Monthly Archives: August 2018

Yet Another Bad Idea From Washington

On August 2, 2018, Senator Marco Rubio (R) Florida introduced a bill that would allow any American worker to take paid time off to be with a new child. Representative Ann Wagner (R) Missouri is apparently set to introduce the same bill in the House.  These two bills are, once again, a prime example of bad pension policy coming out of Washington.

You might ask what a paid family leave program has to do with pension policy?  That’s exactly the point.  The two should be unrelated.  Unfortunately, in this instance the “cost” of financing paid family leave will require the employee to delay their Social Security benefits, or worse yet, reduce their future monthly checks by approximately 3%[1].  What? We are going to encourage employees to reduce their future pension income to finance paid family leave?

In my June article on these same pages, I wrote extensively about why current pension laws encourage too much leakage from defined contribution plans.  Congress keeps passing more laws that encourage Americans to borrow money from their retirement savings or to raid future benefits. Now Senator Rubio has come up with the novel idea to begin “raiding” your future Social Security benefits as well. Really?  We already face a retirement income crisis in America and now we have another way to exacerbate the problem by using Social Security to finance something completely unrelated to retirement security.

There are a few other reasons this bill is a bad idea:

  • First off, the bill provides this little scheme only for caring for a new infant, which accounts for about a fourth of the reasons for family leave in the first place. The vast majority of Americans take paid leave to recover from a serious illness or to care for a family member who is sick or disabled. So, this bad idea doesn’t even begin to cover the major reasons Americans take paid leave. Considering that you have to raid your future Social Security income to have this benefit, I guess it is a good thing the bill is pretty restrictive.

 

  • Perhaps more importantly, this bill  would negatively impact low-wage earners the most. Low wage earners are more likely to work for an employer who does not offer paid leave, yet those low wage earners are also most likely to rely on Social Security as the only source (or major source) of retirement income.  So the poorer wage earners are the ones most likely to use the benefit, and the most likely to suffer.  What kind of social, economic, or pension policy is that?

 

  • Once again, Congress proposes these bad ideas because we lack a national pension policy. In addition, many lawmakers don’t understand pensions or insurance in the first place, which makes it difficult for them to design effective legislation for either.

 

Three states (California, New Jersey, and Rhode Island) have paid leave policies in place that are financed through their state disability programs.  That is where paid leave benefits more properly belong.   In those three states the cost of paid leave plans are paid for and appropriately funded, instead of raiding future Social Security benefits.  Congress should study what these states have done before they propose a national paid family leave program that raids Social Security.

It is good that Congress is at least looking at a national paid leave policy.  That’s a start, considering the United States is almost alone among developed countries in not offering a national program. However, let’s be smart about how we solve this problem.  Raiding future pension benefits to pay for this type of paid leave plan is just bad public policy and only adds to our national retirement security problem.

 This article is for information purposes only.  It is not legal or tax advice.  Readers should seek the advice of their legal and tax counsels before contemplating action on this information.

[1]Estimates by The Urban Institute