Force-fitting parental leave into SS marginally weakens SS, risking insolvency and turning the retirement advantage.
Favreault ’18 [Melissa M. and Richard W. Johnson; April; senior fellow in the Income and Benefits Policy Center at the Urban Institute, studies social insurance and social assistance programs and has written extensively about Medicaid, Medicare, Social Security, and Supplemental Security Income, BA in political science and Russian from Amherst College, and her MA and PhD in sociology from Cornell University; senior fellow in the Income and Benefits Policy Center at the Urban Institute, where he directs the Program on Retirement Policy, AB from Princeton University and his PhD from the University of Pennsylvania, both in economics; “Paying for Parental Leave with Future Social Security Benefits,” Washington, DC: Urban Institute, https://www.urban.org/research/publication/paying-parental-leave-futuresocial-security-benefits]
Participants in the parental leave program would have to forfeit future Social Security retirement benefits for longer than they collected paid leave because interest would accumulate on their implicit loan for decades. The implicit interest rate charged by the program would be much lower than available private market rates (if new parents could obtain a private loan at all) because interest earned by the Social Security trust funds is tied to the low interest rates for long-term government bonds. However, because most people have children in their twenties and thirties and collect Social Security in their early sixties, interest on the leave loan would accrue for 30 or more years. Covering paid leave for the roughly one-quarter of parents who would be unable to reimburse Social Security because of disability, premature death, or inadequate employment histories adds to the costs. Our estimates would be even higher if Congress reduces scheduled Social Security benefits to close the program's long-term financing gap.
For participants born between 1991 and 2000, annual benefit cuts would average $430 in 2018 inflation-adjusted dollars if the program permanently reduced their Social Security benefits (table 6). Cuts would be applied for an average of 25 years. Fathers who participate in the program would forfeit more Social Security retirement benefits than mothers, consistent with their average higher leave benefits. Participants who take multiple paid leaves would also forfeit more retirement benefits than those who take only one paid leave. Benefits would be reduced by $1,310 for those with four paid leave spells compared with only $340 for those with one paid leave spell. Estimated median benefit losses are somewhat lower.
Program participants would forfeit an average of $8,740 in future Social Security retirement benefits if the program were to withhold initial Social Security benefits for all participants, including DI beneficiaries. That average rises to $11,170 if the program would exempt DI beneficiaries from benefit withholding.
Reduction in Social Security Retirement Benefits for Leave Program Participants
By repayment option, participants born between 1991 and 2000
Withhold Initial
Benefits, Including Withhold Initial Permanently Cut Monthly Benefits DI Benefits, Except DI
Source: Authors' estimates from DYNASIM.
Notes: Estimates are from the intermediate take-up scenario. Dollar amounts are inflation-adjusted 2018 dollars. The table shows the total amount of Social Security retirement benefits withheld under the options that withhold initial Social Security benefits and the reduction in initial annual benefits for the option that permanently reduces monthly benefits.
The parental leave program would erode participants' retirement security. If the program permanently reduced participants' monthly Social Security retirement benefits, the median decline in participants' lifetime Social Security retirement benefits would be 3.2 percent (table 7). If the program withheld initial Social Security benefits, the median decline in participants' lifetime Social Security retirement benefits would be 2.4 percent if the program withheld DI benefits and 3.1 percent if the program did not withhold DI benefits. Lifetime retirement benefits would fall much more for participants who take multiple paid parental leaves. Under the option that finances paid leave by permanently reducing monthly Social Security benefits, the median decline in lifetime Social Security retirement benefits would be nearly 10 percent for the small minority of participants who take four paid leaves.
Median Percent Reduction in Social Security Retirement Benefits for Leave Program Participants
By repayment option, participants born between 1991 and 2000Parental leave benefits would flow fairly evenly to people across the income distribution (table 8). Roughly one-fifth of benefits would go to parents in each of the income quintiles. Lower-income workers, in contrast, would account for a smaller share of the total benefit offsets than higher-income workers because lower-income workers have higher rates of mortality and disability and their earnings tend to grow more slowly as they age. Whether the program offsets the cost of paid leave by initially withholding retirement benefits or cutting monthly retirement benefits affects how these offsets are distributed between low- and high-income participants. Middle-income groups bear a disproportionate share of total offsets when they are applied monthly. A higher share of benefit offsets are paid by higher-income people when offsets are levied early in retirement.
Distribution of Parental Leave Benefits and Benefit Offsets by Income Quintile (%)
Intermediate take-up scenario, participants born between 1991 and 2000