Governor Inslee Postpones Collection of the WA Cares Fund Premium: Lawsuit and Postponement May Signal Repeal

Update: On December 23, 2021, Governor Inslee issued a statement indicating that the state of Washington will withhold WA Cares Fund premiums from state employee wages. See our blog on that statement and the implications for private employers here.

On Friday, December 17, 2021, following pressure from the state Democratic leadership, Washington State employees, and the recent lawsuit filed by Davis Wright Tremaine LLP, Pacific Bells, et. al. v. Inslee, Governor Inslee took unprecedented action to delay the collection of the 0.58 percent premium set to begin January 1, 2022, under the WA Cares Fund until the legislature can make adjustments and consider recommendations from the Long Term Care Commission. As explained in a press release, Governor Inslee determined that the first quarter's premiums are not due to Washington State until April 1 and, therefore, ordered the Employment Security Department not to collect the tax, or subject employers to taxes or penalties prior to April 1:

"Therefore, I am taking measures within my authority and ordering the state Employment Security Department not to collect the premiums from this program from employers before they come due in April. My actions mean that the state will not collect those funds until the Legislature sorts through these issues. While legislation is under consideration to pause the withholding of LTC fees, employers will not be subject to penalties and interest for not withholding fees from employees' wages during this transition."

It is anticipated the legislature will affirm this unprecedented delay by passing consistent legislation that would change the effective date of the premium to the second quarter of 2022, if not later.

Notably, as recognized in the press release, the governor lacks the unilateral authority to direct employers not to collect the premiums. Therefore, until the legislature acts in 2022, employers are urged not to withhold the premium tax:

"In addition to delaying the premium assessment, we also support employers pausing premium collections from employees in Washington so lawmakers can take necessary action. While we cannot direct employers not to collect, we strongly encourage them to pause on collecting premiums from employees, giving us time to pass legislation extending implementation dates until next year. We know that this extra time will allow us to find solutions and craft updates to the Fund that allows Washingtonians to age with dignity in their own homes." – Sen. Andy Billig and Speaker Laurie Jinkins.

Takeaways and Recommendation

This late-December change has led to a number of employer questions, including whether employers should follow this recommendation and delay the collection of the premium. Given the high likelihood that legislation will materially revise the collection and time of the premiums, we think many employers will decide not to collect premiums starting January 1 until the legislature reconvenes and takes further action. Employers that do withhold premiums will likely be required to refund those premiums to the affected employees (and could face prohibitive transaction penalties if premiums are not promptly returned following legislative action). Premature withholding contrary to Governor Inslee's request may also raise employee relations issues.

As highlighted in the recent Pacific Bells lawsuit, the WA Cares Fund requires significant refinements, including the need to address:

• The payment of premiums by non-Washington residents who will receive no benefit from the fund;
• The payment of premiums by workers close to retirement who will receive no benefit;
• The requirement that an individual be a resident of Washington to receive a benefit;
• The illegal underwriting criteria used to set premium rates;
• The inability of employees to meaningfully opt out of the fund; and
• ERISA preemption.

It is unlikely these defects can be cured without a significant cost increase to Washington State workers, and repeal may be on the horizon.