Washington’s paid family and medical leave (PFML) program is one of the first in the nation. PFML benefits are funded by a premium that is assessed on employee wages, up to the Social Security cap ($147,000 in 2022). From 2019 through 2021, the premium rate was 0.4%; it was increased to 0.6% this year. The Employment Security Department (ESD) currently projects that the 2023 rate could be 1.0% (including a solvency surcharge).

Premiums have been collected since Jan. 1, 2019, and benefits have been available since Jan. 1, 2020. Through June 2022, $2.294 billion has been collected from premiums and $2.086 billion in benefits have been paid. Operating expenses of the program have totaled $152.5 million. (The premiums were also used to re-pay a $82 million start-up loan from the state general fund.)

The balance in the program’s account has been declining since May 2020. The monthly ending balance was negative in April 2022, and the balance dipped negative again in July. ESD projects that the account will go negative again in the fall. The cash flow problem appears to be the result of an underlying structural issue.

From the start, the amount of benefits paid has been substantially higher than had been projected prior to implementation, and the program is still in a growth period. The total amount of benefits paid has been increasing over time both because the number of claims is increasing and because the average benefit per claim is increasing.

Premiums have not kept up. With the 2022 rate increase, premiums in the second quarter exceeded benefits for the first time since the second quarter of 2020. However, ESD does not expect premiums to continue to exceed benefits this year.

Due to solvency concerns, the Legislature enacted new actuarial and reporting requirements for the program this year. An actuarial report from the Office of Financial Management will more precisely forecast PFML benefits and premiums so that any needed changes to the rate calculation can be addressed by the Legislature next year.

Because this is a new program, there were bound to be wrinkles. But the fact that the account went into deficit so soon is concerning. It is a cautionary tale for the state’s delayed long-term care program—another brand new, untested program that is also funded by a payroll tax.

Read the report here.