FERS Sick Leave Credit: Understanding How Unused Sick Leave Is Used In the Calculation of a FERS Annuity
On Oct. 28, 2009, President Obama signed the National Defense Authorization Act. The new law contains several retirement changes that will affect federal employees.
Until the passage of this law, only those employees covered by the Civil Service Retirement Systems (CSRS) and CSRS-Offset could receive credit for their unused sick leave hours in the computation of their CSRS annuities. But FERS employees who retired would forfeit all of their unused sick leave.
This column discusses how unused sick leave will be added to the service time of those FERS-covered employees who will be retiring starting October 28, 2009.
Readers should note that the information presented in this column is based on the unused sick leave regulations that currently apply to CSRS and CSRS-Offset employees. Until the Office of Personnel Management (OPM) issues final regulations for FERS employees, the information presented in this column is preliminary and tentative. But there is little reason to believe that OPM will have a different set of regulations regarding the treatment of unused sick leave for retiring FERS employees and for retiring CSRS employees.
From Oct. 28, 2009 and through Dec. 31, 2013, retiring FERS-covered employees will add 50 percent their unused sick leave at the time of retirement to their service time for the purpose of calculating their FERS annuity. FERS employees retiring on or after Jan. 1, 2014 will add all of their unused sick leave at the time of retirement in the calculation of their FERS annuity. Besides the 50 percent limitation that applies between now and Dec. 31, 2013, there is no limit as to how much sick leave will be used in the annuity calculation. Note that unused sick leave (as well as unused annual leave) credit cannot be used to calculate the retiring employee's high-three average salary.
Sick leave is earned in hours. A full time employee normally accrues four hours of sick leave each pay period. A FERS annuity is calculated based on years and months of total service. It is useful and important to review the rules regarding how the Office of Personnel Management (OPM) converts sick leave (earned in hours) to months and days of service.
All employees should note that unused sick leave credit is used only in the computation of the retirement annuity benefit. Unused sick leave cannot be used to establish retirement eligibility as the following example illustrates.
Joan, age 60, has 19 years and 4 months of service. Joan would like to retire Jan. 30, 2010 when she will have 19 years and 7 months of federal service and 6 months of unused sick leave. Since Joan will not have 20 years of federal service as of Jan. 30, 2010, she will have to wait until at least April 30, 2010 to retire. At that time, Joan will have 20 years and 0 months of service and 6 months of unused sick leave. Since Joan is retiring before Dec. 31, 2013, she will receive credit for 50 percent of her unused sick leave, or 3 months. Joan's FERS annuity will then be calculated based on 20 years and 3 months of service.
OPM uses the following procedure to convert unused sick leave in hours into months and days. According to OPM, there are 30 days in a month and 12 months in a year, or 360 days per year. Full time employees work 2,087 hours per year. 2,087 hours divided by 360 days per year equals a conversion factor of 5.797 hours of unused sick leave equates to one day of service.
OPM has a sick leave conversion chart that will convert unused sick leave hours into months and days of service. To download the chart (1 page PDF) click here.
For example, from the sick leave chart 765 hours of unused sick leave equates to 4 months and 12 days of service.
The sick leave conversion chart does not list every number between 0 and 2,087 -- there are gaps. An employee has to use the next number "up" if a figure on the chart does not correspond exactly to the total hours of unused sick leave credited to the employee at the time of retirement.
Here is an example:
An employee has 1,400 hours of unused sick leave at retirement. "1,400 hours" does not appear on the chart but. "1,397 hours and "1,403 hours" do appear. The employee would use "1,403 hours" to determine the amount of service to be added in the computation of the annuity. The 1,403 hours of unused sick leave equates to 8 months and 2 days of service.
The following worksheet should be used by retiring FERS employees - effective immediately - and through Dec. 31, 2013.
If a FERS-covered employee retires at anytime after Dec. 31, 2013, the full amount of unused sick leave will be added to the total service time.
The following examples illustrate:
Example 1. Ann, age 60, retired Oct. 31, 2009 with 25 years, 6 months and 13 days of total FERS service. Her unused sick leave balance at the time of retirement is 1,202 hours.
The FERS annuity will be calculated on years and months of service. Any amount less than a month -- such as the 27 days in the previous example -- will not be counted in the FERS annuity calculation.
Example 2. Same as Example 1, except that Ann retires on Oct. 31, 2014 with 1,672 hours of unused sick leave.
*32 days equals 1 month and 2 days.
** 16 months equals 1 year and 4 months
The FERS annuity will be calculated based on 31 years and 4 months of service.
Finally, there is the question of unused sick leave for those employees who transferred to FERS from CSRS and who will be receiving both a CSRS and a FERS annuity, based on years of service in both retirement systems. Under the old law, "Trans" FERS employees received credit only towards the CSRS component of their retirement benefit for the lesser number of unused sick leave hours either:
- on the day of transfer to FERS or;
- on the day of retirement. Although OPM has not given guidance for these appears, it would appear that under the new law any sick leave not used for the CSRS annuity component would be creditable for the FERS annuity component.
OPM should in the near future issue official guidance rules for the treatment of unused sick leave for all FERS employees.
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