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Reading D.C.’s Universal Paid Leave Act

Reading D.C.’s Universal Paid Leave Act

Last updated on: October 7, 2015 at 12:12 pm by Jane the Actuary

Reading D.C.’s Universal Paid Leave Act 2015-10-07T12:12:38-06:00 Jane the Actuary

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I’ve been waiting for my lunch break all morning, having first read about D.C.’s proposed new paid family leave benefit yesterday, and returned to it this morning before starting work. If you’ve missed the reporting on it so far, the bottom line is that it’s a plan to provide 16 weeks of paid leave for a variety of needs, via a progressive payroll tax on employers paid into a central fund. Is it a long shot to be passed? Probably not, given that this is DC, which has very different dynamics compared to the rest of the country, in terms of who its employers are — and the proposal’s design and the bill’s text were funded by a $96,000 grant from the Labor Department (see this Slate article for a general summary of the plan and its genesis).

Now, I know plenty of folks reject any such plan completely out of hand — and I can well understand that a family in which one parent has chosen to leave the workforce to care for young children can be resentful of tax increases going to fund benefits specifically for those families who are already financially better off due to both parents working. But that doesn’t get us very far. What I want to do is take a look at the specifics of the plan itself, which happily the Washington Post has available here though annoyingly in an image format so I can’t copy/paste relevant sections.

Here are my bottom-line criteria for any such plan:

1) Is it sustainable? What’s the program’s revenue source and is it reasonably in line with expenses, or is there an adjustment mechanism if not?

2) Is there moral hazard/risk of abuse by its users?

3) Is it fair to everyone involved?

So:

Who’s eligible? Per section 101 (3), a “covered employee” means an individual who has the status of “employee” and who works (>50% of work-time) for an employer in D.C., but neither the federal nor the city government. An “eligible individual” is an individual who lives in D.C. (101 (6)) who earned wages in some other fashion (e.g., working for a non-DC employer or for the federal government?) or who was self-employed and did not opt out.

Section 103 (b) says “. . . benefits shall be paid to an individual who is not currently employed but who is an eligible individual meeting one of the requirements listed in subsection (a) of this section” — but subsection (a) just says “an eligible individual may claim . . . benefits for a qualifying event.” Was this just a drafting error, or is this intended to provide benefits to employees who have recently ceased working?

Section 104 lays out the basics of the program: 100% of wages up to $1,000 per week, and 50% thereafter to a maximum of $52,000 per year, to be paid for 16 weeks per year maximum, for a variety of covered events — new baby, medical condition for self or family member, time away in connection with deployment (seems to be things like meeting with a financial planner) or a family member’s return home, to be taken all at once, or intermittently, with a 5-day waiting period but with benefits payable for those 5 days if the illness extends beyond 5 days.

Section 106 lays out funding: ordinarily, contributions are graded by the employee’s annual/annualized pay:

0% to $10,000

0.5% from $10,000 to $20,000

0.6% from $20,000 to $50,000

0.8% from $50,000 to $150,000

1% for $150,000 and above

But if the fund balance is not sufficient to pay one year’s worth of expenses, then employers pay a flat 1% of pay regardless of their employees’ wages (which means that there is a crude adjustment mechanism so long as 1% is more than sufficient for benefits). FWIW, here are my notes on contribution rates on existing programs: Canada provides parental leave for contributions of about 1.4% of pay, for a longer period of time (but less than 100%), but only for births, not the extensive list of other eligible events.

106 (d) specifies that for those individuals working for employers outside DC or for the federal government (again, I think), and for self-employed individuals, the contribution is made by the individual directly.

There’s also an odd bit, 106 (f) (2) that says that the city shall contribute an amount sufficient to “allow for the provisions of this title to go into effect one year following the effective date.” Does this just mean that DC covers administrative costs, or is this meant to suggest that DC makes up the different is the taxes are insufficient for program costs?

Section 107: provisions for the self-employed. They are allowed to opt-out but otherwise auto-enrolled, with a 60-day enrollment period each year. There are certain provisions against moral hazard: a prior opt-out wishing later to join the program must sign up for a period of 3 years, and benefits will not begin until 1 year after enrollment.

Then there’s a lengthy bit about appeals and retaliation and other administrative bits.

So:

1) The adjustment mechanism to 1% of pay means it’s probably sustainable. One hopes that the $96,000 was spent on solid actuarial modeling, though this quote from the Washington Post raises doubts:

The D.C. Chamber of Commerce on Monday pushed back against the proposal, saying in a letter to the council that the business community has not been privy to the Department of Labor-funded research used to develop the legislation.

If, after all, an actuary had been pulled into the project to model this, there ought to be pretty solid documentation of the data and underlying assumptions, at least according to the Actuarial Standards of Practice that we have drilled into our heads at Continuing Education sessions. That the Chamber of Commerce is complaining of not having this information (and I couldn’t find anything online, either) is concerning.

2) Moral hazard: well, that depends on how big the so-called “gig economy” or “Uber economy” is in DC. Certainly, women who are planning on starting families would have every reason to sign onto the program, as well as anyone who sees a family medical need in the future (e.g., those on the other side of the “sandwich generation” with an elderly parent in or at risk of ill health). There is also no restriction, so far as I can tell, to only one or the other parent taking the benefit. Certainly, if usage patterns based on current unpaid or partially-paid leave options are projected to continue into the future, rather than projecting increased usage based on full pay, this would be a mistake. If, on the other hand, the self-employed are a small proportion of the population in D.C., then perhaps this is not a significant problem.

3) Fairness? Let’s face it: higher earners are paying for lower earners. Is this “fair” or “unfair”? No more or less than current income tax provisions. But it would be wrong to promote this as a benefit in which recipients are “paying their own way.”

Bottom line: well, my lunch break’s over. But in any case, I’d really like to see the underlying actuarial modeling — and if none exists, well, then, sorry, no Jane the Actuary Stamp of (Qualified) Approval for you!

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