It has been widely reported that Washington’s Paid Family & Medical Leave (PFML) program is experiencing a cash flow problem that could put the program in a cash deficit as soon as March or April. It will likely require the Legislature to infuse general fund cash into the program and could trigger a premium increase. It is unclear how much of the cash flow issue is due to unique circumstances of the COVID-19 pandemic or if there are long-term structural problems with the program.

The Employment Security Department (ESD) came forward with the surprising news at a Senate Ways & Means Committee hearing on January 18. You can watch the presentation here and see the slides here. ESD made a similar presentation on January 26 to the PFML Advisory Committee, and the agency apologized for not broaching the solvency issue sooner.

Employees and employers began paying a combined 0.4% payroll tax starting in 2019, and PFML benefits payments began in January 2020. Triple the expected number of claims came in during those initial weeks, which delayed some payments, and then the COVID-19 pandemic hit. Since then, ESD has processed more than 365,000 individual applications and has paid out more than 2.2 million weekly claims. In recent weeks, about 37% of applications have been for new child bonding, more than 50% are for the employee’s own medical leave, and 12% have been for an employee to care for a sick family member.

According to ESD, several factors have contributed to the cash flow problem. At the start of the pandemic, the large increase in unemployment reduced the number of employees paying PFML premiums. At the same time, there was an increase in claims from employees recovering from COVID-19. Additionally, while 2022 PFML premiums were increased to 0.6%, those premiums will not hit the program’s coffers until the end of the first quarter, by which point the program may already be in deficit. Possible structural issues with the program include:

• The long time between rate-setting (September) and the actual receipt of those new premiums (April);
• The fact that a minimum reserve for the fund is not required nor factored into rates; and
• A statutory cap on premium rates.

If the program goes into deficit, a 0.1% surcharge could be added to premiums to help make up the difference.

ESD has indicated that projecting program solvency is made difficult by the fact that there are only two (arguably atypical) years of program data as well as continued uncertainty caused by the pandemic. ESD requested an additional $82 million in the Governor’s proposed supplemental budget to stabilize the program, but may require a larger infusion of general fund dollars in the final supplemental budget to make up for the deficit.

In addition, SB 5649, which originally focused on extending benefits for certain grieving families and creating a leave predetermination process, has since been amended to help address the PFML solvency issue. In addition to other changes, the amendments:

• Create a new actuarial office within ESD with required annual reports to the PFML Advisory Committee;
• Require the Office of Financial Management to coordinate an actuarial analysis of the program and report to the Legislature by October 1;
• Require a JLARC performance audit of the PFML program by October 1, 2024; and
• Create a legislative task force on PFML program premiums.

ESD will also be required to collect data on PFML program use related to the COVID-19 pandemic in an effort to work out the pandemic’s impact on the program vs. structural issues that should be addressed.

Dates to remember

SB 5649 was voted off the Senate Floor on a 42-7 vote on February 12. It is scheduled for a public hearing in the House Labor & Workplace Standards Committee on Friday, February 18 at 8 am.