Solvency Needs Bring WA PFML Premium Calculation Changes

Washington employers and employees will see a different calculation for state paid family and medical leave (PFML) premiums starting January 2024 with the signing into law of Senate Bill No. 5286. Here’s what you need to know: 

PFML Fund Solvency Concerns

From its creation, there was no requirement for the PFML trust fund to carry any reserves; the total PFML premium rate was set using the entire trust fund account balance. The Employment Security Department (ESD) received three months’ projected applications in the first three weeks the program was open, and soon found that the premium rates that they had set were insufficient to fund administrative expenses and benefit payments. 

In a January 2022 presentation to the PFML Advisory Committee, the ESD disclosed that a cash deficit was projected in early spring; subsequently, the trust fund experienced short-term cash deficits toward the end of the quarterly reporting periods.  

Legislators established a task force by law in March 2022 to review the program and recommend changes to the premium provisions to ensure the lowest premium rates necessary to maintain solvency of the account while limiting fluctuations in rates. The task force submitted its final report in December, which contained recommendations that were incorporated in this new law. 

New PFML Premium Rate Calculation for 2024

The ESD commissioner must set the total premium rate, not exceeding 1.2%, at the minimum rate necessary to close the rate collection year with a three-month reserve, the ESD’s average monthly expenses, including the total amount of benefits paid and administrative costs. 

The total premium rate must be calculated on or around Oct. 20 according to the following formula: 

  1. Calculate an amount that equals 140% of the prior fiscal year’s expenses, including the total amount of benefits paid and ESD’s administrative costs;
  2. Subtract the account balance as of Sept. 30 from the amount determined above; and
  3. Divide the difference above by the prior fiscal year’s taxable wages.  

The premium rates for family and medical leave benefits must be calculated by applying the proportional share of paid claims for each type of leave to the total premium rate.  

The provisions on the employer and employee share of the family and medical leave premium rate remain unchanged; that is, employees will continue to be responsible for up to 45% of the medical leave premium and 100% of the family leave premium, and employers with 50 or more employees are responsible for 55% of the medical leave premium, unless they decide to cover all or some of the employees’ share. Employers with fewer than 50 employees are not required to pay the employer share of the premium rate. 

Solvency Surcharge Removed

Because the new premium rate addresses reserve issues, under the new law, the ESD will not be allowed to assess a solvency surcharge from 2024 onwards. Previously, the PFML law required the ESD to assess a solvency surcharge to cover the administrative and benefit costs of family and medical leave.  

Applicability to Voluntary Plans

This new law impacts voluntary plan employers insofar as they must continue ensuring that the voluntary plan deductions from their employees’ wages do not exceed the maximum employee deduction allowed by PFML law. 

PFML Fund Solvency in the Interim

If there is a deficit in the PFML trust fund on June 30, the ESD can draw an amount from the state’s supplemental operating budget, capped at $350 million, to cover it. This will enable the state to continue paying out employees’ PFML benefits without interruption. 

Employers and employees may see the contribution rate set at 0.82% for 2024, following the projections of an actuarial report commissioned by the task force. However, projections and assumptions are different from actual costs and figures, and as such, employers and employees alike should keep a close eye on the state of the Washington PFML program. 

FINEOS can help with your state PFML and other leaves

It’s critical to stay informed, especially when paid family and medical leave developments are fluid. FINEOS receives legislative and agency updates multiple times a day and is synthesizing the information as it arrives to help maintain our clients’ compliance. Find out how to simplify the complex with our Integrated Disability and Absence Management solution 

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