BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  AB 2778|
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                                    CONSENT


          Bill No:  AB 2778
          Author:   Assembly Insurance Committee
          Amended:  6/21/10 in Senate
          Vote:     21

           
           SENATE BANKING, FINANCE, AND INS. COMM  :  10-0, 6/30/10
          AYES:  Calderon, Cogdill, Correa, Florez, Kehoe, Liu,  
            Lowenthal, Padilla, Price, Runner
          NO VOTE RECORDED:  Cox

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8 

           ASSEMBLY FLOOR  :  63-0, 5/28/10 (Consent) - See last page  
            for vote


           SUBJECT  :    Unemployment insurance:  voluntary plans

           SOURCE  :     Applied Underwriters


           DIGEST  :    This bill authorizes the Director of the  
          Employment Development Department to approve a single  
          voluntary plan of disability insurance for multiple small  
          employers.

           ANALYSIS  :    Existing law:

          1.Allows an employer, and a majority of the employees of an  
            employer, to apply to the Director of the Employment  
            Development Department (EDD) for approval of a voluntary  
            plan for the payment of disability insurance benefits to  
                                                           CONTINUED





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            the employees.;

          2.Requires the Director of EDD to approve a voluntary plan  
            when he or she finds, among other things, that the  
            following conditions exist:

             A.   The rights afforded to the covered employees are  
               greater than those provided for employees covered by  
               State Disability Insurance (SDI) benefits and Paid  
               Family leave;

             B.   The plan has been made available to all of the  
               employees of the employer in this state or the  
               employees of a separate establishment maintained by  
               the employer;

             C.   A majority of the employees and the employer have  
               consented to the plan;

             D.   The plan will be in effect for at least one year;

             E.   The plan will not result in a substantial selection  
               of risks adverse to the state Disability Fund;

          3.Provides that disability benefits payable to employees  
            are the liability of an approved voluntary plan;

          4.Provides that an employee covered by an approved  
            voluntary plan is not entitled to SDI benefits. 

          This bill:

          1. States findings and declarations as follows:

             A.   Small businesses have not had the same access to  
               the benefits of voluntary plan disability insurance  
               (VPDI) as employees of larger employers;

             B.   This lack of access is due, in part, to the  
               administrative difficulty and expense associated with  
               the application and ongoing operating compliance with  
               current law and Employment Development Department  
               procedures;








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          2. Authorizes the EDD Director to approve a single  
             voluntary plan for all of the clients of a  
             "small-business-third-party administrator" (SBTPA), and  
             the clients' employees,  when all of the following  
             criteria are met:

             A.   The plan is administered by the SBTPA;

             B.   The plan establishes a master trust account, to be  
               held in a federally insured national bank, that is  
               administered by the SBTPA, but requires each  
               individual employer that is a client of the SBTPA to  
               have a subtrust account that reflects that client's  
               employees' specific plan contributions and is not  
               commingled with any other funds;

             C.   If a plan does not provide for the assumption by an  
               admitted disability insurer of the liability of the  
               employer to pay the disability benefits, the EDD  
               Director shall not approve it unless the employer  
               files with the Director the bond of an admitted surety  
               insurer, deposit of securities approved by the  
               Director, or deposit of an irrevocable letter of  
               credit in an acceptable amount and in compliance with  
               specified law.  The Director may require additional  
               security from the SBTPA; 

             D.   The single voluntary plan will be in effect for a  
               period of not less than one year and, thereafter,  
               continuously, unless the Director of EDD finds the  
               SBTPA has given notice of withdrawal of the plan. Such  
               notice shall be filed in writing with the Director and  
               effective on the next anniversary of the plan  
               effective date, that is not less than 30 days from the  
               date of the filing of the notice; the plan may be  
               withdrawn on the operative date of any law increasing  
               the benefit amounts provided by Sections 2563 and 2655  
               or the operative date of any change in the rate of  
               worker contributions as determined by Section 984, if  
               notice of the withdrawal from the plan is transmitted  
               to the Director of Employment Development not less  
               than 30 days prior to the operative date of that law  
               or change. If the plan is not withdrawn on the 30  
               days' notice because of the enactment of a law  







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               increasing benefits or because of a change in the rate  
               of worker contributions as determined by Section 984,  
               the plan shall be amended to conform to that increase  
               or change on the operative date of the increase or  
               change.

             E.   Any individual employer who is a client of the  
               SBTPA, or a majority of that client's employees  
               employed in this state covered by the plan, may also  
               terminate their participation in the plan by giving  
               written notice of withdrawal from the plan to the  
               SBTPA and to the Director not less than 30 days prior  
               to the date of withdrawal. 

             F.   The rights afforded to the covered employees are  
               greater than those provided for employees covered by  
               SDI benefits and Paid Family Leave;

             G.   The plan has been available to all of the employees  
               of the employer in this state, and a majority of the  
               employees have consented to the plan; 
             H.   If the plan provides for insurance, the form of the  
               insurance policies to be issued has been approved by  
               the Insurance Commissioner and is to be issued by an  
               admitted disability insurer;

             I.   The approval of the plan will not result in a  
               substantial selection of risks adverse to the  
               Disability Fund.  SDI benefits are paid from the  
               Disability Fund;

          1. Defines "small-business-third-party administrator," or  
             SBTPA, as an applicant that the EDD Director finds meets  
             all of the following criteria:

             A.   The SBTPA administers voluntary disability plans on  
               behalf of its clients pursuant to a written agreement  
               in a form and manner approved by the EDD Director;

             B.   The SBTPA has at least 1,000 California domiciled  
               clients, 80 percent of whom have fewer than 20  
               employees;

             C.   The SBTPA processes payroll for its California  







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               domiciled clients;

             D.   The SBTPA offers workers' compensation insurance to  
               its California domiciled clients through an affiliated  
               California domiciled insurance company;

          1. Requires EDD to adopt any application forms and  
             procedures within 60 days of the enactment of this bill;

          2. Declares the intent of the Legislature in enacting the  
             financial security requirements that in the event of the  
             insolvency of an employer-client of the SBTPA, or of the  
             SBTPA, the disability claims against the subaccount of  
             any employer-client arising prior to the date of the  
             insolvency shall be satisfied by first accessing the  
             security of the SBTPA, which may include additional  
             financial security required by the EDD Director, rather  
             than satisfying the claims from the state Disability  
             Fund;

          3. Sunsets on December 31, 2014.

           Background
           
          State Disability Insurance (SDI) is a California insurance  
          program run by the Employment Development Department.   
          There are three different SDI plans:

          1. Most California employees are covered by the State plan;

          2. Some employers offer Voluntary Disability Plans (VDP)  
             which is the type of plan which this bill addresses.  A  
             VDP is a private disability insurance plans that has  
             been approved by the Director of EDD.  VDP's are  
             required by law to offer coverage that's at least as  
             good as the State plan and have at least one feature  
             that the State plan doesn't have. It cannot be more  
             expensive than the state plan, and it has to be approved  
             by a majority of employees; 

          3. Additionally, persons who are self-employed or a  
             business owner can get Elective Coverage through SDI,  
             subject to different rules.








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          This bill has been introduced to provide a means for a  
          specially qualified business to become an approved third  
          party administrator for VDP plans so that their  
          efficiencies and superior benefits can be made available to  
          those businesses which want them without the existing  
          bottleneck of the approval process. 

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

           SUPPORT  :   (Verified  8/4/10)

          Applied Underwriters (source) 


           ASSEMBLY FLOOR  :  
          AYES: Adams, Ammiano, Anderson, Arambula, Beall, Block,  
            Blumenfield, Bradford, Brownley, Buchanan, Caballero,  
            Charles Calderon, Conway, Cook, Coto, Davis, DeVore, Eng,  
            Evans, Feuer, Fletcher, Fong, Fuentes, Fuller, Gaines,  
            Galgiani, Garrick, Gilmore, Hagman, Harkey, Hayashi,  
            Hernandez, Hill, Huber, Huffman, Jones, Knight, Lieu,  
            Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning,  
            Nava, Nestande, Niello, Nielsen, Norby, V. Manuel Perez,  
            Portantino, Ruskin, Saldana, Skinner, Solorio, Swanson,  
            Torlakson, Torres, Torrico, Tran, Villines, Yamada, John  
            A. Perez
          NO VOTE RECORDED: Bass, Bill Berryhill, Tom Berryhill,  
            Blakeslee, Carter, Chesbro, De La Torre, De Leon,  
            Emmerson, Furutani, Hall, Jeffries, Salas, Silva, Smyth,  
            Audra Strickland, Vacancy


          JA:nl  8/4/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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