BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 2778| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 AB 2778 Page 2 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; AB 2778 Page 3 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 AB 2778 Page 4 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 AB 2778 Page 5 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. AB 2778 Page 6 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 **** END ****