There are still several other factors to consider before deciding to move to voluntary plan administration for California SDI and PFL; however, this change could make it more viable for some employers to move to voluntary plan administration.

Senator Gavin Newsom signed legislation in September 2022 (Senate Bill 951) which impacts the California SDI and PFL programs in two ways:

• It removes the taxable wage limit cap on contributions beginning on Jan. 1, 2024 – Currently, employees contribute 0.9% of the first $153,164 in wages. In the future, they will continue to contribute to the program at the rate set by the state, regardless of how much they earn.

• It increases the benefit calculation for all employees beginning on Jan. 1, 2025.

• Currently, this is the CA SDI/PFL benefit formula:
  – 70% of earnings if someone earns one third or less of the state average quarterly wage.
  – 60% of earnings if someone earns more than one third of the state average quarterly wage.
• For leaves after Jan. 1, 2025, this will be the new formula:
  – 90% of earnings if someone earns 70% or less than the state average quarterly wage.
  – 70% of earnings if someone earns more than 70% of the state average quarterly wage.

Depending on their group demographics, certain employers may consider moving to a voluntary plan if they have sufficient contribution levels from higher-paid employees to support a plan. In addition, the removal of this cap allows an employer to move to a voluntary plan more easily on the first day of any calendar month, instead of at the start of a fiscal year. Historically, it created some complications for employers if they moved to a voluntary plan on an off-cycle date such as March 1, as the contribution caps could be difficult to manage in the plan movement.

The removal of the contribution cap has sparked some increased interest in voluntary plan administration in California, but it’s important to remember that increased benefits are also coming, which is part of why the cap is being removed a year early. Any group that is considering leaving the state plan and moving to voluntary plan administration should still evaluate the financial viability of a voluntary plan for their California population as well as the work that is required to introduce and maintain a voluntary plan.