Washington’s Paid Family and Medical Leave (PFML) program, enacted in 2017, provides paid time off for family and medical leave. Family leave may be used to care for a family member with a serious health condition or to bond with a new child; medical leave may be taken for the employee’s own serious health condition. Premium collections to fund the program from both employees and employers took effect in 2019. Benefits payments began in 2020.
During the 2022 legislative session, the Employment Security Department (ESD) alerted the Legislature that Washington’s PFML program was projected to go insolvent before the end of the biennium. In response, the Legislature appropriated $350 million to prevent program insolvency, with a caveat that the funds could only be used to pay benefits in the event of a deficit. Additionally, the Legislature authorized actuarial studies and task force reviews of the program intended to inform the Legislature on reforms necessary to maintain PFML solvency.
On October 7th, the legislative task force received an independent actuarial analysis completed by Milliman Company. Key conclusions reached by Milliman include:
- Between April 2020 and June 2022, the PFML fund balance declined by $462 million.
- The fund balance will be in a deficit position of $9 million by December 2022.
- The current premium rate of 0.6% will not cover benefit payments and expenses in 2023.
- Premium rates need to increase to 0.79% to cover benefits and expenses and regain a 3-month fund balance by 2025.
ESD, however, believes rates need to increase to 0.9%. Their reasoning includes:
- PFML ending fund balance is $40 million worse than the data available to Milliman.
- PFML benefit payments have been higher in recent quarters. Milliman’s data did not reflect the most recent experience in benefit payments.
- Washington’s average annual wage has increased at higher rates than anticipated.
PFML premiums, which were at 0.4% of taxable wages in 2021, were increased to 0.6% in 2022. Accordingly, if one of the options outlined to the task force is implemented, the premium rate will increase by 100-150% in less than two years.
PFML premiums are shared between employers and employees. Employers pay 55% of medical leave premiums. Employees pay 100% of family leave premiums and 45% of medical leave premiums.
When the PFML program was initiated in 2019, the Legislature set the initial premium at one-third for family leave benefits and two-thirds for medical leave benefits. Beginning in 2022, the premium was divided based on actual usage data—now 51% family leave benefits and 49% medical leave benefits.
Based on the actual usage data, employees will bear most of the projected increase in premium rates.
The Legislature will receive the actuarial studies and potential recommendations from the task force in advance of the 2023 session. Undoubtedly both benefit cost and premium rate reforms will be debated in the 2023 session.