You’re probably aware that Washington State is the first in the nation to implement a state-run long-term care trust to provide funds to residents to cover long-term care costs under the Long-Term Services and Supports Trust Act (“Washington Cares Fund”). We previously shared the details of the Act in one of our latest blogs. The trust is funded through a payroll tax paid entirely by employees beginning January 1, 2022. Employers have no duties or obligations other than to deduct the payroll taxes from those who don’t have an exemption. For this reason, the Washington Cares Fund has fallen under the radar for many employers. It’s not something to ignore, though. The date to opt out is quickly approaching, and employees need to consider if opting out will be right for them.
Why consider opting out of Washington Cares Fund?
The Washington Cares Fund allows for a one-time opt-out that lets employees be exempt from participation. To do so, they must show they already have a qualified long-term care policy no later than November 1, 2021. Long-term care policy providers are inundated with applications for these policies, so it’s important that you act now if you want to opt out. So, why would you or one of your employees want to opt out?
Uncapped Payroll Tax
First, the payroll tax collected to fund the trust is .58% of wages. The amount contributed by an employee is not capped; therefore, as your wages increase, the amount you pay into the trust also increases without any maximum. It’s easy to do the math on where the breakeven occurs. High-wage earners should consider obtaining a separate policy.
The benefits available are nominal as well. The maximum lifetime benefit is $36,500 with a daily maximum of $100 which becomes available to a resident on January 1, 2025. It’s worth investigating what long-term care policies on the open market provide for the rates you are paying to the state. Often you can obtain better coverage for the same rate. It’s important to understand what the minimum requirements are for a plan to qualify for the exemption. Also, be sure to understand if the cost of your policy is fixed or will be variable over time.
Consecutive Years Worked Requirement
For a resident to qualify for the benefits, they must have worked in Washington for:
- A total of 10 years without an interruption of 5 or more consecutive years AND worked at least 500 hours during each of the 10 years; OR
- 3 years within the last 6 years from the date they apply for benefits AND worked at least 500 hours during each of the 3 years.
If an employee leaves employment in the state for 5 years, they lose the right to the benefits. Therefore, younger employees with years of work and available opportunities may wish to obtain a policy they can take with them if they leave the state. Some employees leaving the workforce may also consider opting out for this reason – they will be paying in but not qualify for benefits.
Currently, employers are not required to notify employees of the Washington Cares Fund and tax impact. Still, many employees will not have visibility to this tax until it’s too late to consider the opt-out opportunity. Because this is a one-time window, we encourage employers to proactively notify employees and give them the opportunity to take action.
Legal Disclaimer: This article contains general information. Do not view this article as legal advice. Talk with counsel familiar with your unique business needs before taking or refraining from any action.