The California State Disability Insurance (SDI) System

Since the mid1940’s the California Unemployment Insurance Code (CUIC) has required that all employees working in California (except for governmental employees and other miscellaneous employee groups) participate in a compulsory State audited and regulated short-term disability plan.

Today, employers can satisfy the mandatory participation obligation of their employees and provide this coverage through one of two options:

· Employees participate in the State Disability Insurance System (SDI, the State Plan) and the employer submits withheld employee taxes to the State of California.

· Employers establish a private Self-insured Voluntary Plan. These plans are know as "Self-Insured Voluntary Plans" under the California Unemployment Insurance Code.

State Plan (SDI) Participation

When an organization elects to have all employees participate in the State Plan, all employees must accept the state mandated benefits and pay the required disability tax. The employer can elect to pay part or all of the mandated employee SDI contributions on behalf of the employees.

Currently, the California State Disability Insurance System offers employees:

The employer collects the employee contributions through payroll deductions and forwards the funds to the State each pay period where the funds are pooled with all other employee contributions. Unlike the State Unemployment Compensation Fund and the State Workers’ Compensation Fund, both of which are experience or merit rated, the state does not provide any account of SDI claims paid or any merit or experience rating system to either stimulate claims control and proper utilization of the Plan or to reward groups with good experience. Consequently, each employee group participating in the State plan pays the same SDI tax regardless of the employer’s specific disability loss experience.

The Self-Insured Voluntary Plan Option

California law provides that an employer may apply to the Employment Development Department (EDD) for approval of a self-insured Voluntary Disability Insurance Plan as an alternative to the State Plan. If an employer determines that the State Plan provides a poor cost/benefit ratio for their employees and it would be advantageous for their employees to participate in a Voluntary Plan, the Employer can establish such a plan if they meet the following State requirements:

· Benefits must equal the State Plan in all respects and in at least one way, offer better benefits than the State Plan.

 

· Contribution rates charged to employees can be no more than the State Plan, or lower.

 

· The Employer must receive the one-time consent of a majority (over 50%) of the employees. If 85% agree to enroll in the Plan, all other employees and all new employees are automatically covered under the Plan, unless they specifically request, in writing, to remain in the State Plan.

· The Plan must be maintained for a minimum of one (1) year.

 

· The Plan must pay the State Plan a quarterly Voluntary Plan assessment equal to 15% of employee contributions to the Plan. This pays for extended SDI benefits for employees who terminate from the Voluntary Plan Employer, for refunds of excess SDI contributions, and State administration expenses.

 

· Provide a Surety Bond or an irrevocable Letter of Credit, equal to one-half of the expected annual contributions of the Plan. This guarantees the payment of benefits and other obligations of the Plan should the Employer default on benefit payments to the employees. The cost of the Bond or Letter of Credit is paid for directly from Plan funds (employee contributions).

 

Significant Advantages of Self-Insured Voluntary Plans

Self-insured Plans allow employers to retain State mandated employee disability insurance contributions. These contributions would otherwise be paid to the State of California in the form of payroll taxes, and pooled in a general fund. The employer contracts with a specialized disability TPA, such as Corinthian Claims Services, for administration of all disability claims and the overall Voluntary Plan Management. All Voluntary Plan expenses, including disability claims administration, can be billed directly to the Plan.

Corinthian Claims Services assists employers in the alternative replacement for California’s mandated State Disability Insurance (SCI). This is accomplished through customized, State sanctioned, short-term disability Voluntary Plans, funded entirely by employee contributions.

Additional Advantages to Voluntary Plans

· Employer retention of SDI payroll taxes, which in turn create the opportunity for immediate cash flow and long term savings for an organization.

 

· Organizational commingling of retained funds in a company’s general fund help to offset other costs of doing business and borrowing funds.

 

· Customization of Voluntary Plans allow for increased absence management of disability duration and meet specific organizational needs of return to work programs.

 

· Specialized disability claim services allows for professional disability claims management from the very outset of an employee’s claim for disability benefits.

 

· Proactive coordination of disability benefits with Workers’ Compensation programs and any other Short Term / Long Term disability benefit programs.

 

· Reduction or elimination of Employment Development Department (EDD) and EDD liens within an employers Workers’ Compensation program.

 

· Customized and easily understandable Voluntary Plan literature produced specifically for Organizations and their employees.

 

· Voluntary Plans are exempt from ERISA requirements and the benefits paid from such plans (in the opinion of the California EDD staff legal counsel) have typically been assigned as a tax-free benefit to employees.

Corinthian Claims Services Standard Services

· Recommendation of cost containment options, such as proactive integration of Workers’ Compensation issues.

· Creation and maintenance of detailed claims files.

· Professional correspondence with employees and medical providers.

· Rapid adjudication of claims in order to confirm benefit eligibility.

· Determination of net benefits due and distribution of benefit checks directly to claimant bi-weekly or semi-monthly payment schedule.

· Correspondence with the State of California Employment Development Department (EDD) regarding all applicable claim issues and filing of corresponding administrative forms.

· Representation of the Employer with respect to any disputes at local or State Appeals Board hearings on disputed claims or claim denials.

· Preparation of standard monthly/quarterly/annual reports

· Ad Hoc report preparation.

· Dedicated claim staff