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
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          |Author:    |Gomez                                                |
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          |Version:   |September 4, 2015                                    |
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          |Urgency:   |No                     |Fiscal:    |Yes              |
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          |Consultant:|Deanna Ping                                          |
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              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  








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          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  







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          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. 








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                  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. 








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            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  







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            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  







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            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  







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            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  







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            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 --