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Self-Insuring California State Disability
Insurance (SDI)
viable again
June 2000
Calabasas, California – Jack Bredehorn, President and Founder of VPA,
Inc., the nation's largest, independent administrator of self-insured
disability benefit plans, indicated today that the recent increase in the
California State Disability Insurance employee contribution rate from .5% to
.7% (effective April 1, 2000), and the rise in the California SDI taxable wage
base to $46,327 of earnings per year (effective January 1, 2000), and the
increase in the maximum weekly SDI benefit level from $336.00 per week to
$490.00 per week, has greatly increased the opportunity for employers with
large California populations to consider self-insuring their California SDI
benefits.
During the past 4 years, the employee
contribution rates for California SDI have been artificially low and have
caused the State Disability Insurance fund to be dangerously under reserved.
The recent increase as of April 1, 2000, from .5%
to .7% of covered wages, is merely a stop gap to hopefully prevent the State
fund from going into deficit by the end of 2000. It is anticipated that by
increasing the contribution rate that the SDI fund will have a positive reserve
of as much as $400 million by the end of 2000 versus a projected deficit of
$250 million if the rate had remained at .5%.
The SDI fund reserve required under the current
California law should be in the range of $475 million to $855 million.
Therefore, it can be anticipated that in 2001, it will be necessary to have
additional rate increases beyond the new .7% (possibly .8% or .9%).
Mr. Bredehorn was instrumental in having the
Governor change the rate from the .5% to .7% as of April 1, 2000, after
pointing out to many of the State legislators that the .5% rate would cause the
SDI fund to fall into deficit and would require a substantial loan from the
State Treasury to prevent the SDI fund from defaulting on payments to disabled
employees.
The California State Disability Insurance fund,
along with the mandated State disability insurance programs in Hawaii, New
Jersey, New York, Rhode Island and Puerto Rico, are designed to provide income
replacement to employees in each of these states when they are unable to work
due to non-occupational disabilities. The laws in these states require that
every employee working for a covered employer must be provided this mandated
coverage either through a State operated fund (i.e., California, New Jersey,
Rhode Island and Puerto Rico) or an insured alternative (i.e., Hawaii, New
Jersey, New York and Puerto Rico) or a self-insured alternative (i.e.,
California, New Jersey, New York, Hawaii and Puerto Rico).
VPA, as the largest administrator of self-insured
SDI plans throughout the nation, has been at the forefront in championing the
rights of employers to self-fund their SDI benefits for their employees. The
significant advantages to self-insuring the mandated SDI benefits are that the
employer can control the administration of the disability claims and integrate
the SDI benefits more smoothly with their sick pay, salary continuation,
short-term disability and long-term disability benefits. In addition to these
administrative advantages, the cost savings to employers for having control
over the self-insured SDI benefits and the closer coordination of other
disability benefits, can be as much as 25% to 30% of the costs when these
benefits are not self-insured.
As part of VPA's services to employers, VPA
performs a self-insured "Feasibility Study" at no cost to the employer. This
feasibility study determines the potential for the employer to operate a
self-insured SDI plan in each of the mandated states where they have employees.
These studies have proven to be highly accurate over the years and are a sound
predictability tool for employers to evaluate self-insuring their SDI. VPA not
only provides these studies directly to employers but also to interested
benefit consultants and brokers. Interested parties should inquire regarding
these services by either visiting VPA's website at www.VPAinc.com or by
contacting VPA's sales force, Tom Klett at (914) 697-7555 or Wes Smith at (714)
438-4466.
VPA, Inc. was founded in 1979 and is the leading,
independent administrator of self-insured disability benefit plans with over
120 clients covering over 800,000 employees nationwide. VPA's services include
administering self-insured SDI Plans, salary continuation, short-term
disability, long-term disability, "Integrated Disability Management (IDM)"
programs with Workers' Compensation and medical case management as well as
providing nationwide Federal and State FMLA administration for clients with
over 1500 employees. VPA's prestigious clients include PepsiCo, Tricon Global
Restaurants (Taco Bell, KFC and Pizza Hut), Hewlett-Packard, Union Bank,
Clorox, Fireman's Fund Insurance Company, Albertsons, Charles Schwab &
Company, DHL Airways, Inc., Kelly Services, National Semiconductor Corp., and
QUALCOMM Incorporated.
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