BILL ANALYSIS Ó AB 908 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 908 (Gomez and Burke) As Amended September 4, 2015 Majority vote -------------------------------------------------------------------- |ASSEMBLY: | |June 2, 2015 |SENATE: | |(September 11, | | |60-17 | | |27-13 |2015 | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: INS. SUMMARY: Increases the level and duration of benefits provided in the Paid Family Leave (PFL) and State Disability (SDI) insurance programs. The Senate amendments: 1)Increase the maximum duration of PFL insurance benefits from six to eight weeks. 2)Increase the wage replacement rate for PFL and SDI benefits from 55% to: a) Eighty percent for those who make up to 33% of the California average weekly wage. AB 908 Page 2 b) Sixty percent for those who make more than 33% of the California average weekly wage. 3)Eliminate the one-week waiting period for PFL claims. 4)Increase the amount of wages subject to SDI payroll contributions to $150,000 and annually adjusts the wage ceiling based on the increase in the California average weekly wage. 5)Require the Employment Development Department (EDD) to perform a cost/benefit analysis of the one-week waiting period for SDI claims and report the results of that study to the Assembly Committee on Insurance and the Senate Committee on Labor and Industrial Relations. 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 SDI Program for individuals who are unable to work due to sickness or injury, 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 AB 908 Page 3 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 Insurance Fund (DI Fund) to pay the costs of SDI and PFL 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. 5)Adjusts the amount of wages subject to SDI payroll contributions annually based on the change in the California average weekly wage. FISCAL EFFECT: Based on preliminary estimates from EDD the bill would: 1)Increase the cost of benefits by approximately $650 million. 2)Generate approximately $350 million per year by increasing amount of wages subject to SDI payroll contributions. 3)Increase the contribution rate by 0.2% in the first year. This bill's impact on the contribution rate is expected to fall 0.1% thereafter. 4)Unknown administrative costs to EDD paid for by the DI Fund. AB 908 Page 4 COMMENTS: 1)Purpose. According to the author, this bill makes several improvements to bolster the safety net created by the state disability and paid family leave insurance programs while maintaining solvency of the DI Fund. First, it addresses the inadequacy and inequity of the current program's 55% wage replacement rate. Many workers can't absorb the pay cut imposed by the current wage replacement rate, particularly when it is coupled with the increased financial burdens that accompany supporting a newborn child or nursing one's own serious disability. This situation is even more dire for a low-wage worker, who is more likely to live paycheck-to-paycheck. The author points out extremely low utilization for both SDI and PFL among low-wage workers compared to those with higher wages, as well as survey research raising wage replacement as a key reason workers declined to take PFL benefits. The author contends PFL and SDI should be available for all workers, not just those who can afford to take a huge pay cut. This bill raises the wage replacement rate for all workers to 60% for SDI and PFL benefits, and to 80% for the lowest-wage workers, while ensuring benefits increase as wages increase. This will make PFL and SDI a real option for low-income working families, allowing them to use benefits they are paying for. Second, this bill extends the maximum duration of PFL benefits from six to eight weeks. Extending the maximum number of weeks reduces the burden of unpaid bonding and caregiving leave, enhancing a number of outcomes for families and children. Extending weeks also moves California closer to aligning with the 12 weeks of job protection under the Family and Medical Leave Act and California Family Rights Act. This bill also raises revenues to help offset a portion of the additional costs, in order to ensure the DI Fund remains solvent for years to come as well as to limit the impact on worker contribution rates. Finally, this bill eliminates a seven-day waiting period for PFL benefits, providing benefits more quickly to claimants who have an extended caregiving need, as well as requiring a study assessing the costs and benefits of modifying or eliminating the waiting period for SDI. AB 908 Page 5 2)Paid Family Leave 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 calendar year 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)SDI Program. The SDI program provides partial wage replacement benefits to employees who are unable to work because of pregnancy or illnesses and injuries unrelated to their job (job related injuries are covered by the workers' compensation system). To be eligible for SDI, a worker must have his/her disability certified by a health care professional. Workers receive 55% of their wages, subject to a maximum benefit amount (currently $1,104 per week) for up to 52 weeks. AB 908 Page 6 4)Funding PFL and SDI. The PFL program is part of the SDI 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. Analysis Prepared by: Paul Riches / INS. / (916) 319-2086 FN: 0002386