Government will purchase from the Participating Financial Institutions any loans issued between August 1, 1995 to July 31, 2000 that are in default of payments for at least twelve months after the Period of Study, that in aggregate, do not exceed 3% of the average monthly balance of the lender's outstanding student loans in repayments. The amount paid is set at 5% of the value of the loans in question. The recoveries amounts in the figures represent the recovery of principal and interest, less any refund made to participating financial institutions.

Canada Study Grants

Canada Study Grants improve access to post-secondary education. Five grant programs assist:

1. students with permanent disabilities in order to meet disability-related educational expenses (up to $8,000 annually);
2. students with dependents (up to $3,120 annually);
3. high-need part-time students with educational expenses (up to $1,200 annually);
4. women in certain fields of Ph.D. studies (up to $3,000 annually for up to three years); and
5. high-need students with permanent disabilities (up to $2,000 annually).

Collection Costs

These amounts represent the cost of using private collection agencies to collect defaulted Canada Student Loans. The loans being collected include: risk-shared and guaranteed loans that have gone into default and for which the Government has reimbursed the private lender; and Direct Loans issued after July 31, 2000, that are returned to HRDC by the third party service provider as having defaulted.

Interim Arrangements

As noted in the introduction to this section, interim contracts were entered into with the former risk-shared loan lenders to disburse full-time Direct Loans on the Government's behalf until February 28, 2001. At that time, the Government reimbursed the lenders 85% of the loan principal they had advanced during the interim period. The remaining 15% was reimbursed to the lenders later. These contracts also called for remuneration in the form of transaction fees and the interest on funds advanced on behalf of the Government. Another contract was entered into with Canada Post for the delivery of Direct Loans to part-time students. The Interest Cost to Financial Institutions (Interim) and Transition fees to Financial Institutions (Interim) items identify the cost of these interim arrangements.

• Interest Cost to Financial Institutions (Interim) - This expense represents the interest costs, calculated at prime, paid by CSLP on a monthly basis to the lending institutions on the outstanding advances made to full-time students with Direct Loans.
• Transition Fees to Financial Institutions (Interim) - This expense represents the cost of transaction fees paid by CSLP during the interim period for each fully completed full-time loan made to the student by the participating lending institutions. Transition fees also include payments made to Canada Post for each fully completed part-time loan made during the interim period. The cost is calculated on the basis of certificates of eligibility negotiated by the student.

Service Bureau Costs

As of March 1, 2001, CSLP uses third party service providers to administer Direct Loans disbursement, in-study loan management and post-studies repayment activities. This item represents the cost associated with these contracted services.

Risk Premium

Risk premium represents part of the remuneration offered to lending institutions participating in the risk-shared program from August 1, 1995 to July 31, 2000. The risk premium was 5% of the value of loans being consolidated (normally the value of loans issued to students), being calculated and paid at the time students leave studies and go into repayment. In return, the lenders assumed risk associated with non-repayment of these loans.

Put-Back

Subject to the provisions of the contracts with lending institutions, the Government will purchase from a lender the student loans that are in default of payment for at least twelve months and that, in aggregate, do not exceed 3% of the average monthly balance of the lender's outstanding student loans in repayments. The amount paid is set at 5% of the value of the loans in question.

Administrative Fees to Provinces and Territories

Pursuant to the Canada Student Financial Assistance Act (CSFA Act), the Government has entered into arrangements with participating provinces and Yukon to facilitate the administration of the CSLP. They administer the application and needs assessment activities associated with federal student assistance and in return they are paid an administrative fee.

In-Study Interest Borrowing Expense

The capital needed to issue the Direct Loans is raised through the Department of Finance's general financing activities. The cost of borrowing this capital is recorded in the Department of Finance's overall financing operations. The amounts in the figures represent the cost attributed to CSLP in support of Direct Loans while students are considered in study status.

In Repayment Interest Borrowing Expense

The capital needed to issue the Direct Loans is raised through the Department of Finance's general financing activities. The cost of borrowing this capital is recorded in the Department of Finance's overall financing operations. The amounts in the figures represent the cost of interest while students are in repayment of their Canada Student Loan.

In-Study Interest Subsidy

A central feature of federal student assistance is that student borrowers are not required to pay the interest on their student loans as long as they are in study and, in the case of loans negotiated prior to August 1, 1993, for six months after the completion of studies. Under the guaranteed and risk-shared programs, the Government paid the interest to the lending institutions on behalf of the student.

Interest Relief

Assistance may be provided to cover loan interest for borrowers who have difficulty repaying their loans. The shift from Guaranteed and Risk-Shared Loans to Direct Loans did not alter interest relief for loans in distress from the borrower's perspective; however, the method of recording associated costs changed. For loans issued prior to August 1, 2000, CSLP compensates lending institutions for lost interest equal to the accrued interest amount on loans under interest relief. For loans issued after August 1, 2000, the loans of borrowers will not accrue interest, but is recognized in the Bad Debt Expense.

Debt Reduction in Repayment

Debt Reduction in Repayment (DRR) assists borrowers in severe financial hardship. DRR is a federal repayment assistance program through which the Government of Canada reduces a qualifying student's outstanding Canada Student Loans principal to an affordable amount after all other interest relief measures are exhausted. For loans issued prior to August 1, 2000, CSLP pays the lending institutions the amount of student debt principal reduced by the Government of Canada under DRR. For loans issued after August 1, 2000, the Government of Canada forgives a portion of the loan principal.

Claims Paid and Loans Forgiven

From the beginning of the program in 1964 until July 31, 1995, the Government fully guaranteed all loans issued to students by private lenders. The Government reimburses private lenders for any of these loans that go into default (i.e., lenders claim any amount of principal and interest not repaid in full, after which HRDC will attempt to recover these amounts). The risk-shared arrangements also permitted loans issued from August 1, 1995 to July 31, 2000 to be guaranteed under specific circumstances. This item represents the costs associated with loan guarantees.

Pursuant to the Canada Student Loans Act and the Canada Student Financial Assistance Act, the Government incurs the full amount of the unpaid principal plus accrued interest in the event of the death of the borrower or if the borrower becomes permanently disabled and cannot repay the loan without undue hardship.

Bad Debt Expense

Under Direct Loans, the Government owns the loans issued to students and must record them as assets. As a result, Generally Accepted Accounting Principles require a provision be made for potential future losses associated with these loans. The provision must be made in the year the loans are issued even though the losses may occur many years later. The amounts in the figures represent the annual expense against the provisions for Bad Debt, Debt Reduction in Repayment and Interest Relief on Direct Loans.

Alternative Payments to Non-participating Provinces

Provinces and territories may choose not to participate in the CSLP. These provinces and territories receive an alternative payment to assist in the cost of delivering a similar student financial assistance program.

Budget Measures 2003

As a result of measures announced in the February 2003 Budget, the Canada Student Loans Program is being strengthened with approximately $60 million over two years in direct support to students, through enhancements to Interest Relief, Debt Reduction in Repayment as well as income and scholarship exemptions. These measures will help ensure more Canadians receive the support they need to access post-secondary education and help them acquire the learning and skills they need to succeed, and provide enhancements to assist borrowers who experience difficulty in repayment.

Commitments

As at March 31, 2003 the department will have the following commitments for Service Provider contracts: $82.7 million. The current end date for the Service Provider contracts is February 28, 2004.

Figure 1 : Consolidated Canada Student Loans Program - Combined Programs

1. These costs are related to Canada Student Direct Loans, but accounted for by the Department of Finance.
2. This represents Provisions for Bad Debt, Debt Reduction in Repayment and Interest Relief as required under Accrual Accounting.

Note: Excludes resources announced in Budget 2003.

Figure 2 : Consolidated Canada Student Loans Program - Risk-Shared and Guaranteed Loans Only

Note: Excludes resources announced in Budget 2003.

Figure 3 : Consolidated Canada Student Loans Program - Direct Loans Only

1. These costs are related to Canada Student Direct Loans, but accounted for by the Department of Finance.
2. This represents Provisions for Bad Debt, Debt Reduction in Repayment and Interest Relief as required under Accrual Accounting.

Note: Excludes resources announced in Budget 2003.

Regulatory Initiatives

Income Security for seniors, persons with disabilities and heir children, survivors and migrants

Opportunity to fully participate in the workplace and community

Safe, fair, stable and productive workplaces

Website References

• HRDC website

Acts and Regulations

• Acts and Regulations governing HRDC

HRDC Overview

• Speech from the Throne, September 30, 2002

• Government of Canada, Government on-Line and Canadians, January 2002

• The Budget Speech 2003

• Statistics Canada, The Daily, October 30, 2002

• Canadian Manufacturers and Exporters, Excellence Gap Review, August 2001

Income security for seniors, persons with disabilities and their children, survivors and migrants

• For more general information on financial assistance and entitlements

• For more specific information on income security benefits

• Statistics Canada, Income in Canada (Cat. # 75-202-XIE), November 2002

Opportunity to fully participate in the workplace and the community

• For further information, see http://www15.hrdc-drhc.gc.ca/english/es.asp

• For further information, see http://www.innovationstrategy.gc.ca

Safe, fair, stable and productive workplaces

• http://labour-travail.hrdc-drhc.gc.ca

Sustainable and effective program management and service delivery

• More detailed information on HRDC's Sustainable Development Strategy

Other websites

• For more details refer to the EI website

• For further information, see http://www.hrdc-drhc.gc.ca/ae-ei/loi-law/eimar.shtml

• For further information, see http://www.hrdc-drhc.gc.ca/ae-ei/loi-law/max2002.pdf

• For further information, see http://www.hrdc-drhc.gc.ca/prp-prtc/

• Information about the Canada Pension Plan Investment Board

• More information relating to 2001-2002 is reported in the CPP financial statements which can be found in the 2001 Public Accounts of Canada, Volume 1, Section 6

• The Nineteenth Actuarial Report

• For further information on the Canada Student Loans Program

Questions and Public Enquiries

If you have questions about departmental programs and services, you may contact your nearest Human Resources Development Canada office listed in the Government of Canada pages of the telephone book or the HRDC Public Enquiries Centre.

To obtain HRDC publications, you may contact the Public Enquiries Centre (tel: 1-819-994-6313).