Voluntary Plans under California’s Unemployment Insurance Code

California’s Unemployment Insurance Code, in Division 1, Part 2, Chapter 6, provides for voluntary plans. Section 3251 authorizes an employer, a majority of the employees employed in this state of an employer, or both, to apply to the Director of Employment Development for approval of a voluntary plan for the payment of disability benefits to the employees so electing. 

The benefits payable as indemnification for loss of wages under any voluntary plan are required to be separately stated and designated in the plan “unemployment compensation disability benefits” separate and distinct from other benefits, if any.

Section 3252 provides that neither an employee nor his or her employer are liable for the worker contributions required under this division with respect to wages paid by the employer while the employee is covered by an approved voluntary plan. Each voluntary plan must pay to the department for the Disability Fund 14% of the product obtained by multiplying the rate of worker contributions by the amount of the taxable wages paid to employees covered by the voluntary plan for disability benefit coverage for each calendar year.

Each voluntary plan is required to file with the director within the time required for payments a return containing the employer’s business name, address, and account number, and such other information as the director prescribes. The director has to prescribe the form for the return. Payments required under this section are due and payable on the first day of the calendar month following the close of each calendar quarter.

Section 3253 states that an employee covered by an approved voluntary plan at the commencement of a disability benefit period is not be entitled to benefits from the Disability Fund. Benefits payable to that employee must be the liability of the approved voluntary plan under which the employee was covered at the commencement of the disability benefit period, regardless of any subsequent disabling condition which may occur during that disability benefit period.

Section 3254 requires the Director of Employment Development to approve any voluntary plan as to which he or she finds that there is at least one employee in employment and all of the nine specified conditions exist.

Section 3254.1 defines the terms “small-business-third-party administrator” and “voluntary plan.” Section 3254.5 provides that a voluntary plan in force and effect at the time a successor employing unit acquires the organization, trade, or business, or substantially all the assets thereof, and continues its operation without substantial reduction of personnel resulting from the acquisition, will not withdraw without specific request for withdrawal thereof.

Section 3255 states that, when workers are engaged in an employment that normally involves working for several employers in the same industry interchangeably, and several employers or some of them cooperate to establish a plan for the payment of wages at a central place or places, and have appointed an agent, that agent, or a majority of workers regularly paid through a central place or places, or both, may apply to the Director of Employment Development for approval of a voluntary plan for the payment of disability benefits applicable to all employees whose wages are paid at one or more central place or places.

In addition, the Director of Employment Development is required to approve any voluntary plan under this section as to which he or she finds that all nine of the specified conditions exist.

Section 3256 says that, during the effective period of a plan approved, the employer, or his agent appointed, may make the pay roll deductions provided for by the plan, with respect to all employment covered by the plan.

Section 3257 provides that, whenever 85% of the employees to whom a plan is available have consented to the plan, the employer, or 75% of the employees who have consented to the plan, or both, may elect to make the plan applicable to all employees to whom it is available, except those who reject the plan. There are specified procedures to follow.

Section 3258 states that, if a voluntary plan does not provide for the assumption by an admitted disability insurer of the liability of the employer to pay the benefits afforded by the plan, the director cannot approve it unless the employer files with the director the bond of an admitted surety insurer conditioned on the payment by the employer of its obligations under the plan, deposits with the director securities approved by the director to secure the payment of the obligations, or deposits with the director an irrevocable letter of credit.

Section 3259 specifies that, whenever an approved voluntary plan is insured by an admitted disability insurer, the insurer must be substituted for the employer with respect to any assessments under this part which relate to the portion of the voluntary plan insured by such insurer.

Section 3260 allows an employer to assume all or part of the cost of the plan, and may deduct from the wages of an employee covered by the plan, for the purpose of providing the disability benefits specified in this part, an amount not in excess of that which would be required if the employee were not covered by the plan.

Section 3260.5 provides that all deductions from the wages of an employee remaining in the possession of the employer upon its voluntary withdrawal of the plan as a result of plan contributions being in excess of plan costs, that are not disposed of in conformity with authorized regulations of the Director of Employment Development, are required to be remitted to the department and deposited in the Disability Fund. If an employer fails to remit any deductions to the Disability Fund, the Director of Employment Development must assess a specified penalty against the employer.

Section 3261 states that all employee contributions and income arising therefrom received or retained by an employer under an approved voluntary plan are trust funds that are not considered to be part of an employer’s assets. An employer must either maintain a separate, specifically identifiable account for voluntary plan trust funds in a financial institution, or an employer may transmit voluntary plan trust funds, including any earned interest or income, directly to the admitted disability insurer.

Section 3262 allows the Director of Employment Development to terminate any voluntary plan if the director finds that there is danger that the benefits accrued or to accrue will not be paid, that the security for the payment is insufficient, or for other good cause shown. The Director of Employment Development must give notice of their intention to terminate a plan to the employer, employee group, and insurer. The notice must meet specified requirements.

Section 3263 provides that an employee is no longer covered by an approved voluntary plan if a disability arose after the employment relationship with the voluntary plan employer ends, or if the Director of Employment Development terminates a voluntary plan. An employee who has ceased to be covered by an approved voluntary plan must, if otherwise eligible, thereupon immediately become entitled to benefits from the Disability Fund to the same extent as though there had been no exemption from contributions as provided in this chapter.

Section 3264 specifies that, if any employer or insurer wholly or partially denies liability upon the claim of an employee for disability benefits under an approved plan, the employee may appeal the denial in the manner provided by law and authorized regulations for an appeal on a claim for benefits payable out of the Disability Fund. All decisions of the Appeals Board denying benefits under this section are subject to review by the courts of this State by the exclusive remedy of filing a petition for writ of mandate.

Section 3265 provides that if, on appeal, it is decided that an employee is entitled to receive disability benefits under an approved voluntary plan and the employer or insurer fails to pay the amount within 15 days after notice of a decision by an administrative law judge or the appeals board, the director is required to pay the benefits and assess the amount thereof against the employer or the insurer.

Section 3266 requires the director to determine the portion of the aggregate amount of refunds and credits to employees during any calendar year which is applicable to voluntary plans for which deductions were made, that determination to be based upon the relation during the preceding calendar year of the amount of wages subject to contributions to the Disability Fund to the amount of wages exempt from contributions to the Disability Fund.

Section 3267 provides that employers whose employees are participating in an approved voluntary plan and any insurer of an approved plan must furnish reports and information and make available to the department records as the director may by authorized regulations require for the proper administration of this part.

Section 3268 requires the EDD Director to furnish to employers, employees, or insurers, such information as may be required for the proper administration of an approved voluntary plan.

Section 3269 requires the director to determine each fiscal year the total amount expended for added administrative work arising out of voluntary plans.

Section 3271 requires the director to approve any amendment to a voluntary plan adjusting the provisions thereof as to periods after the effective date of the amendment as to which he or she finds that the plan will conform to the standards in state law and that any of three criteria exist.

Section 3272 states that the provisions of Article 9 apply to amounts collected, and to amounts remitted to the Disability Fund, and to amounts paid to an employee by an employer or insurer after a final decision on appeal to an administrative law judge or the appeals board that the employee is entitled to disability benefits.