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