Rubio's paid family leave bill would have serious Social Security implications

Ethan Wolff-Mann
Senior Writer
U.S. Republican presidential candidate Marco Rubio holds a baby as he greets supporters following a campaign town hall at the Odell Weeks Activity Center in Aiken, South Carolina February 17, 2016. REUTERS/Chris Keane

Senator Marco Rubio (R-Fla.) made waves this month by introducing a bill that would allow parents to use Social Security benefits to pay for new-parent leave.

According to a new analysis from the Urban Institute, a Washington, D.C., think tank, Rubio’s Economic Security for New Parents Act would, in fact, provide meaningful help to new parents and would recoup its costs in the long term.

But while this may not cost the government in the long term (at least in theory), it does come at a cost to individuals that would compound over time. The program would borrow from the Treasury in the short term running a deficit, but it would recoup costs and break even fully by raising the Social Security full retirement age for participants by “six months for each paid leave lasting two or more months” every time they take a leave.

This would cut average lifetime retirement benefits by 3.2% each time a parent took a leave, the Urban Institute found, and “participants who took three two-month paid leaves would forfeit one-tenth of their lifetime Social Security retirement benefits.”

The increases in the retirement age would cost the median Social Security beneficiary $910 annually.

The way Rubio’s system works is people essentially borrow against future Social Security payments. (The payment would be 300% of a monthly Social Security disability benefit, which would replace four-fifths of a missing paycheck for a two-month leave.)

Later on, the person starts paying them back when they first take Social Security. There would be interest: That’s why a two-month leave would balloon into a six-month retirement age delay. The analysis gives an example: A 29-year-old making $40,000 a year who retires at 67 would sacrifice around $17,550 for a $4,757 payment during the leave. This is about four times the amount borrowed.

So how many people might actually participate? The Urban Institute looked to data from California’s paid family leave program to find an estimate. “Based on California’s experience, we estimate a 33% overall take-up rate for new eligible parents in our intermediate scenario,” the report said.

This may be lower, it cautioned, as California does not require such a high cost for its program as a raised retirement age, making estimates challenging and putting a low-use scenario as low as 24%.

Concerns about retirement

“As concerns intensify about financial security at older ages, programs that divert resources from retirement merit special scrutiny,” the paper’s authors wrote.

Though Social Security has played a vital role in making sure senior citizens are taken care as they age, any weakening of its finances is problematic problem, especially since many workers retire earlier than expected, may not have other retirement savings, or may have chronic conditions and disabilities.

The retirement age move would also hit people who want to take Social Security on the early side, as the early Social Security age would change as well. (The earliest a person can start taking Social Security is 62.) “Having to delay Social Security retirement benefit take-up can create financial hardships for some older adults,” the report says. “Three-quarters of employed adults ages 51 to 55 develop a work disability or new chronic condition or lose their job by age 62, limiting their ability to work longer.”

The think tank ultimately notes the strong case for paid leave for new parents — as is the case in “every other developed nation,” it says — but that Social Security may not be the best way given the potential retirement crisis it could precipitate and the fact that it could cause Social Security to turn into a “forced savings program.”

“Should we ask parents to self-finance investments in the next generation by borrowing from their retirement,” the authors muse, “or should we assume greater collective responsibility, as other high-income nations do?”

Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, retail, personal finance, and more. Follow him on Twitter @ewolffmann.

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