FEDweek

The Value of Unused Leave

Last week we talked about the rules governing when your annuity begins. Simply stated, FERS employees have to retire by the last day of a month in order to begin receiving an annuity in the following month. CSRS employees may retire up to the third day of a month and still receive an annuity for that month.

Now let’s talk about how to pick a departure date that increases the dollar value of your retirement. For all employees the key ingredients are the high-3 average salary and unused annual leave. For CSRS employees and some FERS employees, there is a third ingredient: unused sick leave.

Your annuity computation will be based on a fixed formula and two variable elements: your high-3 years of average basic pay and your years of service. For most employees, the high-3 keeps getting higher the longer you work. But all good things must come to an end. Therefore, most employees who are eligible to retire do so when they have come as close as possible to spending a full year at their highest pay level. That’s often the end of the year following an annual pay adjustment. Note: For most employees, annual pay adjustments occur on the first pay period beginning on or after January 1. For wage system employees, they occur at differing times of the year.

Another factor in the retirement date decision is how to increase the value of any unused annual leave. As you probably know, when you retire, you’ll be given a lump sum payment for any unused annual leave. What you may not know is that unused annual leave is projected forward, just as if you were still on the rolls; and it is paid at the rate in effect at that time. As a result, although you may retire before a new annual pay adjustment goes into effect, any unused annual leave that crosses over into the new pay year will be paid at that higher hourly rate. Therefore, most employees who have more unused annual leave than they can carry into the next leave year retire before the new leave year begins. For all employees, that’s the first pay period beginning on or after January 1.

Finally, there’s sick leave. CSRS employees with unused sick leave at retirement will have those hours added to their service time. The same is true of certain FERS employees who will have a CSRS component in their annuity. Any unused sick leave – up to the amount they had accumulated while covered by CSRS – will be added to their CSRS service time. In both cases, the value of their final CSRS annuity will be increased. Not a bad bonus for staying well!

With these tips at hand, you should be able to pick a retirement date that improves the dollar value of your retirement.