Did you know that California is one of only five states in the nation – along with Hawaii, New Jersey, New York and Rhode Island – with a mandatory disability insurance program? In California, the State Disability Insurance (SDI) "State Plan" is funded by employee contributions and protects California workers against wage loss due to a non-industrial injury or illness. If you have employees working in California, there is an alternative to SDI you might find very interesting.
The California Unemployment Insurance Code allows an employer to establish a substitute disability program called a "Voluntary Plan." The coverage, rights and benefits under this Voluntary Plan must be equal to what is provided by SDI and it must also be better than SDI in at least one respect. A majority of employees eligible for coverage must approve the plan going into effect. Once a Voluntary Plan is approved, the employer is no longer required to send employee contributions to the state for those employees who selected coverage under the Voluntary Plan. Instead, the employer can withhold up to the same amount of contributions from these employees and hold the money in trust to pay Voluntary Plan claims and approved expenses.
One of the benefits of establishing a Voluntary Plan is the potential for an employer to provide better coverage to employees without any additional cost. When an employer's work force has low claim frequency, the surplus contributions (the difference between what is withheld from employees and what is needed to pay the claims and expenses) can be used to provide a higher level of benefit or to underwrite a lower contribution rate from the covered employees. An employer who is already providing some form of salary continuation can integrate those benefits with the higher Voluntary Plan benefits to greatly enhance their employees' total benefit package.
Obviously, your employees' claim experience is a critical factor in determining if a Voluntary Plan can support an enhanced benefit. The number of covered employees also has an important bearing. Although there is no upper or lower limit on the number of employees who can participate in a Voluntary Plan, the greater the number of employees, the more likely it is that the plan will be financially sound. A caution to any employer considering a Voluntary Plan is that the employer is ultimately responsible for plan expenses. The state rate of contributions can be withheld from employees, but if that is not adequate, the employer must loan or contribute funds as necessary to meet plan expenses
Hundreds of California employers have implemented a successful, fully employee-funded Voluntary Plan that provides better benefits to their employees – and Sedgwick can help with a Voluntary Plan for you. If you have questions, please let me know or feel free to share your thoughts here on the blog.
Barbara Jones, VP Client Services, Disability Administration