To the editor re: “California Paid Family Leave Act Gets Better!”
By Tom Rankin | June 3, 2016
As someone who has worked on California’s social insurance programs for 40 plus years, I thought the readers of Bill Sokol’s article on the improvements to California’s historic Paid Family Leave Act (SB1661, Kuehl 2002) contained in the recently enacted AB908 (Gomez) might benefit from a little historical background.
First, it should be understood that our Paid Family Leave program is not a standalone program, but rather a part of a much larger social insurance program sponsored by the State Federation of Labor and signed into law by Governor Earl Warren in 1946—Unemployment Compensation Disability Insurance, commonly known as State Disability Insurance (SDI). SDI provides wage replacement benefits to workers who suffer non-occupational injuries or illnesses that prevent them from working. If you are hurt on the job, your lost wages are partially replaced by Workers’ Compensation benefits under a law first enacted in 1913. Unlike the Workers’ Compensation program which is solely paid for by employers (and protects employers from potentially more expensive civil liability) the SDI program is solely funded by worker contributions. Both laws have been amended and re-amended many times since their inceptions. Over the years, Labor sponsored legislation that increased the maximum duration for SDI benefits from 26 weeks to 52 weeks and in 1978 got a bill signed into law to extend SDI coverage to pregnancy related disabilities.
Currently, employee contributions to SDI are set at 0.9 percent of pay up to $106,742. Any pay over that amount is not taxed. Present benefits replace 55% of a worker’s wage with a minimum weekly benefit of $50 and a maximum weekly benefit of $1,129. Workers’ Compensation temporary disability benefits replace 66.67% of the wage of a worker injured on the job up to the same maximum weekly benefit of $1,129. Both programs index the maximum weekly benefit to increases in the state average weekly wage. To pay for the benefit increases, the SDI program also indexes the cap on taxable wages.
Senate Bill 1661, the original Paid Family Leave bill in 2002, would have provided workers with a benefit equaling 55% of their wages for a period of up to 12 weeks, with employers paying one-half of the benefit either directly or by payment to the SDI Fund. Employers mounted fierce opposition to the bill and to gain passage it was amended to provide up to 6 weeks of leave funded solely by worker contributions to the SDI Fund.
SB 1661 was the first Paid Family Leave bill to be enacted in the US. It took effect in 2004. Up to six weeks’ leave could be taken to care for a seriously ill child, spouse, parent or domestic partner or to bond with a new minor child. The definition of family members for which leave could be taken was expanded by legislation in 2013 to include in-laws, siblings and grandparents (SB770, Jackson).
Paid Family Leave Claims in 2014 totaled 225,252 and cost 631.3 million dollars. This compares to regular SDI claims totaling 635,532 and costing over 4.6 billion dollars. The average claim paid to injured or ill workers had an average duration of 16 weeks whereas the average paid family leave claim had a 5.3 week duration. The average injury or illness claim paid $483, whereas the average PFL claim paid $537.
Some advocates for AB 908 correctly argued that lower wage workers didn’t make as much use of paid family leave as higher paid workers and that they were often unable to use PFL because they could not live on 55% of their wages. They intended to solve this problem by greatly increasing the wage replacement rates for low wage workers taking PFL. In contrast to the original version of the Paid Family Leave bill in 2002 and to recent local legislation to improve Paid Family Leave, e.g. San Francisco’s recently enacted ordinance, the sponsors of AB 908 made no effort to require employers to fund the new benefits. The cost was to be borne solely by the workers. As a result, there was no overt employer opposition to the bill. Also, the lack of business opposition was undoubtedly aided by the fact that those employers who already supplemented the state PFL program by making up some or all of the 45% of wages they lost while on leave would actually save money from the passage of the bill.
The problem with just increasing PFL benefits and leaving the bulk of SDI claimants with lower benefits, as argued by the California Labor Federation, was that unless wage replacement rates for lower wage injured and ill workers receiving SDI benefits were increased by the same percentages as PFL benefits, a worker who couldn’t possibly work because of her condition and who quite possibly faced greatly increased medical expenses because of it would receive a significantly lower benefit than her co-worker who took time off to bond with his new child. Both paid the same contributions to the SDI Fund. Moreover, research showed that lower paid workers also filed fewer claims based on injury or illness than higher paid workers.
Under the original bill, the injured worker would have had 55% of her wages replaced while her co-worker would have had 80% of his wages replaced. If they both made the minimum wage and worked fulltime, in 2016 the PFL beneficiary would have received $320 a week while the injured worker would have only received $220 a week. The Labor Federation thought this inequity would undermine the foundation of the SDI program. It worked to amend the bill to make the increased replacement rates apply to all claimants and also to eliminate the 7-day waiting period. It also proposed a more progressive funding mechanism to cover the increased benefit costs by increasing the cap on taxable wages instead of increasing the worker contribution rates.
Fortunately, reason prevailed and the final amended bill resulted in increasing the wage replacement rates from 55% to 60% for all claimants earning more than 1/3 of the state average weekly wage and to 70% for those earning less. This means that over 85% of the new money paid out in increased benefits will go to injured or ill workers and less than 15% will go to workers taking paid family leave. The bill as enacted also eliminates the waiting period for PFL claims. It does not adopt the increase in the cap on taxable wages.
Ironically, a bill that was universally hailed by President Obama and Governor Brown on down the line as a landmark improvement to Paid Family Leave benefits was, in reality, a far more significant measure that dramatically increased benefits for all of the hundreds of thousands of SDI claimants who couldn’t work because they were injured or ill as well as for the far smaller number who used the State Disability Insurance system to care for injured or ill family members or to bond with a child.
But perhaps this is not surprising, for as one legislator who supported the original bill and was dismissive of critics who wanted to both improve PFL benefits and maintain the integrity of our 70 year old SDI system pronounced, “Paid Family Leave is a sexy issue now.”
One final note: the increases will not take effect until 2018 and,unless new legislation is passed, will sunset on January 1, 2022.