Paid parental leave shouldn’t be routed through SSA---worsens solvency and cash flow

As concern grows about the financial security of future generations of retirees, justifying programs that divert resources from retirement is difficult. In the coming decades, the share of workers entering retirement with traditional employer-sponsored pensions that provide a guaranteed income stream will continue to shrink. The majority of workers will have access to employment-based retirement accounts through which they can save for their old age, but many people dip into these savings during their working lives to meet current financial needs, leaving less for retirement (Argento, Bryant, and Sabelhaus 2014; Bryant, Holden, and Sabelhaus 2011; Munnell and Webb 2015). As mortgage refinancing becomes more popular, more people are entering retirement with outstanding mortgages, forcing them to spend some of their retirement income on mortgage payments (Butrica and Mudrazija

2018). Rising out-of-pocket spending on medical care and long-term services and supports represents another drain on retirees' resources (Favreault and Dey 2015; Hatfield et al. 2018). Johnson and colleagues (2018) concluded that Gen Xers and millennials will be less able than previous generations to maintain their preretirement living standards when they stop working. Any Social Security benefit cuts that might be made to close the system's long-term financing gap would further darken the financial outlook for future retirees.

The proposed parental leave program would not necessarily permanently reduce participants' retirement security. If the paid leave program financed parental benefits by withholding initial benefits, participation would not affect retirement benefits after the withholding period, and if the program permanently reduced monthly Social Security retirement benefits, participants could offset the benefit cut by claiming benefits later. Many workers, however, end up retiring earlier than they expected, and 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 and defer Social Security benefits unless their health problems are serious enough for them to receive DI (Johnson, forthcoming).

Is Social Security the right mechanism to finance parental leave? Deferring repayment of the leave loan for decades significantly raises borrowing costs, requiring participants to forgo Social Security retirement benefits for about twice as many weeks as they spent on paid leave. Diverting Social Security revenue to parental leave would worsen the system's cash flow, even if the program was designed to be budget neutral for particular birth cohorts. The financial impact on Social Security would likely be modest in percentage terms, but the system's existing funding challenges make the proposal risky. Further, most leave benefits would be repaid after the system is projected to become insolvent, and if Congress responds by modifying the Social Security benefit formula, any estimates about the leave program's required withholding period would be outdated and potentially difficult to adjust for workers already losing benefits. The program would provide significant subsidies to participants who cannot repay their leave benefits in retirement because of death, disability, or inadequate work histories. Should other parents participating in the program bear those costs alone, or should they be shared more broadly, especially considering that children's future contributions will be shared broadly by society? If costs are not shared, would those new parents with relatively high chances of receiving a subsidy be more likely to participate than those anticipating paying a subsidy, further lengthening the Social Security withholding period?