BILL ANALYSIS Ó AB 908 Page 1 ASSEMBLY THIRD READING AB 908 (Gomez) As Amended March 18, 2015 Majority vote --------------------------------------------------------------------- |Committee |Votes |Ayes |Noes | |----------------+------+-----------------------+---------------------| |Insurance |10-2 |Daly, Calderon, |Travis Allen, Mayes | | | |Cooley, Cooper, | | | | |Dababneh, Frazier, | | | | |Gatto, Gonzalez, | | | | |Grove, Rodriguez | | | | | | | |----------------+------+-----------------------+---------------------| |Appropriations |12-5 |Gomez, Bonta, |Bigelow, Chang, | | | |Calderon, Daly, |Gallagher, Jones, | | | |Eggman, Eduardo |Wagner | | | |Garcia, Gordon, | | | | |Holden, Quirk, Rendon, | | | | |Weber, Wood | | | | | | | | | | | | --------------------------------------------------------------------- SUMMARY: Increases the level and duration of benefits provided in the Paid Family Leave (PFL) insurance program. Specifically, this bill: AB 908 Page 2 1)Increases the maximum duration of PFL insurance benefits from six 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) Eighty percent for those who make up to 25% of the full-time minimum wage. b) Seventy-five percent for those who make between 25% and 75% of the full-time minimum wage. c) Sixty-five percent 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, AB 908 Page 3 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 Disability Insurance (DI) benefits. The rate of these employee contributions ranges from 0.1% to 1.5% of wages, and are calculated and announced annually by the Director of the Employment Development Department (EDD) based on the financial condition of the disability fund. FISCAL EFFECT: According to the Assembly Appropriations Committee: 1)Increasing the benefit duration and wage replacement level will result in a projected increased in expenditures from the Unemployment Compensation Disability Fund (UCDF), the special fund that pays for SDI and PFL benefits, in the range of $750 million annually. Participating workers pay around 1% of wages, up to the first $104,000 of wages, to fund SDI/PFL benefits. On an ongoing basis, it is projected this expansion of benefits would require an increased contribution of 0.13% of wages subject to the AB 908 Page 4 contribution. This could hypothetically require, for example, the EDD to increase the contribution rate from 1.0% of wages to 1.13% of wages. As the UCDF is currently operating with a $2.5 billion fund balance, it is projected the fund could shoulder increased benefit payments while maintaining a 25% reserve with no changes to the contribution rate until 2017. 2)If utilization of the program grows due to the enhanced level of benefits offered, expenditures could be slightly higher than indicated here. For example, under assumptions of increased claims of 5% for higher-income and 20% for lower-income wage earners, increased take-up would result in expenditures of an additional $110 million annually (UCDF). 3)Administrative costs to the EDD, for information technology changes estimated at $800,000 (UCDF). 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 AB 908 Page 5 able to use the PFL insurance for which they pay. This bill will make PFL a real option for most working families by increasing the wage replacement level and extending the maximum benefit period to 10 weeks. 2)PFL 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 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 six 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 SDI AB 908 Page 6 program that is paid for by the proceeds of an employee payroll deduction which are deposited in the DI Fund. PFL claims are approximately 12% of total payments from the DI Fund. The SDI 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, this 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 three to four 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 this 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. AB 908 Page 7 d) AB 804 (Yamada) of the 2011-12 Regular Session, which proposed to extend the PFL program to caring for grandparents, grandchildren, siblings, and parents-in-law and was held in the Assembly Appropriations Committee. e) SB 770 (Jackson), Chapter 350, Statutes of 2013 expanded the definition of family to include in-laws, siblings and grandparents. Analysis Prepared by: Paul Riches / INS. / (916) 319-2086 FN: 0000729