BILL ANALYSIS Ó SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS Senator Tony Mendoza, Chair 2015 - 2016 Regular Bill No: AB 908 Hearing Date: September 9, 2015 ----------------------------------------------------------------- |Author: |Gomez | |-----------+-----------------------------------------------------| |Version: |September 4, 2015 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Deanna Ping | | | | ----------------------------------------------------------------- Subject: Disability compensation: disability insurance KEY ISSUE Should the Legislature increase the wage replacement rate for State Disability Insurance and Paid Family Leave benefits from 55% to either 60% or 80% depending on an individual's wage level? Should the Legislature increase the State Disability Insurance taxable wage ceiling to $150,000? Should the Legislature extend the Paid Family Leave program benefits from 6 weeks to 8 weeks? Should the Legislature remove the seven-day waiting period for the Paid Family Leave program? ANALYSIS The existing California State Disability Insurance (SDI) program provides short-term Disability Insurance (DI) benefits to eligible workers temporarily unable to work due to non-work related illness or injury, pregnancy, or childbirth. The SDI AB 908 (Gomez) Page 2 of ? program, administered by the Employment Development Department (EDD), is a state-mandated partial wage-replacement insurance plan funded through employee payroll deductions. Eligible individuals can receive disability benefits equal to one-seventh (1/7th) of his or her weekly benefit amount for each full day during which he or she is unemployed due to a disability if the director of EDD makes specified findings, including that: a) He or she has made a claim for disability benefits as required by authorized regulations. b) He or she has been unemployed and disabled for a waiting period of 7-consecutive days during each disability benefit period. During this 7-day waiting period, no disability benefits are payable. (Labor Code §2627) Existing law established a family temporary disability insurance program, Paid Family Leave (PFL) that provides up to six weeks of wage replacement benefits to workers who take time off work to care for: a seriously ill child, spouse, parent, or domestic partner, siblings, grandparents, grandchildren, and parents-in-laws or to bond with a minor child in connection with foster care or adoption. (Unemployment Insurance Code §3301) Existing law 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. (Unemployment Insurance Code §3301) Existing law requires each employee to contribute to the Disability Fund to pay the costs of 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 EDD based on the financial condition of the disability fund. (Unemployment Insurance Code §3301) Existing law states that an individual is eligible to receive AB 908 (Gomez) Page 3 of ? temporary disability insurance benefits equal to one-seventh of his or her weekly benefit amount for each full day during which he or she is unable to work due to caring for a seriously ill or injured family member or bonding with a minor child within one year of the birth or placement of the child in connection with foster care or adoption. (Unemployment Insurance Code §3301) Existing law states an individual shall be deemed eligible for family temporary disability insurance benefits equal to one-seventh of his or her weekly benefit amount on any day in which he or she is unable to perform his or her regular or customary work because he or she is bonding with a minor child during the first year after the birth or placement of the child in connection with foster care or adoption or caring for a seriously ill child, parent, grandparent, grandchild, sibling, spouse, or domestic partner, only if the director finds all of the following: a) The individual has made a claim for temporary disability benefits as required by authorized regulations. b) The individual has been unable to perform his or her regular or customary work for a seven-day waiting period during each disability benefit period, with respect to which waiting period no family temporary disability insurance benefits are payable. (Unemployment Insurance Code §3303) This Bill makes various changes to the Paid Family Leave and State Disability Insurance programs including: 1) Increasing the wage replacement benefits for both State Disability Insurance (SDI) and Paid Family Leave (PFL) as outlined below: a. Wage replacement increase to 80% for individuals whose wages (as calculated under current law) are under 1/3 of the statewide average weekly wage for both PFL and SDI i. The statewide average weekly wage in 2015 was $1095, meaning this replacement rate applies to those making $18,992 annually and below. AB 908 (Gomez) Page 4 of ? b. Wage replacement increase to 60% for individuals whose wages (as calculated under current law) are over 1/3 of the statewide average weekly wage for both PFL and SDI i. The statewide average weekly wage in 2015 was $1095, meaning this replacement rate applies to those making above $18,992 annually. c. Includes adjustment language for wages when transitioning between 80% to 60% wage replacement rate to ensure increase in benefits 2) Eliminating the waiting period for Paid Family Leave and includes reporting language for the Employment Development Department on the projected costs and potential benefits of eliminating, reducing, or modifying the DI waiting period due on October 1, 2016 to the legislature. 3) Increasing the benefit duration under PFL from 6 weeks to 8 weeks. 4) Increasing the SDI taxable wage ceiling to $150,000 and thereafter indexed for growth equal to the percentage for the state average weekly wage compared to the prior year. 5) Allowing for implementation on January 1, 2017 for all provisions except the report from EDD on DI waiting periods. COMMENTS 1. Background on the California State Disability Program: Disability Insurance . The California Disability Insurance Program was added to the California Unemployment Insurance Code in 1946 and is administered by the Employment Development Department. California is one of five states that provides disability insurance for their workforce and was the first state to provide SDI coverage for agricultural workers as well as coverage for normal pregnancies. AB 908 (Gomez) Page 5 of ? Approximately 13.1 million California workers are covered by the SDI program. The law requires coverage for employees working for employers in excess of $100 in a calendar quarter. Exceptions include some domestic workers and some governmental employees. Disability benefits are payable when a covered employee suffers a wage loss and cannot work due to pregnancy or illness/injury not related to their job. Benefits are payable for a maximum for 52 weeks. According the Employment Development Department's SDI Statistical Information there were 633,586 total claims paid with a total of $4,515,361,557 in benefits paid. The average benefit amount was $479 with approximately 15.66 average weeks per claim. 2. Background on the California State Disability Program: Paid Family Leave In 2002 Senate Bill 1661 was enacted, making California the first state in the nation to provide Family Temporary Disability Insurance, more commonly known as Paid Family Leave. PFL 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. Like SDI, approximately 13.1 million California workers are covered by PFL. In 2013 calendar year 213,779 total claims were paid with a total of $599,892,578 in benefits. The average weekly benefit amount for PFL that year was $532 with an average duration of 5.32 weeks. It is important to distinguish the difference between the PFL program (which provides only wage replacement during leave) and job protection legislation such as the federal Family & Medical Leave Act (FMLA) and the California Family Rights Act (CFRA). The PFL program itself does not provide job protection but the program itself nearly covers all employees, aside from some self-employed and public sector persons, regardless of the size of the employer. However, a claimant could have such job protection benefits if they also qualify under the requirements of FMLA or CFRA. 3. Funding DI and PFL . SDI and PFL are funded by an employee-paid payroll tax with benefit levels indexed to inflation. However, unlike SDI benefits, income from PFL has been deemed taxable by the AB 908 (Gomez) Page 6 of ? Internal Revenue Service. Under both the DI and PFL programs, workers can claim a cash benefit set at about 55% of "base period" wages. For PFL these benefits can be collected for up to 6 weeks and DI benefits can be payable for up to 52 weeks. The maximum weekly benefit for both programs is currently set at $1,104 and is adjusted every year based on the statewide average weekly wage. The State Disability Insurance program is paid for by the proceeds of an employee payroll deduction which are deposited in the Disability Insurance (DI) Fund. The DI Fund pays out the DI and PFL benefits. 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. 4. Need for this bill? California's DI and PFL programs are funded through worker contributions and provide partial wage replacement (55% of prior wage levels) for up to 52 weeks of disability leave or up to 6 weeks for bonding with a new child or caring for a seriously ill relative. A report from the Senate Office of Research entitled California's Paid Family Leave Program found that in 2013 fewer than 4 percent of workers making under $12,000 filed for PFL and about 16 percent of workers earning $12,000 to $24,000 filed a PFL claim. Workers making over $75,000 accounted for over a quarter of PFL claims. The report also noted that since the implementation of PFL there has been a gradual increase in the number of claims filed. However, the number of claims filed by individuals in the lowest income bracket is consistently much smaller than those in the highest income bracket. The report identifies various factors for this including the current 55 percent replacement wage rate (which may provide insufficient income), lack of job protection, and a need for more outreach to employees who could benefit from PFL if they were aware of the program. According to the author AB 908 makes several improvements to bolster the safety net created by the Disability Insurance and AB 908 (Gomez) Page 7 of ? Paid Family Leave programs while maintaining the solvency of the SDI fund. The author argues that the bill addresses the inadequacy and inequity of the current program's 55 percent wage replacement rate by increasing it to 60 percent for most workers and 80 percent for the lowest wage workers (those making under $18,992 annually). The author notes this helps workers that cannot currently afford to take a large pay cut, especially when coupled with the financial burden of caring for a newborn or nursing one's own serious illness. AB 908 would increase the maximum benefit to 8 weeks, eliminate the waiting period for PFL, require a study by EDD on the waiting period for DI, and increase the taxable wage ceiling to $150,000. The author argues that the elimination of the waiting period provides benefits more quickly to claimants who have extended caregiving need. The author also notes that the increase in the taxable wage ceiling raises revenues to help offset the additional costs and ensures the solvency of the DI fund. According to the author these changes to the DI and PFL programs will make it a real option for most working families by reducing the financial burden when having a baby, caring for an ill relative, or taking care of their own illness. 5. Proponent Arguments : Proponents note that California's DI and PFL programs are wholly funded through worker contributions and cover all private sector workers and some public sector workers. Proponents bring attention to research that shows that paid family leave not only improves the ability of working families to meet the obligations of their family members, but employers benefit from reduced turnover as families that benefit from paid family leave are more likely to stay in the workforce. Proponents also highlight a recent study that found that women who take paid family leave are 39 percent less likely to receive public assistance and 40 percent less likely to receive food stamps in the year following a child's birth. Proponents argue that AB 908 will make paid family leave work for all workers by addressing two critical aspects of the benefit design. For many workers, the 55 percent wage replacement level is simply insufficient to offer meaningful wage replacement, especially when PFL is the only source of paid leave. They argue that PFL's current wage replacement AB 908 (Gomez) Page 8 of ? level of 55 percent coupled with increased financial burdens when having a baby or caring for a relative makes it financially impossible for workers to use their PFL benefits. Proponents argue that in addition to wage replacement levels, the 6 weeks of paid leave offered by PFL is far less than nearly every other developed county. Proponents bring attention to the fact that in comparison to the thirty-eight Organization for Economic Co-operation and Development (OECD) countries, the median amount of fully-paid leave available for mothers is over five months. Proponents also argue that longer paid leave is associated with a range of positive physical and mental health benefits for families and children, as well as improved early child development. Proponents also note the two programs work together in a variety of ways, providing the example that a pregnant mother may claim SDI benefits prior to giving birth, SDI and PFL benefits after birth, and then the father may also claim PFL to bond with his new child. They contend that because the programs are so closely connected, the programs were designed to offer the same level of benefits to both SDI and PFL recipients. Proponents argue that by raising benefits for both SDI and PFL recipients with a new benefit structure, raising the maximum number of weeks allowed under PFL from six weeks to eight and eliminating the one-week waiting period for PFL recipients provides significant changes that strengthen a worker's right to take advantage of these programs and help align California's family leave laws with the true needs of California families. 6. Opponent Arguments : None on file. 7. Prior Legislation : SB 1661 (Kuehl) Chapter 901, Statutes of 2002 created the PFL program which began on January 1, 2004. 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. SB 727 (Kuehl) of 2007, proposed to extend the PFL Program to AB 908 (Gomez) Page 9 of ? caring for grandparents, grandchildren, siblings, and parents-in-law, was vetoed by the Governor. AB 804 (Yamada) of 2011, 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. SB 770 (Jackson), Chapter 350, Statutes of 2013 expanded the definition of family to include in-laws, siblings and grandparents. SB 406 (Jackson) of 2015, if passed and signed by the Governor would make changes to the California Family Rights Act. SUPPORT American Academy of Pediatrics California Black Health Network California Labor Federation, AFL-CIO Children Now Communications Workers of America, Local 9003, AFL-CIO, CLC Courage Campaign Friends Committee on Legislation of California Jewish Labor Committee Western Region Legal Aid Society - Employment Law Center National Association of Social Workers - California Chapter National Council of Jewish Women, Los Angeles Section Parent Voices Western Center on Law & Poverty OPPOSITION None received. -- END --