BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 908 (Gomez) - Disability compensation: disability insurance
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|Version: September 4, 2015 |Policy Vote: L. & I.R. 4 - 1 |
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|Urgency: No |Mandate: No |
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|Hearing Date: September 10, |Consultant: Robert Ingenito |
|2015 | |
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This bill meets the criteria for referral to the Suspense File.
However, it was referred to the Committee pursuant to Senate
Rule 29.10 (b), which only provides the option to (1) hold the
bill, or (2) return the bill as approved by the Committee to the
Senate floor.
Bill
Summary: AB 908 would make specified changes related to State
Disability Insurance and Paid Family Leave benefits.
Fiscal
Impact:
The Employment Development Department (EDD) estimates
that increasing the specified benefit duration and wage
replacement level would result in increased payments from
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the Disability Insurance Fund of $651 million in 2017,
rising to $1 billion by 2021, assuming no change to the
program's current utilization rate. If utilization were to
rise, benefit payments would be commensurately higher.
EDD estimates that covered workers would pay an
additional $300 million in 2017, rising to $994 million in
2021, resulting from the bill's increase to the wage
ceiling related to covered workers' contributions.
EDD would likely adjust the worker contribution rate,
from 1.0 percent to 1.1 percent beyond 2018 (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.
EDD would incur one-time IT-related costs, likely in the
high hundreds of thousands of dollars, to implement the
provisions of the bill.
Background: The California State Disability Insurance Program (SDI) was
created in 1946 and is administered by EDD. The SDI program
covers about 13 million workers. Current law requires coverage
for employees working for employers in excess of $100 in a
calendar quarter. Exceptions include certain domestic workers
and 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. EDD data indicate that
in 2013 there were about 634,000 total claims filed with a total
of $4.5 billion in benefits paid. The average benefit amount was
$479 with approximately 15.7 average weeks per claim.
Paid Family Leave (PFL) 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 also 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,
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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.
The SDI program is paid for by the proceeds of an employee
payroll deduction whose proceeds are deposited into the
Disability Insurance (DI) Fund. The DI Fund pays out the DI and
PFL benefits. PFL claims are approximately 12 percent 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 annually by EDD according to a
specified formula. At the end of 2014, the DI fund was projected
to have reserves of $3.3 billion.
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 make various modifications to the PFL and SDI
programs, including the following:
Increasing the wage replacement benefits such that:
o Wage replacement would increase to 80 percent
for individuals whose wages (as calculated under
current law) are under one-third of the statewide
average weekly wage for both PFL and SDI (which
translates to $18,992 annually or less).
o Wage replacement would increase to 60 percent
for individuals whose wages (as calculated under
current law) are over one-third of the statewide
average weekly wage for both PFL and SDI.
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o The bill would establish a $50 minimum weekly
benefit and a maximum weekly benefit linked to the
maximum weekly worker's compensation temporary
disability weekly benefit amount.
Eliminating, after January 1, 2017, the waiting period
for PFL and including legislative reporting language, as
specified, for EDD on the projected costs and potential
benefits of eliminating, reducing, or modifying the DI
waiting period.
Increasing the benefit duration under PFL from 6 weeks
to 8 weeks.
Increasing, after January 1, 2017, the SDI taxable wage
ceiling to $150,000 and thereafter indexing it, as
specified.
Allowing for implementation on January 1, 2017 for all
provisions except the report from EDD on DI waiting
periods. The report would be due by October 1, 2016.
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 that the bill would
result in increased benefits payments of $651 million in 2017,
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partially offset by $300 million in increased contributions from
higher-income covered employees, with both numbers rising in the
out years. However, these figures assume no change to
utilization rates. If, for example, utilization of PFL increases
in response to the bill, the annual increase in benefit payments
would be higher. As an order of magnitude, EDD estimated for a
previous version of the bill that a 10 percent increase in usage
could increase benefit payments by about $150 million, likely
triggering an increase in the contribution rate paid by covered
employees.
Also as noted previously, benefits for SDI (including PFL) are
funded through worker contributions. These amounts under current
law are a 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 1.2 percent with
enactment of the bill, an increase of 0.2 percentage points.
However, the long-run impact is estimated to be 0.1 percentage
point higher than current law. Under existing 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.
Under current law, the DI Fund is projected to have a reserve
balance of $3.1 billion in 2016. EDD estimates that the
cumulative additional benefits paid as a result of the bill for
the five year period 2017-2021 would be $4.4 billion. Over the
same five-year period, EDD estimates that the bill would result
in cumulative additional contributions by covered employees of
$4.9 billion. EDD guidelines suggest that a reserve of 25
percent is desirable to ensure the DI Fund's ongoing solvency.
The Senate Appropriations Committee heard a previous version of
this bill on July 6th, 2015; among other things, it only
expanded PFL benefits (not SDI benefits), and did not raise the
ceiling related to covered workers' contributions. It was placed
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on the Committee's Suspense File, and was subsequently passed to
the Senate Floor with author's amendments that delayed
implementation dates and narrowed the scope of the bill.
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