Study: Rubio's paid-leave bill would help new parents but cut their retirement benefits

Study: Rubio's paid-leave bill would help new parents but cut their retirement benefits
© Greg Nash

Legislation introduced by Sen. Marco RubioMarco Antonio RubioNikki Haley: New York Times ‘knew the facts’ about curtains and still released story March For Our Lives founder leaves group, says he regrets trying to 'embarrass' Rubio Rubio unloads on Turkish chef for 'feasting' Venezuela's Maduro: 'I got pissed' MORE (R-Fla.) to create a paid parental leave benefit would "provide meaningful financial help to new parents" but also cut participants' average lifetime Social Security retirement benefits, according to a report released Thursday by the Urban Institute.

"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," the paper's authors wrote.

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Under Rubio's bill, which he rolled out earlier this month and is based on a proposal from the conservative Independent Women's Forum, new parents would have the option of receiving a paid leave benefit that amounts to three months of what they'd get in Social Security benefits. In exchange for receiving the paid leave benefit, participants would face a higher retirement age for Social Security benefits.

The increase in the retirement age would be by an amount of time that would cover the expected cost of the leave benefit.

The Urban Institute's researchers estimated that the benefits in the bill would typically cover about half of pre-tax earnings for new parents who take a three-month leave from work and about 80 percent of pre-tax earnings for new parents who take a two-month leave.

The dollar amount of the paid-leave benefit would be bigger for higher-income taxpayers than it would for lower-income taxpayers. However, lower-income taxpayers would be able to replace a greater percentage of their pre-tax earnings with the paid-leave benefit than higher-income taxpayers would, according to the paper.

The researchers estimated that to offset the paid leave benefits, participants in the program would see their retirement age raised by six months per leave. Participants would see a reduction in their average lifetime retirement benefits by 3.2 percent per leave, and someone who takes three leaves of absence would give up about 10 percent of their lifetime Social Security retirement benefits, the researchers found.

"Most program participants would forfeit significant retirement income because interest would accumulate on their implicit loan from Social Security for decades," the researchers wrote.

The authors said they think that Social Security may not be the best financing program for paid-leave benefits, adding that it could be hard to justify diverting resources from retirement at a time when there's increasing concern about the financial security of future retirees. They also said that creating a paid leave benefit through Social Security "raises fundamental questions" about the Social Security system.

"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," the researchers wrote.

Rubio released an analysis Thursday arguing that the Urban study understates the benefits new parents would receive from the plan, since the study did not take into account the fact that the paid-leave benefits would be transferrable between spouses in two-parent households.

"Transferability is a critical, pro-family provision that significantly enhances the wage replacement rate," Rubio's analysis stated. "Analysis that does not incorporate the possible impact of it is incomplete."

Rubio's office also noted that the Urban paper didn't account for the potential for new mothers who receive the paid leave benefit to remain in the workforce and increase their earnings upon returning from leave.

"This is a significant shortcoming of macroeconomic analysis because academic studies suggest paid parental leave programs increase women’s attachment to the workforce and therefore future earnings," the analysis said. "Greater earnings would mean more room for retirement savings and increased tax revenue."

-- Updated 12:36 p.m.