BILL ANALYSIS SB 1661 Page 1 SENATE THIRD READING SB 1661 (Kuehl) As Amended August 23, 2002 Majority vote SENATE VOTE :22-15 INSURANCE 11-7 APPROPRIATIONS 13-8 ----------------------------------------------------------------- |Ayes:|Calderon, Chavez, Diaz, |Ayes:|Steinberg, Alquist, | | |Dutra, Frommer, Horton, | |Aroner, Cohn, Corbett, | | |Keeley, Koretz, Nakano, | |Diaz, Firebaugh, | | |Vargas, Washington | |Goldberg, Negrete McLeod, | | | | |Pavley, Simitian, | | | | |Washington, Wiggins | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Bogh, Briggs, John |Nays:|Bates, Ashburn, Daucher, | | |Campbell, Dickerson, | |Maldonado, Robert | | |Havice, Mountjoy, Richman | |Pacheco, Papan, Runner, | | | | |Zettel | ----------------------------------------------------------------- SUMMARY : Permits disability compensation for any individual who is unable to work due to the employee's own sickness or injury, the sickness or injury of a family member, as defined, or the birth, adoption, or foster care placement of a new child; and establishes, within the state disability insurance program, a family temporary disability insurance (FTDI) program to provide up to six weeks of wage replacement benefits to workers who take time off work to care for a seriously ill child, spouse, parent, domestic partner, or to bond with a new child. Specifically, this bill : 1)Expands disability insurance rights and benefits due to an employee's need to provide care for any sick or injured family member, as defined, or the birth, adoption, or foster care placement of a new child. 2)Creates a FTDI program to provide up to six weeks of wage replacement benefits to workers who take time off work to care for a seriously ill child, spouse, parent, domestic partner, or to bond with a new child. 3)Defines "family care leave" to mean any of the following: a) SB 1661 Page 2 leave for reason of the birth of a child of the employee or the employee's domestic partner, the placement of a child with an employee in connection with the adoption or foster care of the child by the employee or domestic partner, or the serious health condition of a child of the employee, spouse or domestic partner; or, b) leave to care for a parent, spouse, or domestic partner who has a serious health condition. 4)Defines "serious health condition" to mean an illness, injury, impairment, or physical or mental condition that involves inpatient care in a hospital, hospice, or residential health care facility, or continuing treatment or continuing supervision by a health care provider. 5)Provides that an individual shall be deemed eligible for FTDI benefits on any day that he or she is unable to perform his or her regular or customary work because he or she is caring for a new or seriously ill child, parent, spouse, or domestic partner. This eligibility is subject to a waiting period of seven consecutive days during each FTDI benefit period with respect to which waiting period no benefits are payable. 6)Requires the certificate to establish medical eligibility to contain the following: a) a diagnosis and diagnostic code prescribed in the International Classification of Diseases, or, where no diagnosis, has yet been obtained, a detailed statement of symptoms; b) the date, if known, on which the condition commenced; c) the probable duration of the condition; d) an estimate of the amount of time that the physician or practitioner believes the employee is needed to care for the child, parent, spouse, or domestic partner; and, e) a statement that the serious health condition warrants the participation of the employee to provide care for his or her child, parent, spouse, or domestic partner. 7)States that the term "Warrants the participation of the employee" includes, but is not limited to, providing psychological comfort, and arranging "third party" care for the child, parent, spouse, or domestic partner, as well as directly providing, or participating in, the medical care. 8)Makes it unlawful to falsely certify the medical condition of any person in order to obtain FTDI benefits, to knowingly present or cause to be presented any false or fraudulent statement in support of any claim for FTDI benefits, or to SB 1661 Page 3 knowingly solicit or receive any payment for soliciting a claimant to apply for FTDI benefits. 9)Requires the Director (director) of the Employment Development Department (EDD) to increase the rate of worker contributions by .08% for the 2004 and 2005 calendar years to cover the initial cost of FTDI benefits 10)Provides that the maximum amount payable to an individual during any disability benefit period for FTDI shall be six times his or her "weekly benefit amount," but in no case shall the total amount of benefits payable be more than the total wages paid to an employee during his or her disability base period. 11)Provides that no more than six weeks of FTDI benefits shall be paid within any 12-month period. 12)Provides that an individual is not eligible for FTDI benefits with respect to any day that another family member is able and available for the same period of time that the individual is providing the required care. 13)Specifies that an individual who is entitled to leave under the federal Family and Medical Leave Act (FMLA) and California's Family Rights Act (CFRA) must take FTDI leave concurrent with leave taken under the FMLA and the CFRA. 14)Specifies that as a condition of an employee's initial receipt of FTDI benefits during any 12-month period in which an employee is eligible for these benefits, an employer may require an employee to take up to two weeks of earned but unused vacation leave prior to the employee's initial receipt of these benefits. 15)Provides that if the director finds that any individual falsely certifies the medical condition of any person in order to obtain FTDI benefits, with the intent to defraud, the director shall assess a penalty against the individual in the amount of 25% of the benefits paid as a result of the false certification. Specifies that penalties collected shall be deposited in the contingent fund. EXISTING LAW : SB 1661 Page 4 1)Provides for the offering of a non-occupational disability insurance program. 2)Establishes the State Disability Insurance (SDI) program covering approximately12 million workers in California. Some employees are exempt from SDI (i.e., railroad employees, some employees of non-profit agencies, employees who claim religious exemptions, and most government employees). Some local government workers, including school employees, may be entitled to SDI benefits as a function of collective bargaining. Self-employed individuals may elect, under specified conditions, to be covered. 3)Authorizes EDD to pay SDI benefits as partial wage replacement to employees who are disabled. 4)Defines "disability" as any mental or physical illness or injury that prevents an employee from performing his or her regular or customary work. (This includes elective surgery and illness or injury resulting from pregnancy, childbirth or related conditions.) 5)Permits an employer to offer employees a voluntary disability plan (VP) in place of SDI coverage. 6)Mandates a VP to provide all the benefits of SDI and at least one benefit superior than SDI. Requires director to approve a VP. Also requires a majority of the employees to consent to the plan. (Neither an employee nor his or her employer is liable for worker contributions to the Disability Fund while the worker is in a VP. However, an employer must pay into the Disability Fund an amount equal to 14% of the amount employees would have otherwise paid into the fund had the employee not been in a VP. 7)Makes it an unlawful employment practice for an employer to refuse to allow a female employee affected by pregnancy, childbirth, or related medical condition to take a leave on account of pregnancy for a reasonable period of time, not to exceed four months. "Reasonable period of time" means the amount of time the female employee is disabled on account of pregnancy, childbirth, or related medical condition. (The Fair Employment and Housing Act (FEHA)). 8)Establishes that it is an unlawful employment practice for any SB 1661 Page 5 employer to refuse to grant a request by any employee with more than one year of service and who has worked at least 1,250 hours during the previous 12-month period, to take family care and medical leave for up to 12 workweeks: a) in connection with the birth or adoption or serious health condition of the employee's child; b) to care for a parent or spouse who has a serious health condition; or, c) because of the employee's own serious health condition. This provision applies to an employer who employs 50 or more employees within 75 miles of the employee's work-site, the state, and any political or civil subdivision of the state, and cities. (CFRA). 9)Provides that any employer authorizing sick leave for an employee must permit the employee to use, in any calendar year, the employee's accrued and available sick leave entitlement. This sick leave shall be in an amount not less than the sick leave that would be accrued during six months at the employee's then current rate of entitlement, to attend to an illness of a child, parent, spouse, or domestic partner of the employee. FISCAL EFFECT : EDD estimates this bill will result in costs of $73.2 million in 2003-04 and $117.7 million in 2004-05 from the Disability Fund; offset by rate revenues. COMMENTS : It is the author's intent to create the FTDI Program to help reconcile the demands of work and family. In recognition of the shared benefit, the program will be implemented through employee contributions and the provision of benefits by employers, and shall be administered in accordance with the policies of the SDI program. The United States is one of the few developed countries in the world without a national paid parental leave program. One hundred and thirty countries have leave policies. Just three of those countries - Ethiopia, Australia and the United States - provide only unpaid leave. SDI is financed through a mandatory employee payroll contribution that is paid into the Disability Trust Fund. The director of EDD determines the contribution rate, based upon a statutory formula. On or before October 31 of each calendar year, the director is required to prepare a public statement declaring the rate (rounded to the nearest one-tenth of one SB 1661 Page 6 percent) of worker contributions for the calendar year and promptly notify all employers of covered employees. A claimant employee establishes medical eligibility for each uninterrupted period of disability by filing a first claim for disability benefits supported by the certificate of a treating physician or practitioner. The current contribution rate is 0.9% of wages not to exceed approximately $46,300 per year (i.e., the worker's contribution is about $ 417). In 2003, the wage base will increase to about $56,900. The maximum contribution rate cannot exceed 1.3%. The weekly benefits replace 55% of base period earnings, from $50 per week to a maximum of $490. Future SDI benefit increases are tied to the level of workers' compensation temporary disability benefits for work-related injuries. Workers' compensation temporary disability benefits are scheduled to increase from $490 to $602 for injuries occurring on and after January 1, 2003, to $728 for injuries occurring on or after January 1, 2004, and to $840 for injuries occurring on or after January 1, 2005. Commencing January 1, 2006, and each January 1 thereafter, the maximum and minimum benefit is increased by an amount equal to the percentage increase in the "state average weekly wage" as compared to the prior year. Every claim is assessed a seven-day non-payable waiting period. Benefits may be collected for up to 52 weeks. An employer is not required to hold a job simply because an employee is receiving SDI benefits. An employee does have the right to return to his or her job if the employee is covered by mandatory leave laws such as pregnancy leave or family care and medical leave. For 2001, total first claims paid for disability insurance equaled 656,400. Of these claims, 145,700 were for pregnancy-related first claims. The average duration for a claim in 2001 was 13.87 weeks. The average weekly benefit amount was $292.60 in 2001. Voluntary Plan : An employer may assume all or part of the cost of a VP and may deduct wages for the purpose of providing benefits. An employee's rate of contribution cannot exceed the SB 1661 Page 7 amount paid by an employee who is covered by SDI. EDD Pregnancy Disability Policy : EDD allows up to four weeks pre-partum and six weeks post-partum disability leave without requiring the worker to obtain additional information from her treating physician beyond stating that the disability is for a normal pregnancy. EDD has based this policy on established medical guidelines for medical disabilities and accepted practice in the medical community to allow four weeks pre-partum and six weeks post-partum leave. Pregnancy Disability Leave (PDL) : An employer is not required to pay an employee on PDL unless the employer pays for other types of disability leave. If an employer pays for other disability leave, the employer must pay an employee on PDL up to six weeks paid leave. PDL applies to any person that regularly employs five or more persons, or any person acting as an agent of an employer, directly or indirectly, the state or any political or civil subdivision of the state, and cities, with specified exceptions. Family Care and Medical Leave : Under the CFRA, an employee's pregnancy is not considered a serious health condition that would allow her to take CFRA leave. However, the employee can take CFRA leave for reason of the birth of a child of the employee. CFRA leave is unpaid leave. Sick Leave : All conditions and restrictions placed by the employer upon the use by an employee of sick leave also apply to the use by an employee of sick leave to attend to an illness of his or her child, parent, spouse, or domestic partner. No employer can deny an employee the right to use sick leave. In addition, no employer can discharge, threaten to discharge, demote, suspend, or in any manner discriminate against an employee for using, or attempting to exercise the right to use, sick leave to attend to an illness of a child, parent, spouse, or domestic partner. However, although an employee cannot be discriminated against for taking time off to care for a child, parent spouse, or domestic partner, an employer may have an "absence control policy" that allows the employer to discipline an employee for excessive absenteeism. Therefore, all conditions and restrictions placed by the employer upon the use of sick leave SB 1661 Page 8 also apply to the use by an employee of sick leave to attend to an illness of his or her child, parent, spouse, or domestic partner. An employer may use these latter absences as part of an absence control policy. Coverage : The SDI program and this bill do not cover government employees, with limited exceptions. Local public employers, including public school employers, may elect SDI coverage for employees of a specified bargaining unit, provided the election is the result of a negotiated agreement. Employees of the State of California, California State University and the California Legislature are not eligible for the SDI program and, instead, are provided non-occupational disability payments through the Non-Industrial Disability Insurance (NDI) program that is funded through the General Fund. The NDI program was created in 1976 and the formula for establishing weekly benefits was tied to the average state employee's salary at the time. Since 1976, NDI weekly benefits have been increased once, by $10 per week. The weekly maximum benefit under NDI is $135. Unlike SDI, however, NDI benefits are taxed as income. Further, while SDI benefits continue for 52 weeks, NDI benefits are available for only 26 weeks. PDL applies to employers with five employees or more. CFRA applies to employers with 50 or more employees within a 75mile radius. These thresholds were established to balance the needs of the employee against undue hardship to the employer caused by the employee's absence. SDI covers private sector employees regardless of the size of the establishment within which the employee works. Benefits Period : Existing law and the amendments to existing law by this bill apply to benefits payable up to 52 weeks. The new program created by this bill relating to seriously ill family members limits benefit payment to 12 weeks. Job Security : An employer is not required to hold a job for an employee who is receiving SDI benefits. There are approximately 5,368,000 private sector employees who work for enterprises employing less than 50 workers, i.e. not covered by CFRA, and, therefore, do not have job protection for taking sick leave. SB 1661 Page 9 Financing : The new program created by this bill provides that 50% of the benefits are to be provided by the employer to the employee, either directly or by means of insurance procured by the employer. An employer may elect to contribute an amount equal to the employee's FTDI premium into the Disability Fund. Those employers who can pay the benefit directly or obtain insurance will do so, presumably, because the cost would be less that contributing into the Disability Fund. In essence, such employers would not be paying their "fair share." Employers must furnish benefits in excess of SDI. SUPPORT ARGUMENTS: SB 1661 helps families to help themselves by expanding the State Disability Insurance Program to provide up to 12 weeks of paid leave to care for a seriously ill family member or new child. This Family Temporary Disability Insurance Program will be fully funded by equal contributions from employees and employers. EDD studied the fiscal impact of extending disability benefits to employees granted family care and medical leave. In EDD's June 2000 report to the Legislature, they estimate that providing this expanded benefit would cost a maximum of $46/year per employee, or less than $1 a week. The need for family temporary disability insurance benefits has intensified. This is particularly evident as both parents' participation in the workforce has increased, and the number of single parents in the workforce has grown. The need for partial wage replacement for workers taking family care leave will be exacerbated as the population of those needing care, both children and parents of workers, increases in relation to the number of working age adults. Developing systems that help families adapt to the competing interests of work and home not only benefits workers, but also benefits employers by increasing worker productivity and reducing employee turnover. FMLA and CFRA entitle eligible employees working for covered employers to take unpaid, job-protected leave for up to 12-work weeks in a 12-month period. Under the FMLA and the CFRA, unpaid leave may be taken for the birth, adoption, or foster placement of a new child; to care for a seriously ill child, parent, or spouse; or for the employee's own serious health condition. SB 1661 Page 10 SDI benefits currently provide wage replacement for workers who need time off due to their own non-work-related injuries, illnesses, or conditions, including pregnancy, that prevent them from working. SDI does not cover leave to care for a sick or injured child, spouse, parent, domestic partner, or leave to bond with a new child. The majority of workers in this state are unable to take family care leave because they are unable to afford leave without pay. When workers do not receive some form of wage replacement during family care leave, families suffer from the worker's loss of income, increasing the demand on the state unemployment insurance system and dependence on the state's welfare system. The California Labor Federation, the sponsor of this bill, states that while federal and state laws guarantee unpaid family and medical leave for childbirth or family illness, many families simply cannot afford to take time off. This is a family values issue. This legislation will go a long way in supporting working families in their efforts to cope with work and family. The California Medical Association (CMA) states that the program proposed in this bill could offset costs of hospitalization or skilled nursing services for persons that could be cared for at home in a hospitable and less costly setting. Perhaps, even more importantly, it would promote caring for family members and loved ones by family members and loved ones. The California National Organization for Women argues that most people cannot afford to take time off work without pay and are therefore unable to help family members who are in urgent need of care. Employees who have family responsibilities should not be put in the position of having to choose between a paycheck and a loved one. Growing Elder Care Needs : In 1997, one in four Americans had an elderly relative to care for, and many reduced their work hours or took at least a brief leave to care for that person. In the coming years, the need for this type of family leave will only become more urgent. Nearly two-thirds of American men and women under the age of 60 believe that they will have to care for an older relative in the next decade. SB 1661 Page 11 Risk to Newborns : With only unpaid leave available, parents of new babies are forced to rush back to work, often leaving their babies in less-than-optimal care. When babies are six or even eight weeks old, it is extremely difficult to find care for them in a licensed center. Most states prohibit centers from taking babies under six weeks old, and for good reason. A young infant's immune system is not yet mature, making babies highly susceptible to infection . OPPOSITION ARGUMENTS: The California Manufacturers and Technology Association (CMTA) is not opposed to establishing, within the state disability insurance program, a family temporary disability insurance program to provide up to 12 weeks of wage replacement benefits to workers who take time off work to care for a seriously ill child, spouse, parent, domestic partner, or to bond with a new child. However, the bill also proposes to pay for the additional benefits through additional employee contributions, and by requiring employers to provide benefits either directly, through private insurance, or by an election to contribute to the Disability Fund. CMTA is opposed to the mandate on employers to provide these additional benefits in any form except on a voluntary basis. "Our past experiences with proposals similar to SB 1661 have all indicated that it is an expensive program that may be greatly expanded by aggressive utilization." The state disability insurance program is an employee-paid program through payroll deductions. If employees are interested in adding dependent coverage, "I don't believe CMTA would oppose it even though it would add more administrative costs and disruptions of work due to more employee absences." However, along with making the decision to add dependent coverage, employees should expect to have to pay more for the coverage. The California Chamber of Commerce opposes this bill because it mandates the establishment of a new paid leave benefit program paid for by new taxes levied on all employers and their workers. The California Chamber strongly opposes SB 1661's establishment of two new taxes to pay for the proposed paid leave benefit program; a proposed increase in the current state disability insurance tax formula; plus the proposed new 14% "regulatory fee" to be levied on voluntary employer SDI plans. SB 1661 Page 12 The Chamber avers that the SDI Trust Fund is nearly bankrupt; and, according to EDD, the SDI Trust Fund reserve adequacy level has dropped The Chamber notes that legislation enacted in 1999 permanently linked the level of SDI benefits to workers' compensation benefits. At the time, EDD advised that the linkage would reduce SDI Trust Fund reserves from a high of 91 percent in 1996 to only 54 percent by the end of 2001 and that annual average worker SDI taxes would increase from $191 to $278 (a 53% increase). In 2000 the administration imposed a two-tier SDI tax increase on all workers to avoid SDI Trust Fund bankruptcy. The Chamber believes SB 1661 places additional strain on an already stressed program. The Chamber argues that earlier EDD cost projections have proved inadequate and far too optimistic. According to the Chamber, new EDD information shows that as of January 1, 2002, the SDI Trust Fund reserves plummeted to only 15.4 (a drop of nearly 70% ). In addition, over the same period, California worker-paid SDI taxes have more than tripled. Because the legislature recently increased the workers' compensation benefits, SDI benefits must increase to match the increased workers' compensation benefit. Worker taxes will need to increase to meet the demands of the higher benefits. Proponents of SB 1661 now want to increase the percentage SDI taxes paid by workers; plus impose additional, new taxes on both workers and businesses. Moreover, the Chamber believes that SB 1661's new paid leave benefits, paid for by new mandated taxes is impermissible under federal law. The Chamber claims that the federal Employment Retirement and Income Security Act (ERISA) forbids states from establishing mandated employee welfare benefits such as those contained in SB 1661. Finally, the Chamber notes that employers are concerned that SB 1661 does not contain any size limitation. The proposed leave program will apply to all employers regardless of size. The Chamber believes that this is unnecessary and will harm small businesses in our state. The Chamber claims that bills like SB 1661 make it even more difficult, and certainly much more expensive, to do business in California. SB 1661 Page 13 Prior Related Legislation : AB 109 (Knox), Chapter 164, Statutes of 1999, stipulates that any employer who provides sick leave for employees must permit an employee to use, in any calendar year, the employee's accrued and available sick leave entitlement, in an amount not less than the sick leave that would be accrued during six months at the employee's then current rate of entitlement, to attend to an illness of a child, parent, spouse, or domestic partner of the employee. ("Domestic partner" was added by AB 25 (Migden), Chapter 893, Statutes of 2001.) AB 2815 (Kuehl), allowing employees of the State of California, the California Legislature and the California State University to be covered by the State Disability Insurance program, was vetoed by the Governor. The Governor stated in his veto message, "To the best of my knowledge, this bill conveys no new rights or benefits to employees. Whether or not this bill becomes law, employees have the very same rights to negotiate at the bargaining table for these benefits." SB 118 (Hayden), providing that an employee may take family care and medical leave to care for a grandparent or sibling, or domestic partner, as defined, as well as an adult child, who has a serious health condition or to care for an individual who depends on the employee for immediate care and support, who shares a common residence with the employee and who has a serious health condition was vetoed by the Governor. In his veto message, the Governor stated: "This measure, while well-intentioned, extends the right (to take time off) far beyond what any other state has permitted to a relationship outside the family - specifically, to individuals who live together to share expenses if one of those individuals subsequently becomes seriously ill." SB 1149 (Speier), providing that the CFRA applies to employers who employ 20 or more employees within 75 miles of the work-site where that employee is employed. SB 1149 (Hayden), vetoed by the Governor, was essentially the same as SB 118 (supra), providing that an employee may take family care and medical leave to care for a grandparent or sibling, or domestic partner, as defined, as well as an adult child, who has a serious health condition, but does not include the provision relating to caring for an individual who depends SB 1661 Page 14 on the employee for immediate care and support, who shares a common residence with the employee and who has a serious health condition. The Governor stated in his veto message: "As I said when I vetoed an earlier bill by this author [i.e. SB 118], I would be pleased to consider reasonable changes to the Domestic Partner Act next year." SB 656 (Solis), Chapter 973, Statutes of 1999, Increases the maximum disability benefit from $336 to $490 per week, making SDI benefits equal to weekly benefits for workers' compensation temporary disability and indexes SDI levels to future workers' compensation temporary disability increases. Also requires EDD to conduct a cost study and report to the Legislature by July 1, 2000, on expanding the definition of "disabled" for the purpose of qualifying for SDI benefits individuals on leave pursuant to the Family Rights Act (FRA). AB 1844 (Washington), allowing a pregnant woman to be eligible for disability benefits for a period of 10 weeks, as specified, died in the Senate Appropriations Committee (2000). SB 1197 (Romero), prohibiting a public or private employer from adopting an absence control policy that disciplines employees for use of sick leave to attend to an illness of an employee's child, parent, or spouse was vetoed by the Governor. In his veto message, the Governor stated: "I agree employees should have a right to use one half of their paid sick leave to attend to a sick child, parent or spouse. That is why I signed those provisions into law in 1999 (AB 109 Knox)." SB 1471 (Romero), prohibits a public or private employer from adopting an absence control policy that disciplines employees for use of sick leave to attend to an illness of an employee's child, parent, or spouse. Analysis Prepared by : Michael Mattoch / INS. / (916) 319-2086 FN: 0006969