California Code of Regulations › Title 22 - Social Security › Division 1 - Employment Development Department › Subdivision 1 - Director of Employment Development › Division 1 - Unemployment and Disability Compensation › Part 2 - Disability Compensation › Chapter 6 - VOLUNTARY PLANS › Section 3260-1 - Disposition of Excess Employee Contributions by Voluntary Plans

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) The amounts
						deducted by an employer from the wages of his or her employees as their
						contributions under a voluntary plan are trust funds. They may be used only for
						the purpose of providing benefits to the employee group covered by the
						voluntary plan and paying any assessments made by the department under the code
						and this part in connection with the voluntary plan. No part of such employee
						contributions or income resulting therefrom may be diverted to the employer's
						own use or profit.
In the case of a plan insured by an admitted disability
						  insurer, any accumulated excess of such employee contributions over and above
						  the net cost of premiums, after premium dividends or experience rate credits,
						  and assessments made by the department in connection with the plan, must inure
						  to the benefit of the employee group covered by the plan commensurate with
						  their contributions or in an otherwise fair and equitable manner.
In the case of a self-insured plan, any accumulated
						  excess of such employee contributions over and above the amount needed to
						  provide benefits, including a reasonable reserve for future claims, assessments
						  made by the department in connection with the plan, and direct costs of
						  administration of the voluntary plan, must inure to the benefit of the employee
						  group covered by the plan commensurate with their contributions or in an
						  otherwise fair and equitable manner.
Methods of using excess voluntary plan funds which are
						  commensurate with contributions, or fair and equitable, would include but is
						  not limited to the following examples, including percentages and amounts
						  contained therein.
EXAMPLE 1
All employees contribute at a rate of 1.0%. The excess
						  voluntary plan funds are used to reduce that rate to .7% for all
						  employees.
EXAMPLE 2
Two classes of employees are distinguished. Class A
						  contributes at a rate of 1.0%. Class B contributes at a rate of .8%. A rate
						  reduction of 25% for each class would be allowable, resulting in Class A
						  contributing at .75% and Class B at .6%. It would not be allowable to reduce
						  the rate by an equal amount, such as .2%, for each class. That would yield a
						  .8% rate, or 20% contribution reduction for Class A and a .6% rate, or 25%
						  contribution reduction for Class B.
EXAMPLE 3
During a one year period, an excess of $50,000
						  accumulates in a plan in which contributions totaled $100,000. A refund to each
						  employee of 50% of the amount he/she contributed in that year would be
						  allowable.
EXAMPLE 4
All employees are paid a benefit equal to 55% of their
						  current wage to a weekly maximum of $400. To distribute excess funds, a 10%
						  increase in the benefits that each employee receives would be allowable. It
						  would also be allowable to increase the benefit calculation to 65% of current
						  wage, and increase the weekly maximum of $473 for each employee.
EXAMPLE 5
Two classes of employees, who contribute at the same
						  rate, are distinguished. Class A, those employees with more than five years of
						  service, receive a regular benefit equal to 65% of current wage with no weekly
						  maximum. Class B, those employees with less than five years of service, receive
						  a regular benefit equal to 55% of current wage with no weekly maximum. Using
						  excess contributions to provide a 10% increase for each class would be
						  allowable, resulting in Class A now receiving 71.5% of current wage and Class B
						  now receiving 60.5% of current wage.
COMMENT:
In a situation where all employees receive a regular
						  benefit of 60% of current wage with no weekly maximum, it would not be
						  allowable to use excess contributions to add $20 per week to each benefit
						  amount. Under this method, employees whose regular benefit is $50 would then
						  receive $70 per week, realizing a 40% benefit increase. Employees whose regular
						  benefit is $500 would then receive $520, realizing only a 4% increase. The
						  disparity between the percentages of benefit increase is neither commensurate
						  with contributions nor fair and equitable.
EXAMPLE 6
A voluntary plan, which has been operating for six
						  years, began accumulating an excess beginning in the fourth year of operation.
						  Employees have always contributed at the same rate. A health insurance policy
						  covers all employees at a cost of $140 per month per person, shared equally
						  between the employer and the employee. The employer proposes to use excess
						  voluntary plan contributions to defray part of the employee cost for the health
						  care policy for a one-year period. The proposal relieves each employee of his
						  or her obligation at a rate of $20 per month for each full calendar year of
						  service during the three years that the excess accumulated. Service for any
						  partial calendar year during the same three-year period would reduce the
						  employee's obligation by $10 per month. With the consent of the majority of the
						  employees, this would be allowable.
EXAMPLE 7
Two classes of employees are distinguished. The
						  voluntary plan contribution total for each class is determined for the previous
						  year by adding individual contributions as reflected on the W2 forms. Class A,
						  employees who have more than two years with the company, will be provided with
						  life insurance, using excess voluntary plan contributions. Class B, employees
						  who have less than two years with the company, will receive a rebate from the
						  excess voluntary plan contributions. If the amount of excess used for the life
						  insurance and for the rebate is proportionate to the total contributions of
						  each class, as determined by the W2 forms, this use would be allowable.
EXAMPLE 8
Two classes of employees are distinguished. The
						  employer keeps separate records on income and expenses for each class. After
						  disbursements in a given year, the amount of excess remaining from Class A
						  contributions is $30,000. After disbursement in the same year, there is no
						  excess remaining from Class B contributions. It is allowable to use the $30,000
						  excess to benefit only Class A employees.
An employer may use any one of the following methods,
						  or combination thereof, to dispose of any such accumulated excess, provided
						  that method No. 4 may be used only upon the consent of a majority of the
						  employees covered by the plan at the time of the disposition. Consent of the
						  majority of the employees at the time of disposition shall mean that the
						  employer shall secure employee consent within 60 days prior to the date the
						  disposition of funds begins.
(1)
						Reduce or waive payroll deductions for a sufficient period to dispose of the
						excess.
(2) Refund the excess to
						the employees covered by the voluntary plan in a fair and equitable manner as
						approved by the department.
(3)
						Increase disability benefits under the plan either temporarily or
						permanently.
(4) Apply such excess
						to the purchase of other employee benefits for the employees covered by the
						voluntary plan such as group life, hospital, or medical
						insurance.