Ceridian’s Washington correspondent Jim O’Connell explores the pros and cons of tapping Social Security for paid parental leave, and how employers could be impacted.
Let new parents finance 12 weeks of paid leave by borrowing six weeks of future Social Security retirement benefits?
It’s a serious public policy proposal put forward by serious public policy experts. And it has drawn interest from U.S. senator and former presidential candidate Marco Rubio (R-FL) as well as the president’s daughter, White House special advisor Ivanka Trump.
The question that roils debates over paid family, parental or sick leave is, who pays? The government? The employee? The employer? There’s no such thing as a free lunch – or free paid leave.
To fund parental leave, states like New York and California rely mainly on employee payroll contributions to state disability trust funds. Other jurisdictions, like the District of Columbia starting in 2019, will impose payroll taxes on employers. Still others, like Maryland, require employers to provide paid leave.
Into the fray comes a remarkable new idea: allow parents to tap tomorrow’s Social Security benefits to pay for today’s parental leave.
A new idea for paid parental leave
It’s the brainchild of American Enterprise Institute scholar and former Social Security deputy commissioner Andrew G. Biggs and Washington D.C. lawyer Kristin A. Shapiro. They write, “offer new parents the opportunity to collect early Social Security benefits for a period – say, 12 weeks – after the arrival of a child.” In exchange, parents “would agree to delay collecting Social Security retirement benefits, probably for only about six weeks.”
For example, if age 67 is the retirement age to collect full Social Security benefits, someone who had taken 12 weeks paid parental leave at say, age 30, would collect full benefits at age 67 and six weeks.
The authors conclude, “Paid parental leave on an affordable, self-financing basis (would be) a fiscally responsible opportunity to help parents and children.” The concept could be expanded to cover paid family leave as well.
The pros: a self-financing mechanism
Like most new policy ideas, this one has pros and cons.
On the pro side, the proposal would create a self-financing mechanism for paid parental leave, removing one of the biggest obstacles to federal legislation establishing a national paid leave program. New parents would essentially borrow against their own future retirement benefits.
With Republican lawmakers opposed to governmental employer mandates and higher taxes, and Democrats eager to enlarge the Family & Medical Leave Act (FMLA) to require paid leave, the Biggs-Shapiro plan would open the door to a fresh approach that might win bipartisan support.
The biggest beneficiaries would be new parents or employees with seriously ill family members who would then be able to balance their work and life – and wellness – by having the opportunity for paid parental or family leave.
Another pro would be of special interest to employers: Washington D.C. would not impose the extra costs of paid parental leave on already over-burdened employers.
To be sure, many employers now voluntarily offer and pay employees parental, family and sick leave. And state or local laws require some employers to offer, and sometimes finance, employee paid leave. But the Biggs-Shapiro plan could relieve millions of employers, especially smaller businesses, of the direct costs of paying for employee paid leave.
On a related note, employers would also be relieved of the burden of having to administer and be in compliance with a complicated new federal employee paid leave mandate. The “simple” self-financing mechanism would clear the way for employees to give notice to their employers and apply to the Social Security Administration for an “advance” on their future retirement benefits.
The cons: tapping Social Security comes with complications
Like most new ideas, however, the Social Security -paid leave plan has its share of cons as well. First among these is tinkering with Social Security at a time when the bedrock retirement safety net is in financial jeopardy.
The 2017 Annual Report of Social Security’s Board of Trustees reveals that right now Social Security’s annual benefit cost is projected to exceed its annual non-interest income every year through 2021, as it has since 2010. In 2017, costs for the year exceeded non-interest income by $59 billion, up from $53 billion in 2016.
In other words, Social Security is already in the red – spending more for retirement benefits than it takes in from payroll taxes every year. And the trustees predict that the Social Security Trust Fund will be exhausted in 2034 – just 16 years – when millions of today’s 50-somethings will apply for retirement benefits.
A Social Security-for-parental leave scheme, even one based on individuals tapping into only their own personal future retirement benefits, could be construed as diverting scarce Social Security funds to a purpose different from retirement security. This is because Social Security, unlike in the past, is now a pay-as-you-go system, meaning benefits to today’s retirees are financed by payroll taxes paid by today’s workers.
Another “con” with this proposal is the Pandora’s Box phenomenon – complications that can arise from interfering with something best left alone – in this case tampering with Social Security to open up the idea of governmentally established paid leave. Once consensus exists to have a federal paid parental or family leave system, Congress might drop the self-financing mechanism but keep the paid leave requirement, leaving employers to foot the bill.
Takeaway for employers: momentum is building for national paid leave
Most importantly, employers will understand that this is a proposal only, and a dramatic new one at that. It’s clearly not ready for prime time.
On the other hand, the proposal makes clear that momentum is building to make paid leave a matter of national policy – parental, family and sick leave. The new Tax Cuts and Jobs Act (TCJA) includes a tax credit for certain employers that offer paid leave to their employees. Many bills have been introduced by Republicans and Democrats for paid leave. And President Trump specifically called for a national policy of paid family leave in his January State of the Union Address. Paid leave is certain to become a 2018 congressional and 2020 presidential campaign issue.
The 1993 Family & Medical Leave Act, which entitles most employees to 12 weeks of unpaid leave, celebrated its 25th anniversary just a few weeks ago. Meanwhile, a number of states and localities have moved to establish their own paid leave requirements for employers, most recently Maryland’s Healthy Working Families Act.
Employers need to be prepared for what essentially could evolve as national paid FMLA. It remains to be seen whether it will be an FMLA-type employer mandate with an employee entitlement, a program of employer-employee payroll contributions, or something like the Biggs-Shapiro self-financing mechanism.
In any event, national employee paid leave is coming.
With more than 30 years of experience in federal legislative and regulatory affairs, Jim O’Connell focuses on HR and PAYROLL POLICY ISSUES, keeping customers informed about fast-changing and complex compliance regulations and workforce trends. Follow him on Twitter JOCWashDCView Collection