BILL ANALYSIS �
SENATE INSURANCE COMMITTEE
Senator William W. Monning, Chair
AB 2733 (Assembly Insurance Committee) Hearing Date: June 11,
2014
As Amended:May 12, 2014
Fiscal: Yes
Urgency: Yes
VOTES: Asm. Floor (04/24/14)75-00/Pass
Asm. Appr. (04/09/14)17-00/Pass
Asm. Ins. (04/02/14)12/00/Pass
SUMMARY Repeals the sunset clause on the small business
third-party administrator program for voluntary disability
programs, streamlines the administration of multiple programs,
shifts financial security obligations from the employer to the
administrator, and declares that the bill is an urgency measure,
to take effect immediately.
DIGEST
Existing law
1. Requires employees to participate in the State Disability
Insurance (SDI) program, which provides partial and short-term
income replacement if an employee is disabled and unable to work
due to injuries or conditions that are not work-related, except
when otherwise provided.
2. Requires employers to deduct SDI taxes from wages due to
employees.
3. Authorizes an employer or a majority of the employees or both
to establish a voluntary plan for the payment of disability
benefits subject to approval by the Director of the Employment
Development Department ("the Director") instead of participating
in SDI.
AB
2733 (Assembly Ins. Committee), Page 2
4. Establishes standards for approval by the Director for plans
that involve at least one employee and under specified
conditions including:
a. The rights afforded to the covered employees are greater
than those provided as by the SDI program, including paid
family leave.
b. The plan has been made available to all of the employees
of the employer employed in this state or to all employees at
any one distinct, separate establishment maintained by the
employer in this state and provides for the inclusion of
future employees.
c. A majority of the employees involved have consented to
the plan.
d. The employer has consented to the plan and has agreed to
make the payroll deductions required, if any, and transmit
the proceeds to the plan insurer, if any.
e. The plan will be in effect for a period of not less than
one year and, thereafter, continuously unless the Director
finds that the employer or a majority of its employees
employed in this state covered by the plan have given notice
of withdrawal from the plan.
f. The approval of the plan or plans will not result in a
substantial selection of risks adverse to the Disability
Fund.
5. Provides that voluntary plans may be administered by
"small-business-third-party administrator" (SBTPA) if the SBTPA:
a. Administers voluntary disability plans on behalf of its
clients pursuant to a written agreement in a form and manner
AB
2733 (Assembly Ins. Committee), Page 3
approved by the director.
b. Has at least 1,000 California domiciled clients, 80
percent of whom have fewer than 20 employees.
c. Processes payroll for its California domiciled clients.
d. Offers workers' compensation insurance to its California
domiciled clients through an affiliated California domiciled
insurance company.
6. Grants the Director the discretion to approve a single
voluntary plan to be administered by the SBTPA for all of its
clients and their employees that meets specified criteria
including:
a. The plan establishes a master trust account, held in a
federally insured bank, that is administered by the SBTPA,
but requires that each individual client have a subtrust
account that reflects that client's employees' specific plan
contributions and is not commingled with any other funds.
b. If a voluntary plan does not provide for the assumption
of liability by an admitted disability insurer to pay the
benefits afforded by the plan, the director shall not approve
it unless the employer meets specified financial security
requirements and additional security requirements necessary
to meet potential obligation as determined by the director.
c. The client has consented to the plan and has authorized
the SBTPA to make the payroll deductions required, if any,
and deposit the proceeds in each client's subtrust account.
7. Provides that it is the intent of the Legislature that, in the
event of the insolvency of an employer-client of the SBTPA, or
of the SBTPA, the disability claims against the subaccount of
any employer-client arising prior to the date of the insolvency
shall be satisfied by first accessing the security of the SBTPA
AB
2733 (Assembly Ins. Committee), Page 4
rather than satisfying the claims from the Disability Fund.
8. Repeals the authorizing statute for the SBTPA on December 31,
2014, and as of that date is repealed.
This bill
1. Would permit an SBTPA to consolidate the individual
subtrust accounts and would require the SBTPA to maintain a
separate accounting ledger for each client.
2. Would require the SBTPA, rather than the employer, to meet
financial security requirements on behalf of the SBTPA
clients and their employees.
3. Would eliminate the authority of the Director to impose
additional security requirements on the employer.
4. Would grant the director the authority to terminate
participation by an individual employer client of the SBTPA
for cause and provides that the voluntary plan assets shall
be recovered from the SBTPA, rather than the employer.
5. Would make technical and clarify corrections and changes.
6. Would eliminate the sunset date.
7. Would declare this bill to be an urgency statute and
provides that it shall go into immediate effect.
COMMENTS
1. Purpose of the bill . According to the proponents, the SBTPA
program has enabled small businesses to participate in
enhanced disability insurance programs that, prior to
creation of the program in 2010, were for all practical
purposes unavailable to small business employees. By
AB
2733 (Assembly Ins. Committee), Page 5
eliminating the sunset date, this bill would continue a
program that has proven to be a sound way to deliver
enhanced benefits to a class of employees previously
excluded from VDPs.
2. Background
Disability Insurance. California law requires that
employees be provided disability insurance coverage funded
through employee deductions. Employers have three options
to comply with that requirement:
1. State Plan. Most California employees are
covered by the plan run by the Employment Development
Department (EDD) frequently referred to as State
Disability Insurance (SDI). SDI replaces a portion of
an insured's wages when the insured suffers a
qualifying disability or qualifies for paid family
leave.
2. Elective Coverage. Self-employed persons and
business owners can get elective coverage through SDI,
subject to different rules.
3. Voluntary Disability Plans (VDP). A VDP is a
private disability insurance plan approved by the
Director. VDP's are required by law to offer coverage
that is as generous as SDI with at least one feature
that SDI doesn't have.
SBTPA-administered Voluntary Disability Plans. AB 2778
(Committee on Insurance), Chapter 399, Statutes of 2010,
established the SBTPA program as a means to make it
economical for small employers to provide enhanced benefits
by authorizing the Director to approve a single VDP for
multiple small employers. AB 2778 contained a sunset clause
to force evaluation of whether or not the program would
operate as intended. According to Applied Underwriters, the
program has greatly simplified the approval process for
numerous yet essentially identical VDPs and has proven to be
a sound way to deliver enhanced benefits to a class of
employees previously excluded from VDPs.
AB
2733 (Assembly Ins. Committee), Page 6
This bill eliminates the sunset date and contains provisions
that would streamline the administration and oversight of
the program by revising the accounting requirements and
shifting primary financial responsibility for the plan from
the employer to the SBTPA. According to Applied
Underwriters, this shift allows EDD to look at the SBTPA
primarily and directly for the financial security to ensure
benefits are paid.
EDD has not taken a position on the bill, but the author has
incorporated technical assistance language suggested by the
department.
1. Arguments in Support .
Applied Underwriters states that it alone services plans
covering over 36,891 workers employed by over 2100 small
businesses in 2013. These plans have successfully offered
enhanced disability benefits at no additional cost to the
worker, including 10 weeks of disability benefits longer
than SDI and unique accidental death and dismemberment
benefits.
2. Arguments in Opposition
None received.
POSITIONS
Support
Applied Underwriters, Inc.
Oppose
None received.
Consultant: Hugh Slayden (916) 651-4773
AB
2733 (Assembly Ins. Committee), Page 7