Social Security Chief Actuary Weighs In On Paid Leave Proposal

Apr 19, 2019 / Amanda Chase, Horsesmouth Assistant Editor

Senator Marco Rubio and Representative Ann Wagner recently propsed a bill that would allow parents to take paid leave through Social Security in exchange for delaying retirement. According to information put out by Rubio’s office, “nearly all parents below the median household income of about $60,000 will be able to take significant leave at a rate of two-thirds of their prior wages,” with richer parents receiving a lower replacement rate. What does that mean for Social Security? The Chief Actuary has weighed in.

It’s important to get the math right, so that the system breaks even when parents take X months off and then, years later, delay their retirement by Y months. The ratio of Y to X will be determined by the Social Security commissioner, but a letter from the Office of the Chief Actuary estimates it will be about 2:1, meaning each month of leave will be paid for with two months of delayed retirement. Alternatively, someone taking leave could opt to have their benefits reduced for the first five years of their retirement, though the precise calculations for that option are rather arcane. The letter assumes that 40% of parents would take the benefit for 2.5 months per child, starting in 2022, and that the program would sunset in 2032. The program would likely be extended, so this should be seen as an estimate of the cost for just its first ten years.

But the upshot is that the bill “would have a negligible effect on the long-range [Social Security] actuarial balance (that is, less than 0.005 percent of taxable payroll),” with a negative impact in the early years when people are taking parental leave and then a positive impact later, when they delay retirement. To see what’s meant by “negligible,” consider that the program’s 75-year shortfall is close to 3% of payroll. So the bill would neither hurt nor improve the program’s finances, as intended.

The letter doesn’t address the possibility of expansions in the future, and since the bill directs the Social Security commissioner to set the leave-to-retirement-delay ratio at a budget-neutral level, perhaps it proves little that Social Security’s own actuaries think the effect will indeed be budget-neutral. But it does seem to buttress proponents’ claim that the idea is, at minimum, workable on a basic level.

You can find the full article at National Review.

 

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