The voices of Urban Institute's researchers and staff
April 19, 2018

Should parents borrow from Social Security to finance paid leave?

Unlike every other high-income nation, the United States doesn’t guarantee paid leave to new mothers. Although some employers offer paid maternity leave, only about half of working women receive any paid leave before or after childbirth. Those without access to paid leave must return to work shortly after childbirth, quit their job, or take unpaid leave.

A recent proposal that has caught the eye of three Republican senators would provide some relief to new parents by allowing them to trade future Social Security benefits for a few months of paid leave. The plan wouldn’t raise taxes or impose additional costs on employers.

But our new analysis shows that using Social Security to fund parental leave would erode retirement security, especially for participants who took multiple leaves, and would worsen Social Security’s finances.

The proposed leave plan

Kristen Shapiro, a visiting fellow at the Independent Women’s Forum, has proposed a parental paid leave program that would give parents 12 weeks of paid leave around the birth or adoption of a child. The program would use Social Security’s progressive disability benefit formula to compute the leave payment, but the eligibility rules for the leave program would be less strict than those for Social Security Disability Insurance.

For typical participants, the program would replace about half of earnings. Replacement rates would be higher for lower-wage parents and lower for higher-wage parents.

In exchange, participants would forfeit some of their future Social Security retirement benefits. Although Shapiro doesn’t specify exactly how her proposal would cut benefits, a reasonable approach would be to raise the age at which leave takers could collect full retirement benefits. The full retirement age is now 67 for people born after 1959, but retirees can collect reduced Social Security as early as age 62.

Because Social Security permanently reduces monthly payments for each month that retirees collect early, the leave program would permanently reduce participants’ Social Security retirement benefits by about 0.5 percent for each month that it raised the full retirement age.

Shapiro’s proposal would set the retirement age increase to fully cover program costs for each generation of leave takers. But some participants would not be able to repay Social Security for their paid parental leave or would have great difficulty repaying, including those who later receive Social Security Disability Insurance benefits, those who die before collecting Social Security retirement benefits, and those who never work long enough to qualify for Social Security (and do not marry someone who qualifies). We assume that their costs are passed on to other participants.

How paid leave would affect retirement under this proposal

To fully cover 12 weeks of paid leave for each generation of participants, the proposed program would have to raise the age at which participants could receive full Social Security retirement benefits by 25 weeks. This increase would permanently reduce participants’ monthly Social Security retirement benefits about 3 percent. The program would reduce monthly Social Security retirement benefits about 10 percent for parents who take four paid leaves.

Leave takers could avoid monthly benefit cuts by postponing benefit claiming by about six months for every 12 weeks of leave, but many people who develop health problems or lose their jobs in the run-up to retirement can’t delay their benefit receipt.

The proposed program would worsen Social Security’s finances throughout the 75-year projection period, likely raising Social Security’s annual costs, net of benefit offsets, about 1 percent over the long run. The program would run a deficit every year until it stops paying benefits. It would not be budget neutral, even though it would require each generation to cover the cost of leave payments through future retirement benefit cuts.

Implications of the proposal

A strong case can be made for guaranteeing parents paid leave, but the Social Security system may not be the best way to finance those benefits. Having a child is expensive, and the United States stands alone among wealthy countries in its meager support for new parents.

Society depends on children’s future productivity, yet many of the costs of raising children remain private. Should we ask parents to self-finance investments in the next generation by borrowing from their retirement, or should we assume greater collective responsibility, as other high-income nations do?

As concern grows about the financial security of future retirees, it is hard to justify programs that divert resources from retirement. Funding parental leave with Social Security could increase pressure to use Social Security for other needs, such as student loan forgiveness and mid-career education, further eroding future retirement security.

Using Social Security to finance parental leave benefits also raises fundamental questions about the Social Security system itself. It was designed as a social insurance program to provide basic retirement income and insure people against the financial risks associated with becoming widowed, orphaned, or disabled. Allowing people to borrow against their future retirement benefits to meet their needs at younger ages would begin to transform the program from a social insurance program to a forced saving program.

Photo by Mayte Torres/Getty Images.

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