BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 908 (Gomez) - Disability compensation: family temporary disability insurance ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: June 18, 2015 |Policy Vote: L. & I.R. 4 - 1 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: July 6, 2015 |Consultant: Robert Ingenito | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: AB 908 would increase the level and duration of benefits provided in the Paid Family Leave insurance program, as specified. Fiscal Impact: The Employment Development Department (EDD) indicates that increasing the benefit duration and wage replacement level would result in increased payments from the Unemployment Compensation Disability Fund (UCDF) of about $752 million annually, assuming no change to the program's current utilization rate. If utilization were to rise, benefit payments would be higher (see Staff Comments). EDD would adjust the worker contribution rate, from 1.0 AB 908 (Gomez) Page 1 of ? percent to 1.3 percent (assuming no change to the program's current utilization rate), to ensure benefit payments can be maintained. If utilization were to rise, the worker contribution rate would be higher (see Staff Comments). EDD would incur IT-related costs ($844,000 one-time, $47,000 on-going) to implement the expanded benefits (UCDF). Background: Paid Family Leave (PLF) is established within the State Disability Insurance program, and provides benefits to individuals who take time off of work to care for a seriously ill child, spouse, parent, or registered domestic partner, or to bond with a new minor child due to birth, adoption, or foster care placement. California was the first state to implement a PLF benefit, which covers about 13 million residents in the State. In 2013, PFL was extended to workers who take time off of work to care for a seriously ill parent-in-law, grandparent, grandchild, or sibling. In 2014, about 204,000 PFL claims were filed, 90 percent of which were filed to take time off to bond with a newborn child. PFL is funded by an employee-paid payroll tax with benefit levels indexed to inflation, built upon California's long standing State Disability Insurance system, which has provided income support for employees' medical and pregnancy-related leaves for many years. However, unlike SDI benefits, income from PFL has been deemed taxable by the Internal Revenue Service. Under PFL, workers can claim a cash benefit set at 55 percent 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. Proposed Law: This bill would increase the level and duration of benefits provided in the PFL insurance program. Specifically, this bill would do all of the following: Increase the maximum duration of PFL insurance benefits AB 908 (Gomez) Page 2 of ? from 6 to 10 weeks. Establish a minimum weekly benefit amount of $250. Define the annual "full-time minimum wage" as the product of the California minimum wage and 2,000 hours. Increase the wage replacement rate for PFL benefits from 55 percent to: o 80 percent for those who make up to 25% of the full-time minimum wage. o 75 percent for those who make between 25% and 75% of the full-time minimum wage. o 65 percent for those who make more than 75% of the full-time minimum wage. Related Legislation: SB 770 (Jackson, Chapter 350, Statutes of 2013) expanded the definition of family to include in-laws, siblings and grandparents. Staff Comments: As noted previously, EDD projects increased benefits payments of $752 million assuming no change to the utilization rate. For illustrative purposes, if utilization of PFL does increase in response to the bill, EDD projects that the annual increase in benefit payments would be $899 million (with a 10 percent increase in usage), and $1.05 billion (with a 20 percent increase in usage). Benefits for PFL are paid from revenues in the UCDF, which in turn is funded through worker contributions. These amounts are a AB 908 (Gomez) Page 3 of ? percentage of income, up to a ceiling ($104,378 in 2015). Based on 2015 May Revision data, EDD estimates that the contribution rate for workers (assuming no change in utilization) would increase in 2018 from an estimated 1.0 percent under current law to an estimated 1.3 percent with enactment of the bill. On average, this would increase the yearly contributions per employee from $374 to $486, an increase of $112. If more people utilize the PFL program as a result of the bill, the worker contribution rate would increase to 1.4 percent. Under current law, the maximum contribution rate is capped at 1.5 percent, and the formula used to determine the rate was designed to ensure solvency during economic downturns when fewer workers are contributing. The General Fund borrowed $303 million from the fund in 2011-12 and another $308 million in 2012-13. Repayments of these loans to the fund are scheduled in 2015-16 and 2016-17, respectively. The fund is projected to have a reserve balance of $3.1 billion in 2016.