BILL ANALYSIS Ó AB 908 Page 1 Date of Hearing: April 8, 2015 ASSEMBLY COMMITTEE ON INSURANCE Tom Daly, Chair AB 908 (Gomez) - As Amended March 18, 2015 SUBJECT: Paid Family Leave Program SUMMARY: Increases the level and duration of benefits provided in the Paid Family Leave (PFL) insurance program. Specifically, this bill: 1)Increases the maximum duration of PFL insurance benefits from 6 to 10 weeks. 2)Establishes a minimum weekly benefit amount of $250. 3)Increases the wage replacement rate for PFL benefits from 55% to: a. 80% for those who make up to 25% of the full-time minimum wage. b. 75% for those who make between 25% and 75% of the full-time minimum wage. AB 908 Page 2 c. 65% for those who make more than 75% of the full-time minimum wage. 4)Defines the annual "full-time minimum wage" as product of the California minimum wage and 2,000 hours. EXISTING LAW: 1)Establishes the PFL program that provides up to six weeks of wage replacement benefits to workers who take time off work to care for a seriously ill family member or to bond with a minor child within one year of birth or placement of the child in connection with foster care or adoption. 2)Establishes the State Disability Insurance (SDI) Program for individuals who are unable to work due to sickness or injury, the sickness or injury of a family member, or the birth, adoption, or foster care placement of a new child. 3)Requires a claimant for SDI or PFL benefits to establish his or her medical eligibility for each period of disability by obtaining a certificate from a treating physician or practitioner that establishes the sickness, injury, or pregnancy of the employee, or the condition of the family member that warrants the care of the employee. As part of the certificate of eligibility to care for a family member, the physician or practitioner must provide an estimate of the time needed by the employee to care for the child, parent, spouse, or domestic partner. 4)Requires each employee to contribute to the Disability Fund to pay the costs of DI benefits. The rate of these employee AB 908 Page 3 contributions ranges from 0.1% to 1.5% of wages, and are calculated and announced annually by the Director of the EDD based on the financial condition of the disability fund. FISCAL EFFECT: Undetermined COMMENTS: 1)Purpose . According to the author, families supported by adequate PFL benefits have greater economic security when parents need to take time off work to bond with newborn children or care for sick family members. PFL has also been shown to result in significantly better mental health status and child development outcomes. However, the current PFL benefit level in California is simply insufficient to offer meaningful wage replacement for too many workers. In one survey, nearly a third of respondents who were aware of PFL did not apply for it when they needed it because they couldn't survive the 45% pay cut they would get by using their PFL benefit. Many workers live paycheck-to-paycheck, counting on each dollar to meet their basic needs. These workers can't absorb the pay cut imposed by the current PFL benefit limits, particularly when it is coupled with the increased financial burdens that accompany supporting a newborn child or caring for a relative. These workers should be able to use the PFL insurance for which they pay. This bill will make PFL a real AB 908 Page 4 option for most working families by increasing the wage replacement level and extending the maximum benefit period to 10 weeks. 2)Paid Family Leave Program . PFL was enacted in 2002 to extend disability compensation to individuals who take time off work to care for a seriously ill child, spouse, parent, domestic partner, or to bond with a new minor child. California was the first state in the nation to implement a paid family leave benefit with benefit payments beginning on July 1, 2004. In calendar year 2013, 203,732 PFL claims were filed, and approximately 90% of which were filed to take time off to bond with a newborn child. Many confuse the PFL program (which provides only wage replacement during leave) with the job protection guarantees in the federal Family & Medical Leave Act (FMLA) and the California Family Rights Act (CFRA), however the changes to PFL benefits in this bill do not affect these job protection laws. The PFL program provides a cash benefit set at 55% of "base period" wages for up to 6 weeks. The maximum weekly benefit is currently set at $1,104 and is adjusted every year based on the statewide average weekly wage. The average claim in 2013 paid $527 per week for 5.4 weeks. National data show that two-thirds of women were working during their last pregnancy and that 70% of women took maternity leave with an average duration of 10 weeks. Studies have shown paid family leave policies have positive impacts on infant and maternal health, have been associated with greater labor-force attachment (women retaining jobs into their pregnancy and returning to work after giving birth), and have resulted in increased wages for some women. 3)Funding PFL . The PFL insurance program is part of the State Disability Insurance (SDI) program that is paid for by the proceeds of an employee payroll deduction which are deposited in the Disability Insurance (DI) Fund. PFL claims are approximately 12% of total payments from the DI Fund. The SDI AB 908 Page 5 contribution is set at 0.9% of the first $108,160 of wages in 2015. Both the rate and the wage ceiling are adjusted by EDD according to a formula every year. At the end of 2014, the DI fund was projected to have reserves ($3.3 billion) that are over 60% of annual program costs. EDD guidelines suggest that a reserve of 25% is adequate to ensure the ongoing solvency of the DI Fund. The benefit increases in this bill are substantial and no detailed estimate of the total cost is available at this time. However, assuming that the increases to both the wage replacement rate and the maximum duration of benefits represent an approximate doubling of the benefit, the bill would increase benefit payments by approximately $600 million per year. That added annual cost would likely reduce the DI Fund reserve to 25% in 3-4 years. Thereafter, the annual cost could be paid by increasing the contribution rate. Increasing the contribution rate by 0.1% provides an additional $600 million per year. The benefit increase in the bill will reduce the excess DI Fund reserves and provide working families with a stronger PFL benefit going forward at a negligible cost to working families. 4)Previous Legislation . a. SB 1661 (Kuehl, Chapter 901 , Statutes of 2002) created the PFL program which began on January 1, 2004. b. SB 727 (Kuehl, Chapter 797, Statutes of 2003) made changes that clarified the role of EDD in maintaining the program as well as ensuring the accumulation of enough funds to pay for the benefits. c. SB 727 (Kuehl) of 2007, which proposed to extend the PFL Program to caring for grandparents, grandchildren, siblings, and parents-in-law, was vetoed by the Governor. d. AB 804 (Yamada) of 2011, which proposed to extend the PFL program Program to caring for grandparents, grandchildren, siblings, and parents-in-law and was held in the Assembly Appropriations Committee. AB 908 Page 6 e. SB 770 (Jackson, Chapter 350, Statutes of 2013) expanded the definition of family to include in-laws, siblings and grandparents. REGISTERED SUPPORT / OPPOSITION: Support California Black Health Network California Employment Lawyers Association California WIC Association California WIC Association California Women's Law Center Center for Law and Social Policy Center for Law and Social Policy Child Care Law Center Children Now Communications Workers of America, AFL-CIO District 9 Communications Workers of America, AFL-CIO Local 9003 County of Los Angeles County of Santa Cruz Supervisor John Leopold Equal Rights Advocates Glendale City Employees Association (GCEA) Glendale City Employees Association (GCEA) Jewish Labor Committee Western Region Legal Aid Society - Employment Law Center National Association of Social Workers, California Chapter (NASW-CA) National Association of Social Workers, California Chapter AB 908 Page 7 (NASW-CA) Organization of SMUD Employees (OSE) Organization of SMUD Employees (OSE) Restaurant Opportunities Center of Los Angeles (ROC-LA) San Bernardino Public Employees Association (SBPEA) San Bernardino Public Employees Association (SBPEA) San Diego County Court Employees Association (SDCCEA) San Diego County Court Employees Association (SDCCEA) San Luis Obispo County Employees Association (SLOCEA) San Luis Obispo County Employees Association (SLOCEA) Small Business Majority Small Business Majority St. Anthony Foundation Teamsters Local 986 Western Center on Law and Poverty Western Regional Advocacy Project Opposition None received Analysis Prepared by:Paul Riches / INS. / (916) 319-2086 AB 908 Page 8