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Understanding How Unused Sick Leave Is Used In the Calculation of . . .
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Guide to FERS Sick Leave Credit:
Understanding How Unused Sick Leave Is Used In the Calculation of a FERS Annuity
Edward A. Zurndorfer, Certified Financial Planner
On Oct. 28, 2009, President Obama signed the National Defense Authorization Act.
The new law contains several retirement changes that will affect federal
employees.
One change that takes effect immediately will allow those employees covered
by the Federal Employees Retirement System (FERS) to credit their unused sick
leave in the calculation of their FERS annuity.
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
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