There seems to be a lot of confusion about what part unused sick leave plays in your annuity. The short answer is: The more you have, the bigger its role.
Before we get into the details of how sick leave can enhance your retirement benefit, let me clear up two common misunderstandings: First, sick leave can’t be added to your service time to make you eligible to retire. Second, it can’t be used in determining the amount of the special retirement supplement (SRS) available to some Federal Employees Retirement System retirees. The SRS is based on actual years and full months of FERS service.
Assuming you have met the age and service requirements to retire, you’ll get credit in your annuity computation for every year and full month of actual service. Any hours of actual service that don’t add up to a full month will be combined with any hours of unused sick leave, and the total converted to additional months of service credit.
Here’s how that’s done. Because annuities are paid on a monthly basis, a year is divided into 12 equal parts. The end results are 12 30-day months and a 360-day year. The number of hours in a work year, 2,087, is divided by 360 to count an annuity day as 5.797+ hours and a month as 174 hours.
There are differences in the way unused sick leave credit is applied under the Civil Service Retirement System and FERS. Retiring CSRS employees get full credit. Retiring FERS employees are entitled only to half credit until 2014 and full credit thereafter. Until the passage of Public Law 111-84 in 2009, FERS retirees weren’t entitled to any unused sick leave credit. When an annuity has both FERS and CSRS components, the FERS component is increased only by the amount of sick leave earned under FERS. Any sick leave balance attributable to CSRS service is added separately.
Here are examples based on a 55-year-old employee with 30 years’ service and 1,460 hours of unused sick leave whose high-three, or average salary over three consecutive years of highest pay, is $80,000.
Under CSRS: Based on actual service, the initial annuity is $45,000 (0.015 x $80,000 x 5 years, plus 0.0175 x $80,000 x 5 years, plus 0.02 x $80,000 x 20 years). Unused sick leave hours add eight months of credit totaling 1,391 hours, with 69 hours left over and dropped. The final CSRS annuity is $46,072 (0.015 x $80,000 x 5 years, plus 0.0175 x $80,000 x 5 years, plus 0.02 x $80,000 x 20.67 years).
Under FERS before 2014, where the employee has 20 years under FERS and 10 years under CSRS (of the 1,460 unused sick leave hours, 1,100 were under FERS): Based on actual service, the initial FERS component of the annuity is $16,000 (0.01 x $80,000 x 20 years). Half credit for the 1,100 unused sick leave hours adds 550 hours to the annuity service credit or three months — 522 hours with 28 hours left over and dropped. The final FERS annuity is $16,200 (0.01 x $80,000 x 20.25 years).
The initial CSRS component of the annuity is $13,000 (0.015 x $80,000 x 5 years, plus 0.0175 x $80,000 x 5 years). Credit for the remaining 360 unused sick leave hours adds two months of service credit — 348 hours with 12 hours left over and dropped. The final CSRS annuity is $13,267 ($13,000 + .02 x $80,000 x 0.167 year).
The total FERS/CSRS annuity is $29,467.
Under the same FERS/CSRS scenario in 2014 or later: Full credit for the 1,100 unused FERS sick leave hours adds six months to the service credit — 1,044 hours with 56 hours left over and dropped. The FERS annuity component grows to $16,400 (0.01 x $80,000 x 20.50 years). With the $13,267 CSRS component, the final FERS/CSRS annuity is $29,667.