Why Retirement Accounts Would Not Work for Paid Leave In One Graph

The Independent Women's Forum put out a proposal for how to fund paid leave that is so poorly conceptualized that it's hard to believe it was done in good faith.

Create “Personal Care Accounts” to Encourage Saving for Leave Time | Americans are encouraged to save pre-tax dollars for critical needs, such as health care costs and education. Recognizing that personal leave is also crucial for American workers, policymakers should allow people to place pre-tax dollars into a Personal Care Account (PCA), which could then be drawn upon to replace or supplement income during periods of leave that are eligible under the Family and Medical Leave Act. Workers could be allowed to save tax-free up to the equivalent of 12 weeks of pay, capped at a maximum of $5,000, each year. These savings would then be available for periods of leave. If unused before reaching retirement age (as defined under the Social Security Act) the PCA would then be treated as an IRA.

So it's like a retirement savings account except for paid leave. There was coverage of the proposal at Wonkblog and Talk Poverty.

The obvious problem with this proposal is that paid leave differs from retirement in that people have children near the beginning of their working life and people retire at the end of their working life.

As it is, the 401k/IRA system for retirement does not work and mostly just funnels money to the rich. But in its ideal form, the way it is supposed to work is that people stash money into their 401k/IRA accounts during their entire career and then have it available for retirement, which conveniently comes at the end of a career.

But paid leave cannot possibly work the same way as you cannot save up much money for a life event that happens right at the beginning of your prime working years. Not only do you not have enough time to save up money for that event but you also do not have enough income to save up for it, as entry level jobs do not pay very much.

When it comes to helping people deal with huge concentrated cost spikes that happen at the beginning of their careers, the only answer is welfare benefits. This is true of paid leave, child care, and K-12 education. Asset-based approaches will always fail, even worse than they fail for retirement, because young workers typically have no assets for structural reasons that tax-advantaged accounts cannot fix.