Yesterday we wrote about the passage of a new California Law, known in the legislature as Assembly Bill 908, which in 2018 will increase California’s paid family leave (PFL) weekly benefit amount and eliminate the waiting period required to receive PFL benefits. While not wildly touted, not even by Governor Brown in his own press release, this law also increases the state disability insurance (SDI) benefit amount — the calculation from which PFL hinges.  And as we mentioned yesterday, this benefit change impacts employers who offer voluntary disability (VDI) and paid family leave plans (VPFL) as those plans are required to match the SDI and PFL amount.

What exactly is the disability and paid family leave benefit increase?

The new law has added a more nuanced formula for determining an employee’s benefit amount. It increases the SDI and PFL “weekly benefit amount” as follows:

  • Increases the wage replacement rate from 55% to:
    • Weekly benefit minimum remains the same at $50 per week, but the threshold has been lowered to those making less than $929/quarter
    • 70% of wages: for those making more than $929/quarter, but less than 1/3 of the California average quarterly wage
    • For those making more than 1/3 of the California average quarterly wage, the higher of:
      • 23.3% of the state average weekly wage; or
      • 60% of wages
    • Benefit amounts continue to be capped at the maximum worker’s compensation temporary disability indemnity weekly benefit amount.

We anticipate that the California Employment Development Department (EDD), the agency that administers SDI, PFL, VDI, and VPFL programs, will provide additional details of the benefit calculation, including the amount of the California average quarterly wage.

An interesting twist about this amendment is that it includes a provision that reverts the benefits on January 1, 2022 to pre-2018 levels — today’s current level of 55%. The law does, however, contemplate that more research and analysis will take place in the interim which presumably would cause legislators to reconsider the reversion. Specifically, the law requires the EDD to provide reports to the legislature regarding SDI and PFL usage, projected costs, and the cost/benefits of eliminating the SDI waiting period in the future.

We have no doubt that we will hear more from EDD on changes to the SDI, PFL, VDI, and VPFL regulations. In fact, Reed Group is hosting EDD’s Voluntary Plan Advisory Group (VPAG) meeting on May 3rd in San Jose. We look forward to hearing EDD discuss how it plans to incorporate these changes into its administration and what Voluntary Plans should do prior to the January 1, 2018 effective date. Stay tuned for more information from Reed Group after the VPAG meeting and once EDD releases revised regulations.

In the meantime, California employers should consider the following:

  • The increased disability and paid family leave benefits are funded entirely through employee payroll deductions. The EDD determines the payroll deduction amount annually. Therefore, employers should monitor EDD to determine any changes they must make to their employee payroll deductions.
  • Employers with voluntary disability insurance and paid family leave plans should begin considering how the increased benefit formula will impact their VDI/VPFL plans and prepare any necessary changes, employee notices, and EDD filings prior to the January 1, 2018 effective date.

What Reed Group will be doing:

If you are using Reed Group’s leave management services or software we will:

  • Update our voluntary plan administration processes including revising our VDI and PFL administration tools and training our service teams
  • Update our leave management and benefit calculation software to reflect the appropriate increase in benefits
  • Host the spring Voluntary Plan Advisory Group meeting, where we will have an opportunity to discuss these issues further with EDD, including when to expect detailed updated regulations
  • Continue to interface with EDD to learn more about the upcoming implementation of the changes, get clients’ questions answered, and receive updates regarding revised regulations, increased payroll deductions, and more
  • Continue to keep you apprised of more information regarding these changes