Date

The Honorable Gray Davis

State Capitol

Sacramento, CA 95814

Dear Governor Davis:

Re: SB 1661 (Kuehl) – Family Temporary Disability Fund - Oppose

(COMPANY NAME) strongly OPPOSES SB 1661 (Kuehl), as amended June 24, 2002, mandating the establishment of a new paid leave entitlement program funded by billions of dollars in new taxes levied on all California employers and their workers.

SB 1661 establishes a 12-week paid family leave entitlement program for all California workers. The 12 weeks annually would be available to care for an ill children, spouse, parent, or domestic partner as well as for leave for the birth, adoption, or foster care placement of a child.

In order to pay for the mandated Family Leave Temporary Insurance (FTDI) paid leave entitlement program, SB 1661 institutes two new taxes; increases the current state disability insurance (SDI) tax formula, along with mandating a new 14 percent “administrative fee” on large self insured employers.

SB 1661 sends California workers and their employers a $2 billion tax bill in 2004. Along with increasing the maximum SDI tax rate, SB 1661 establishes the new FTDI tax that will be assessed in addition to SDI tax contributions. As a result, California workers will pay SDI/FTDI taxes of $698 in 2004 and $726 in 2005--a 67 percent increase in worker SDI taxes in 2004 alone. Moreover, SB 1661 mandates that employers also match dollar for dollar the higher worker FTDI premium amount. By 2005, the combined tax burden of the paid leave entitlement on California employers and their workers will reach $2.22 billion.

SB 1661 erases important employer rights contained current state and federal family leave laws. Current state and federal family leave laws only apply to employers with 50 or more workers and permit qualified employees to take up to 12 weeks of unpaid family leave. The leave is unpaid to prevent abuse of the leave laws. SB 1661 eliminates the 50 or more worker coverage level requirement; eliminates requirement of 1250 hours on the job in the previous twelve months before eligible for leave; eliminates employer right to designate leave as family leave; only permits certification of worker or family member need for leave to go to the Employment Development Department (EDD); and eliminates important notification requirements.

California small businesses are harmed by the elimination of the size requirement. Keep in mind that SDU benefits are portable and move with the worker if the worker changes jobs. If a worker has sufficient SDI contributions, SB 1661 entitles a worker just hired on Monday by a very small company to take up to twelve weeks of paid leave beginning Tuesday to care for a family member.

SB 1661’s new paid leave benefits, paid for by new mandated taxes, is impermissible under federal law. The federal Employment Retirement and Income Security Act (ERISA) forbids states from establishing mandated employee welfare benefits such as those contained in SB 1661. A paid leave benefit it is an employee welfare benefit under ERISA. Regardless of how the benefit is created or funded, it would still be an employee benefit under ERISA and would therefore be preempted.

SDI Trust Fund is nearly bankrupt. According to EDD, the SDI Trust Fund reserve adequacy level has dropped alarmingly. Recent legislation permanently linked the level of SDI benefits to workers’ compensation benefits. Enactment of AB 749, Ch. 6, Statutes of 2002 steeply increased both benefits levels. EDD information shows that as of December 31, 2001, the SDI Trust Fund reserves plummeted to only 15.4—a drop of nearly 70 percent. Even the most optimistic estimates by EDD indicate SDI Trust Fund reserves to be less than 30% for the next several years. This level of reserves is well below the 45% reserve level mandated by law for fund adequacy.

Legislation like SB 1661 makes California less competitive with similarly situated businesses in other states. California employers believe that bills like SB 1661 make it even more difficult, and certainly much more expensive, to do business in California. It is for these reasons and more (INSERT COMPANY NAME) urge a “NO” vote on SB 1661 (Kuehl).

Sincerely,

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