What Happens to Unused Sick Leave When a Federal Employee Leaves Service? (CSRS and FERS)
Unlike unused annual leave which is paid in full to all departing employees, what happens to an employee's unused sick leave upon departing federal service will be determined by two factors, namely:
- the type of retirement system -CSRS, CSRS-Offset, FERS, or "Trans"FERS - the employee is covered by; and
- the nature of the departure from federal service - pre-retirement departure, deferred retirement, or regular retirement.
For employees covered by either CSRS or CSRS-Offset, service time for the purpose of annuity computation is increased by the days of unused sick leave if the employee:
- Retires on an immediate annuity (that is, the annuity begins to accrue no later than one than one month after the employee retires); or
- Dies in service leaving a widow or widower entitled to a CSRS survivor annuity
In the case of an annuitant whose annuity stops when he or she is reinstated to a covered position - for example, a disability annuitant who has been restored to earning capacity and returns to federal service - unused sick leave credited in the computation of the retiree's annuity is not re-credited to the individual's leave account during the period of re-employment. Any unused sick leave will be credited to the individual's CSRS annuity re-computation when the employee subsequently retires or dies in service leaving an eligible survivor annuitant.
Note that unused sick leave is used only to determine the number of years and months of service for annuity computation purposes. Unused sick leave cannot be used to compute the employee's high-three average pay or to meet the minimum length of service required for retirement eligibility. The following examples illustrate.
Example 1. Russell, age 56, has 29 years, 3 months and 3 days of CSRS service. He currently has 11 months and 17 days of unused sick leave. Although Russell is older than the minimum age to retire (55), he does not have the minimum number of years of service (30) for an immediate retirement under CSRS rules. Russell's unused sick leave of 11 months and 17 days cannot be added to his years of service of 29 years and 3 months, to bring Russell's total years of service to 30 years, 2 months and 20 days thereby making Russell eligible to retire.
Example 2. Pam, age 56, has 31 years, 3 months and 14 days of CSRS-covered federal service. At the time of her retirement on Jan. 31, 2009, Pam's unused sick leave is equal to 1 year, 2 months and 15 days. Added to her CSRS-covered service time, Pam's total federal service for the purpose of computing the CSRS annuity is 32 years, 5 month and 29 days. The 29 days, however, are eliminated because any service time less than a full month (30 days) is not used in the CSRS annuity computation.
CSRS and CSRS-Offset employees accrue sick leave in hours - full-time employees accrue 4 hours every pay period and part-time employees have their sick leave prorated according to the number of hours worked each pay period. Sick leave hours are converted to years, months and days on the basis of a 2087-hour work year and that there are 360 days in year (30 days per month times 12 months).
By dividing 2087 hours per work year by 360 days per year, one obtains the "conversion factor" of 5.797 hours of unused sick leave equals 1day of service time. To assist employees in the conversion of unused sick leave hours to months and days, click here to get the unused sick leave conversion chart.
Here is an example on how to use the chart:
Ken, a CSRS-covered employee, will retire on Jan. 31, 2009 with 32 years, 6 months and 12 days of federal service. His unused sick leave at the time of retirement will be 1588 hours. Using the table above, Ken notes that 1588 hours is converted to 9 months and 4 days of service. Added to his years of service, Ken's CSRS annuity will be computed based on 33 years and 3 months of service. Anything service time less than a full month - in Ken's case there are 16 days - are eliminated in the CSRS annuity calculation.
Note: If the unused sick leave number falls between two figures shown in the table, then the next higher figure should be used (e.g., unused sick leave balance of 1590 hours would result in using 1594 hours, or 9 months and 5 days).
The CSRS annuity may not in general exceed 80 percent of an employee's high-three average salary. However, a retiring CSRS or CSRS-Offset employee who has 41 years and 11 months or more of service (resulting in a CSRS annuity equal to 80 percent of his or her high-three average salary) and with unused sick leave would still have his or her annuity increased by the amount of unused sick leave at the time of retirement. For example, if a retiring CSRS-covered employee with 41 years and 11 months of service and who has 2,087 hours or one year's worth of unused sick leave at the time of retirement, then the employee's CSRS annuity would increase by two percent as a result of adding the year's worth of unused sick leave to the service time. The CSRS annuity is then equal to 82 percent of the employee's high-three average salary.
Employees who transferred to FERS and who are not eligible for a CSRS annuity component when they retire - this includes employees who transferred to FERS with less than five years of CSRS service, or employees who had more than five years of CSRS service and who left government service after Oct. 1, 1990 and withdrew their CSRS contributions before returning to federal service under FERS - will not receive any credit for unused sick leave at the time they retire.
Employees who transferred to FERS from CSRS and who are eligible for a CSRS annuity component when they retire may receive credit for the amount of unused sick leave they had at the date of transfer or the date of retirement, but for the CSRS annuity component only. The amount of credit is equal to the lower of the unused sick leave at the time of the employee's transfer to FERS and the employee's unused sick leave balance at the time of retirement. Consider the following examples.
Example 1. Jeff had 15 years of CSRS service when he elected to transfer to FERS. At the time of transfer, Jeff had an unused sick leave balance of 1,272 hours. During 2005, Jeff had major surgery and his sick leave balance dwindled to 540 hours. He returned to work and after four years retired on Jan. 31, 2009 at age 60 and is entitled to two annuities - one based on CSRS service and one based on FERS service. His unused sick leave balance at the time of retirement - 880 hours, is less than the sick leave balance at the time of his transfer to FERS -, 1,272 hours. 880 hours of sick leave is therefore added to his length of service in the computation of Jeff's CSRS annuity component.
Example 2. Mary had 20 years of CSRS when she decided to transfer to FERS. At the date of transfer she head 1,600 hours of unused sick leave to her credit. After 10 years of FERS service, Mary died in service .On the date of death she had a sick leave balance of 2,152 hours. Under FERS, the surviving spouse receives 50 percent of the deceased employee's earned annuity at the time of death. The earned annuity in this example has both a CSRS and FERS annuity component. The sick leave balance at the time of transfer, 1,600 hours, is less than the unused sick leave balance at the date of death, 2,152 hours. As a result, 1,600 hours of unused sick leave is used in computing the survivor CSRS annuity that Mary's husband will be receiving in addition to a FERS survivor annuity.
CSRS or CSRS Offset employees with at least five years of service and who leave federal service prior to a normal retirement and who are eligible for a deferred retirement starting when they are age 62 receive no credit for any unused sick leave at the time of their departure from federal service for CSRS annuity computation purposes.
Under FERS, unused sick leave is not creditable for either retirement eligibility or in the FERS annuity computation. This means that a retiring FERS employee forfeits all unused sick leave at the time of retirement.
While many FERS-covered employees feel justifiably that the law discriminates against them in terms of the treatment of unused sick leave at the time of their retirement, FERS-covered employees should note the following:
- Sick leave should be considered as a "short-term disability income insurance policy" in the sense that if an employee gets sick or injured in a non-occupational accident and cannot work, unused sick leave "pays" the employee while he or she is convalescing. Most federal employees do not own individual short-term disability income insurance policies nor does the federal government offer short-term disability income insurance as a benefit to most federal employees.
- During the 110th session of Congress, legislation was introduced in the House of Representatives (H.R. 5573) that would provide FERS employees with up to $10,000 lump-sum payout for unused sick leave hours at retirement. The payment is to be based on an employee's ending salary and amount of unused sick leave. The legislation was referred to the Committee on Oversight and Government Reform and was not passed into law. Whether the legislation will be reintroduced into the 111th session of Congress remains to be seen.
For one reason or another, all employees are encouraged to use their sick leave judiciously. At a minimum, unused sick leave should be considered as an insurance policy that replaces an employee's paycheck as a result of an unforeseen accident or sickness that could result in an employee's going on leave without pay for an extended period of time.
About the Author
Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, Maryland. He is also a registered representative with Multi-Financial Securities Corporation (Branch A9X), member FINRA/SIPC, also located in Silver Spring, Maryland