The unused sick leave hours that you have at retirement can increase your pension but using them in this way might not make sense for everyone. This is how it works.
If you retire with any unused sick leave, it is converted into creditable service for your pension calculation. For folks under the Civil Service Retirement System (CSRS), each month of sick leave counts as 1/6th of 1%. This comes out to 2% for an entire year’s worth of sick leave.
For the Federal Employees Retirement System (FERS), each month of sick leave would add only 1/12 of 1% to your pension calculation. This comes out to 1% for an entire year’s worth of sick leave. If your multiplier was 1.1% per year (because you retired at least 62 with at least 20 years of service), then a year’s worth of sick leave would be worth the 1.1%.
It is important to note that OPM will only count full months of sick leave towards your pension. For example, if you had 6 and ½ months worth of sick leave at retirement, they’d only count the 6 months for pension purposes.
However, let’s say your creditable service was 20 years and 5 months and ½, they’d add your unused sick leave time to your creditable service before they drop the less-than-a-full-month amount. In this example, your total creditable service would add up to 21 years.
Now, you might ask, “how many sick leave hours make up a month?”
Good question. It is 174. OPM gets that figure by dividing 2,087 (the number of work hours in a year) by 12. That’s because annuity payments are based on 12 30-day months.
Although sick leave can add to your pension, it can not be used for retirement eligibility. You must meet those requirements before unused sick leave is considered.
Let’s run through an example to see how the numbers play out.
Let’s say you are a federal employee under FERS and your high-3 is $100k. If you retire with 30 years of creditable service, your gross pension would be about $33,000/year.
If you had a year’s worth of sick leave at retirement, your pension would pop up to about $34,100. That is a $1,100 increase.
That may seem pretty nice, but you have to remember that if you would have used that year of sick leave, you would have been paid $100,000 (your normal salary). That is the main trade off to think about.
Now that you know how it works, you have to decide what makes sense for you and your situation. There is no hard fast rule on what makes sense for everyone. Do your best to educate yourself to make the best decision possible for you.