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What happens to annual leave at retirement?
What happens to sick leave at retirement?
Most FERS federal employees have at least some unused leave at retirement and the good news is that you will probably get compensated for it.
However, the type of compensation will depend on what type of leave you have left on the books. Sick leave or Annual Leave
Let’s start with annual leave
Annual Leave
Retirees receive a lump sum payment for their unused annual leave at retirement.
The government basically pays you the amount you would have earned if you kept working up to the amount of your unused annual leave.
For example, if you had a month’s worth of annual leave then you will get a check for what you would’ve been paid if you had worked the next month.
This is calculated by multiplying your hourly rate by your unused hours. This payment is projected into the future which means that your payment will be higher if you were due to get a pay raise during that time.
This hourly rate doesn’t include all types of pay but does include the following:
-Rate of basic pay
-Locality pay or other similar geographic adjustment
-Within-grade increase (if waiting period met on date of separation)
-Across-the-board annual adjustments
-Administratively uncontrollable overtime pay, availability pay, and standby duty pay
-Night differential for FWS employees only (including portion of lump-sum period that would have occurred when employee was scheduled to work night shifts)
-Regularly scheduled overtime pay under the Fair Labor Standards Act for employees on uncommon tours of duty
-Supervisory differentials
-Non-foreign area cost-of-living allowances and post differentials
-Foreign area post allowances
This lump sum can be helpful in providing needed cash in the first months of retirement.
But because only so much annual leave passes on to each near year, some people plan their retirement date right before the end of their leave-calendar year to maximise the payout.
Common Question
Is an employee required to pay back this lump-sum payment for annual leave if they come back to work for the government?
The short answer is yes. So be careful to not spend the money if that is something you are considering.
Sick Leave
If you retire with any unused sick leave it is converted into creditable service for your pension calculation as long as you retire with an immediate retirement (aka not a deferred retirement).
So long story short, unused sick leave can increase your pension.
It does so by increasing the creditable service part of your pension calculation.
And for those that aren’t familiar this is equation to calculate your gross annual pension
Years of Creditable Service X High-3 Salary X Multiplier
If you want more information about how to calculate your pension, check out this article.
How Much Will My Unused Sick Leave Increase My Pension By?
Here is the chart to show you how much creditable service your unused sick leave will add to your pension calculation.
First, you find the number closest to your amount of unused sick leave (rounding down) in the middle of the chart and then see how many months and days it corresponds to on the top and left sides of the chart.
For example, if you have 354 hours of unused sick leave then that would correspond to 2 months and 1 day of service for your pension calculation.
Credit: https://www.usgs.gov/media/images/sick-leave-conversion-chart
Unused Sick Leave Increased Pension Calculation Example
For this example, let’s assume your high-3 salary is $100,000 and your multiplier is 1% and you have 15 years of service.
Given these numbers, your gross annual pension (without sick leave) would be
15 X $100,000 X 1% = $15,000
However, if you have 1 year of sick leave (2087 hours) then you’d have 16 years of service so your calculation would be:
16 X $100,000 X 1% = $16,000
So in this example having a year’s worth of sick leave increases your annual pension by $1,000 for the rest of your life.
2 Important Things
First, we have to remember that sick leave can only increase your pension if you are already eligible to retire with your current age and years of service. Sick leave can not tip you over into being eligible for retirement.
Second, when OPM is calculating your pension they only use full 30-day months and any extra days fall off.
For example, if you have 15 years, 5 months, and 10 days of service then the extra 10 days won’t count in your pension calculation. However, if you have 20 days of sick leave then it would allow your pension to be based on 15 years and 6 months of service.
Can I Use Sick Leave to qualify for the 1.1% multiplier at age 62 and 20 years?
Many of you know that if you retire at age 62 or later and have at least 20 years of service then your multiplier in your pension calculation changes from 1% to 1.1%. A 10% increase!
However, a question I get all the time is if sick leave can help you qualify for that. And the answer is sometimes.
If you are already 62 or older and have 19 years and 6 months of service then 6 months of sick leave will make you eligible for the 1.1% multiplier.
However, you won’t be eligible for the 1.1% if you are not yet 62 no matter how much sick leave you have.
If you are curious if it is better to save up sick or annual leave, then check out this article.
