BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 908


                                                                    Page  1


          CONCURRENCE IN SENATE AMENDMENTS


          AB  
          908 (Gomez and Burke)


          As Amended  February 24, 2016


          Majority vote


           -------------------------------------------------------------------- 
          |ASSEMBLY:  |60-17 |(June 2, 2015) |SENATE: |28-11 |(February 29,    |
          |           |      |               |        |      |2016)            |
          |           |      |               |        |      |                 |
          |           |      |               |        |      |                 |
           -------------------------------------------------------------------- 


          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 wage replacement rate for PFL and SDI benefits  
            from 55% to:


             a)   Seventy percent for those who make up to 33% of the  
               California average weekly wage.


             b)   Sixty percent for those who make more than 33% of the  
               California average weekly wage.








                                                                     AB 908


                                                                    Page  2




          2)Sunset the increased wage replacement rate on January 1, 2022.


          3)Eliminate the one-week waiting period for PFL claims.


          4)Require the Employment Development Department (EDD) to report  
            to the Legislature by March 1, 2021 on the utilization of SDI  
            and PFL benefits based on income categories, the cost of the  
            increased wage replacement rates, and on the SDI contribution  
            rates.


          5)Require the 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 Insurance Committee and the  
            Senate Labor and Industrial Relations Committee.


          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  
            pregnancy of the employee, or the condition of the family  








                                                                     AB 908


                                                                    Page  3


            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:  


          1)EDD estimates that increasing the specified wage replacement  
            level would result in increased payments from the DI Fund of  
            $348 million in 2018, rising to $587 million by 2021.  The  
            estimates above are based on current trends in utilization,  
            wages, and the economy.  Significant changes in these trends  
            could impact costs - for example, if utilization increases  
            beyond current trends, costs could increase commensurately. 


          2)EDD would likely increase the worker contribution rate by 0.1%  
            from 2019 to 2021(assuming no change to the program's current  
            utilization rate), in order to maintain benefit payments.  The  
            worker contribution rate adjusts according to a formula, up to  
            a statutory maximum, in order to cover program costs.


          3)EDD would incur one-time IT-related costs, likely in the high  
            hundreds of thousands of dollars, to implement the provisions  
            of this bill.








                                                                     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 70% 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.  The 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. 
          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  








                                                                     AB 908


                                                                    Page  5


            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 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.  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.  
          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.  








                                                                     AB 908


                                                                    Page  6




          Analysis Prepared by:         Paul Riches / INS. / (916)  
                          319-2086          FN: 0002632