BILL ANALYSIS
AB 2778
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2778 (Insurance Committee)
As Amended June 21, 2010
Majority vote
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|ASSEMBLY: |63-0 |(May 28, 2010) |SENATE: |33-0 |(August 5, |
| | | | | |2010) |
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Original Committee Reference: INS.
SUMMARY : Authorizes the Director of the Employment Development
Department (EDD) to approve a single voluntary plan of
disability insurance for multiple small employers.
The Senate amendments :
1)Clarify that the voluntary plan of disability insurance will
be in effect for a period of not less than one year and,
thereafter, continuously unless the EDD Director finds that
the small-business-third-party administrator (SBTPA), the
employer, or a majority of the employees working for that
employer and covered by the plan have provided EDD with a
written notice of their decision to withdraw from the plan.
2)Sunset the bill on December 31, 2104.
3)Remove two legislative findings from the bill.
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 (DI) benefits to 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;
AB 2778
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b) The plan has been made available to the employees;
c) A majority of the employees and the employer have
consented to the plan; and,
d) 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.
AS PASSED BY THE ASSEMBLY , this bill:
1)Authorized the EDD Director to approve a single voluntary plan
for all of the clients of a "small-business-third-party
administrator" (hereafter SBTPA), and the clients' employees,
provided all of the following criteria were met:
a) The plan is administered by the SBTPA;
b) The plan establishes a master trust account 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. These financial securities
shall be in the amount determined by the Director and in
accord with existing law;
d) The rights afforded to the covered employees are greater
than those provided for employees covered by SDI benefits
and Paid Family Leave;
e) 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; and,
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f) The approval of the plan will not result in a
substantial selection of risks adverse to the Disability
Fund.
2)Defined a "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% of whom have fewer than 20 employees;
c) The SBTPA processes payroll for its California domiciled
clients; and,
d) The SBTPA offers workers' compensation insurance to its
California domiciled clients through an affiliated
California domiciled insurance company.
3)Declared the intent of the Legislature in enacting the
financial security requirements noted in 2) c) above, 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.
4)Sunset on December 31, 2015.
FISCAL EFFECT : The Senate Appropriations Committee determined
this bill to have insignificant costs pursuant to Senate Rule
28.8.
COMMENTS :
1)The purpose of this bill is to authorize voluntary plans of
disability insurance in which a third party administrator may
serve numerous small employers and provide enhanced disability
insurance benefits to their employees.
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2)Presently in California, state mandated disability insurance
can be made available to employees in two ways. First,
employers may cover their employees with SDI benefits which
are funded by employee contributions and administered by EDD.
Second, employers can establish a "voluntary plan" as an
alternative to SDI if it offers better benefits. Voluntary
plans of disability insurance are also funded by employee
contributions. EDD has the authority to approve new voluntary
plans of disability insurance, and has ongoing oversight
responsibility.
Voluntary disability plans are a mechanism for obtaining
superior benefits to employees injured as a result of
non-occupational reasons for the same or lower premium than
collected for SDI. At the present time, the employers who
make primary use of the voluntary disability plans are large
employers. This is due in part to the various administrative
steps and financial security requirements that must be met
prior to gaining approval from EDD.
3)One company, Applied Underwriters, Inc., a Berkshire Hathaway
Inc. company, has found that that there is no mechanism for
submitting a single application for 1,600 nearly identical
voluntary disability plans. This company also notes that EDD
processes an average of 400 voluntary plan applications each
year, and that their submittal of these plans would constitute
a 400 percent increase in application volume. Additionally,
after the approval period, EDD would be tasked with overseeing
1,600 separate voluntary plans.
Applied Underwriters states that allowing one application to
cover multiple small employers allows small employers to
provide superior disability insurance benefits to their
employees, in a manner similar to that provided by larger
employers. This bill does not substantially alter existing
law with regard to regulatory oversight and the financial
security protections.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086
FN: 0005634