The Division of Family and Medical Leave Insurance’s regulations requiring separate employer accounts for self-insured family and medical leave (FAMLI) plans

Adrian Sanchez, Law Clerk

Regulations governing Colorado’s new Paid Family and Medical Leave program (“FAMLI”) permit employers to utilize self-insured plans in lieu of participating in the state-run program if the employers meet several requirements and criteria, and obtain approval from the state.  One of these criteria pertains to the maintenance of a “separate account” for the collection of premiums and payment of FAMLI benefits to employees.  But, for many employers, the “separate account” requirement may prove challenging, although other states’ paid family and medical leave laws may provide useful context as to scope and meaning of these requirements for self-insured plans.

Separate account and surety bond requirements for self-insured plans under FAMLI

While the FAMLI statutes do not specifically discuss “separate accounts” for self-insured FAMLI plans, per current FAMLI regulations, employers who obtain approval for self-insured paid family and medical leave plans from the Division of Family and Medical Leave Insurance (the “Division”) must establish and maintain a separate account: (1) into which all employee contributions are deposited and kept; and (2) from which all benefits must be paid, and from which private plan administrative costs may be paid.[1]  Additionally, employers under an approved self-insured plan are required by the Division to provide a surety bond in an amount equal to one year of total premiums.[2]  In the event that an employer fails to properly administer a self-insured plan, the Division has the ability to collect and keep the surety bond.

The regulations, however, provide little guidance as to how “separate” an account must be from an employer’s other business accounts in order to satisfy FAMLI.  For example, it is unknown (and the Division has not yet discussed) whether an employer may simply record all FAMLI deposits and payouts with separate coding or other similar management measures to keep FAMLI deposits and payments segregated from other business assets or payables, or if it literally must maintain and use a completely separate banking account for anything FAMLI-related.   

 Similarities with California, and potential lessons for Colorado employers

  In the absence of specific guidance from the Division, employers may look to other states’ paid family and medical leave programs for at least some context.  For example, under California law, all contributions received or retained by employers under an approved self-insured family leave plan are specifically treated as trust funds that are not considered to be part of an employer’s assets.[3]  Additionally, California law requires employers to maintain a separate, specifically identifiable account for self-insured plan trust funds.[4]  

  While Colorado’s regulations on separate accounts for self-insured plans under FAMLI do not (yet) contain the level of detail present in California’s own laws on the subject, California’s approach is nonetheless instructive, as it reflects a very protective approach that promotes transparency and accountability in the maintenance and payment of paid family and medical leave benefits.  But, assuming the Division’s interpretation of “separate accounts” will be as strict as California’s laws, such requirements may pose practical problems for Colorado employers who may have to essentially maintain two separate payroll or accounting systems (one for normal wages/salary, and one exclusively for FAMLI benefit collections and payouts). 

  Campbell Litigation will continue to monitor developments in FAMLI-related law and regulations, and is available to assist employers in navigating the same.

[1] 7 CCR 1107-5:5.3.6

[2] 7 CCR 1107-5:5.4(G)

[3] Cal. Unemp. Ins. Code § 3261

[4] Id.