New Report: Minnesota PFML Will Cost Billions More Than Expected

Date: October 30, 2023

NFIB MN Predicted Out of Control Price Tag, Urges Lawmakers to Take Five Common Sense Steps to Control PFML Costs

The National Federation of Independent Business is urging Minnesota lawmakers to rein in the costs of the state’s new Paid Family and Medical Leave (PFML) program after a new report by an independent actuarial firm found Minnesota’s recently passed PFML law will cost taxpayers much more than expected.

The Milliman report finds that PFML will cost Minnesota taxpayers over $600 million more in the first three years of the program and the PFML Tax will be 31% higher than expected in year two. You can find the full Milliman report here.

“We’re still two years away from the PFML mandate taking effect and costs are already out of control,” said John ReynoldsNFIB Minnesota State Director. “Over and over, NFIB warned the math did not add up here and this report shows our fears were well founded. In its first ten years, the program will likely cost billions more than the Walz Administration claimed.” 

For years, NFIB has voiced concerns about the cost of the program and the tax on small business owners and their employees. You can read some of NFIB MN’s warnings about the state’s PFML cost estimates hereherehere, and here

The Milliman report projects significantly higher benefit and administrative costs compared to the state’s estimates. In the first three years of the program, Milliman projects total PFML expenses of $4.42 billion – roughly $628 million more than state officials claimed during the legislative process.

Higher program costs mean higher payroll taxes for small businesses and workers. The Walz Administration projected the PFML Tax rate to be 0.70% and remain the same in subsequent years, characterizing their estimates as “doubly conservative.” 

However, Milliman’s report says a much higher PFML Tax is necessary after the first year: 

Year 1: 0.70% 

Year 2: 0.92% (+31%) 

Year 3: 0.78% (+11%) 

Year 4: 0.86% (+23%) 

“Lawmakers need to rein this in next year before the PFML Tax eats into worker paychecks and small business bottom lines,” added Reynolds. “Instead of raising the payroll tax, Governor Walz and lawmakers should scale back the mandate to limit the cost and burden on small employers and their employees.” 

In response to the Milliman report, NFIB is urging Minnesota lawmakers to take five common sense steps to control PFML costs: 

  1. PFML Tax Rate: Cap the rate at 0.70% of FICA wages and eliminate administrative authority to increase the rate above that level
  2. Leave Weeks: Reduce total amount of annual leave from 20 weeks to 12 weeks + 2 weeks for pregnancy and childbirth complications (same as CT & OR PFML models)
  3. Wage Replacement: Require the state to annually adjust the wage replacement payment formula and cap to maintain a maximum payroll tax of 0.70% (e.g. DE model)
  4. Small Employer Opt-In: Make the program voluntary for employers with fewer than 50 employees. Key parts of Minnesota’s PFML law are taken from federal Family and Medical Leave Act (FMLA) regulations, which do not apply to employers with fewer than 50 employees and were not written with the smallest businesses in mind.
  5. Small Business Employees: If a qualifying small employer opts not to participate in the program, allow their employees to opt-in on the same terms as independent contractors

 NFIB Minnesota continues to be concerned about the financial viability of the PFML law based on data from other states with similar programs. You can read NFIB MN’s PFML analysis here. 

PFML was one of many new employer mandates passed during the 2023 Minnesota Legislative Session. Check out NFIB Minnesota’s breakdown of the new PFML law and other employer mandates here.


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