Does Offering a Private PFML Plan Make Sense?
By Breanna Scott, CLMS, Paid Statutory Senior Product Manager, New York Life Group Benefit Solutions
As more states pass paid family and medical leave (PFML) laws and the number of remote workers increases, employers are weighing the pros and cons of state program administration and private PFML plans. Because state programs vary significantly in structure, administrative practice, compliance requirements, and the types of private plans that are permitted, there is no easy answer for determining how to evaluate paid statutory plans. However, there are several factors that employers can consider to help inform their decision.
Where Do Your Employees Work and What Is Required in Those States?
Statutory disability, paid family leave (PFL), and PFML programs are commonly mandated for employees working in states where PFML laws have been passed. New Hampshire and Vermont are the first two notable exceptions as their programs are voluntary for most employers. Availability is typically driven by where the employee works, and where unemployment insurance taxes are paid, but not necessarily where an employee lives.
Statutory disability, PFL, and PFML programs will be available in at least 16 states as of Jan. 1, 2026, based on recently passed legislation.
What’s Permitted?
While both Rhode Island and Washington, D.C., have mandated PFML coverage for employees, neither allows any private plan administration, so employers must participate in those state programs.
Which Private Plan Funding Arrangement Is Your Organization Comfortable Offering?
Some states (New York, New Jersey, Massachusetts, Connecticut, New Hampshire and soon Oregon and Colorado) permit employers to either obtain a fully insured PFML policy or have a self-insured PFML plan. However, both California and Washington state only allow self-insured private plans. With self-insurance, the employer owns the plan and must be willing to assume responsibility for guaranteeing benefits are paid to employees. Not every organization is comfortable assuming this responsibility, which should factor into employers’ decisions.
Are Employee Votes Required to Offer a Private Plan?
Most states don’t require an employee vote to approve moving to a private plan instead of a state plan. However, California and Connecticut do require a vote, and a majority of employees working in those states must approve the move to a private plan.
What is Required to Obtain a Private Plan?
Requirements for private plans vary by state. Some states like New York, Hawaii, and New Jersey simply require employers to work with a carrier to obtain fully insured private plan coverage. Employers typically don’t need to gain any additional approval from the state. But other states with PFML, like Washington, Massachusetts, and Connecticut, require employers to obtain approval from the state directly before coverage can be written. The steps to gain state approval can also vary for fully insured coverage versus self-insured coverage.1 Approvals for private plans may take approximately 90 days for self-insured coverage and 30 to 60 days for fully insured coverage, depending on the state’s application process.
How Should Employee Numbers and Demographics Influence Decisions About a Private Plan?
Most states set a rate for mandated programs based upon the overall demographics of workers within the state. But carriers and third-party administrators are often not bound by that same rate. There is a cost for companies to issue coverage and provide administration. Plan costs are influenced by the state, carrier, and demographics of the group. For example, companies with only a few individuals may receive a higher quote for PFML coverage than the state rate, which might prompt employers to continue with the state program instead of a private plan.
Additionally, employee salary levels, leave incidence rates, and other demographics might influence the cost of a private plan.
Another consideration: Lower wage earners may receive higher levels of income replacement under certain PFML laws, which can reduce the incentive to return to work and keep individuals out on leave longer.2 Higher leave incidence in state populations also drives higher rates because a company needs to pay for more leaves. Both of these factors can lead to higher rates from a private plan carrier than the state rate.
Is Experience the Most Important Consideration for Your Organization?
The benefits of private plans might outweigh the costs. For example, consider the value of a consistent experience for your employees and human resources staff. Employers that opt for private PFML plan administration report a more consistent experience for employees, who may have fewer forms to complete for benefits and faster decision turnaround time than state-run programs. Once claims are completed, most states try to issue payments within one or two weeks, though some experience longer delays with administration. Private plans can issue payment within five days.2
As employers weigh their options for PFML, it’s important to consider ways to simplify the administration process whenever possible and to find a solution that delivers as many insights as possible from claim activity.
References
- New York Life. Statutory Benefits Reference. Retrieved from https://bit.ly/3FZQt79
- Maine Paid Family and Medical Leave Actuarial Study. August 2022. Retrieved from https://bit.ly/3KaE7vR