CA AB2778

Allows the Employment Development Director to approve voluntary disability insurance plans administered by small-business third-party administrators (SBTPAs) through December 31, 2014.

Defines qualifying SBTPAs as those with at least 1,000 California-domiciled clients (80% having fewer than 20 employees), processing payroll and offering workers' compensation insurance through affiliated companies.

Permits a single voluntary plan covering all of an SBTPA's clients with individual employer subtrust accounts (not commingled) held in federally insured banks, with additional financial security requirements.

Requires plan participation to be continuous unless the SBTPA provides 30 days' notice of withdrawal, or individual employers/majority of their employees provide 30 days' notice, with exceptions for benefit increases or contribution rate changes.

Mandates disability claims against employer subaccounts be satisfied first from SBTPA security rather than the state Disability Fund in cases of insolvency, protecting state funds.