How paid sick leave can be healthy for pensions

President Obama said during his State of the Union address last week that 43 million workers have no paid sick leave, forcing “too many parents to make the gut-wrenching choice between a paycheck and a sick kid at home.”

The president wasn’t talking about government employees.

Most of them not only have paid sick leave, but also an incentive not to use it. When they retire, their unused sick leave can be converted into “service credit” for time spent on the job, which increases the amount of their pensions.

Is this “spiking,” the improper boosting of pensions by manipulating the final pay or time on the job used in the formulas that set monthly pension amounts?

Many do not think so. The higher cost of pensions presumably is paid for in advance by rate increases resulting from what the actuaries assume will be the cost of converting unused sick leave to service credit.

California Public Employees Retirement System actuaries assume, when calculating future costs, that service credit for unused sick leave will increase pensions and other benefits by 1 percent for state workers and non-teaching school employees.

Actuaries for the California State Teachers Retirement System, making the calculation in a different way, assume that unused sick leave will increase the service credit for educators by 2 percent.

An analysis by the CalSTRS actuary, Milliman, issued in 2010 found that the average amount of unused sick leave converted to service credit was 0.5 years for members retiring after 26 years on the job.

Unused sick leave was not considered in the development of the anti-spiking provisions in Gov. Brown’s pension reform (AB 340 in 2012). The bill barred final pay boosts through overtime, bonuses, one-time payments or terminal pay.

Sick leave can vary through labor bargaining or for other reasons. State workers in CalPERS get eight hours of sick leave per month. CalSTRS members get one day of sick leave per pay period, and employers are charged more for exceeding a limit.

In the Vallejo bankruptcy, the lack of a cap on unused sick leave was an issue. A city consultant, Charles Sakai, said in a court filing that a firefighter working 20 years could accumulate up to 5,760 hours of sick leave worth nearly three years of service.

Vallejo firefighters retiring after 20 years on the job could take half of the unused sick leave in cash, Sakai said, and use the other half to boost their CalPERS pensions by adding 1½ years of service credit.

Unused sick leave helped give a San Ramon Valley Fire Protection District chief a pension far exceeding his salary, one of the cases reported by Daniel Borenstein of the Contra Costa Times that prompted the introduction of anti-spiking legislation.

The fire chief, Craig Bowen, age 51, with a salary of $221,000, retired in December 2008 after 29 years on the job with an annual pension of $284,000. Unused sick leave boosted his service credit to 30.3 years, adding $10,700 to the pension.

Bowen is in the Contra Costa County Employees Retirement Association, one of 20 independent county pension systems operating under a 1937 act. After anti-spiking legislation for CalPERS was approved in 1993, similar legislation for counties in 1994 cleared the Senate but died in the Assembly.
sick
The conversion of unused sick leave to service credit began for both CalPERS and CalSTRS with legislation in 1973-74. The reason for the CalPERS change, modified several times since then, was not readily available last week.

Why CalSTRS members were allowed to begin converting unused sick leave into larger pensions was explained in a later bill analysis.

“It was anticipated that this benefit would reduce sick leave usage and enable employers to achieve some salary savings from not having to hire substitute teachers to replace teachers who might otherwise have been absent from the classroom,” said a CalSTRS analysis of AB 1102 in 1998.

“However, the anticipated reduction in sick leave usage and the projected salary savings were not realized. Consequently, employer costs increased as employers continued to pay salary for teachers who were absent from work because of illness, covered the cost of substitute teachers, and also paid STRS for the cost of the additional benefit at retirement.”

The costs were capped by legislation in 1979 that limited the conversion of unused sick leave to persons hired before July 1, 1980. Legislation in 1985 paid for the conversions by raising the CalSTRS employer contribution from 8 to 8.25 percent of pay.

Then in 1998 the unused sick leave conversion was reinstated by AB 1102 for those retiring on or after Jan. 1, 1999. Backers said the bill was needed for “equity” with CalSTRS members hired before July 1, 1980.

The bill was part of a package of increased pension benefits enacted as the funding level of CalSTRS, which was about 30 percent in the 1970s, climbed toward 100 percent under the Elder full-funding plan enacted in 1990 and a booming stock market.

An Assembly analysis of AB 1102 said supporters believe the bill and others in the package are “a fair compromise on the use of the Elder full funding money and will encourage teachers nearing retirement age to postpone retirement and stay in the classroom a little longer.”

Much of the current CalSTRS funding gap, which a $5 billion rate increase being phased in over the next six years is intended to close, is due to state and teacher contribution cuts and benefit increases enacted around 2000. Finally reaching the long-sought full funding was treated as a windfall to be spent.

The state CalSTRS contribution was cut from 4.6 percent of pay to 2 percent. For 10 years, a quarter of the teacher contribution to CalSTRS, 2 percent of pay, was diverted into a new individual investment plan. A half dozen small increases included the unused sick leave conversion and a longevity bonus.

CalSTRS would have had a funding level of 88 percent if it had not made the contribution and benefit changes around 2000 and continued to operate under the 1990 structure, a Milliman report said in 2013 when the funding level was 67 percent.

Last week President Obama called on Congress to “send me a bill that gives every worker in America the opportunity to earn seven days of paid sick leave. It’s the right thing to do.”

The president said the U.S. is “the only advanced country on Earth that doesn’t guarantee paid sick leave or paid maternity leave to our workers.” California has been in the vanguard of change.

Gov. Brown signed legislation last September requiring businesses to give employees at least three days of paid sick leave each year. In 2006, San Francisco required employers to give workers paid sick leave.

The president expanded paid sick leave for federal workers this month by adding six weeks to care for a new child or ill family members. And during his first year in office he expanded the conversion of unused sick leave to boost pensions.

Only federal workers hired before a cost-cutting pension reform in 1987 had been allowed to convert unused sick leave to pension service credit. In October 2009, Obama signed a bill giving a similar benefit to federal workers hired after the 1987 reform.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 26 Jan 15

22 Responses to “How paid sick leave can be healthy for pensions”

  1. Bring Back the WPA Says:

    There is a logical basis for converting unused sick leave to service time at retirement. The difference is calendar time on the job vs. actual time reporting to work.

    Consider a 25-year employee that earns 1 year of sick leave during his career. If the employee doesn’t use the SL he’s been to work every day and truly has 25 years of service on-the-job. If the employee consumed his SL, he’s had 24 years of time on the job and 1 year of time off work.

    As far as the pension systems go, both have 25 years of “service” based on the calendar. But since the non-SL user had an extra year of actual time on the job compared to the SL user, it’s only logical to compensate the non-SL user with more service credit time in recognition of that extra year of work. It shouldn’t be considered a spike, it’s time earned.

  2. SeeSaw Says:

    If one uses the sick leave when necessary, over a long career, there is not that much left by the time you retire. In my own case converting half of the unused SL to pension service time would have been six months and would have given me about $40/mo more in pension vs. cashing out half of what remained, which amounted to about $12,000 cash–it would have taken me 25 years of pension payments to come out even. Don’t know why the author thinks such benefits would be ok for private sector and unhealthy for public sector–people should not be going to work and exposing other workers to their illnesses–they need to take SL and stay home until they recover.

  3. Captain Says:

    Bring Back the WPA Says: “There is a logical basis for converting unused sick leave to service time at retirement. The difference is calendar time on the job vs. actual time reporting to work.

    Consider a 25-year employee that earns 1 year of sick leave during his career. If the employee doesn’t use the SL he’s been to work every day and truly has 25 years of service on-the-job. If the employee consumed his SL, he’s had 24 years of time on the job and 1 year of time off work.

    As far as the pension systems go, both have 25 years of “service” based on the calendar.”

    This is a perk that should be eliminated given its current structure, and probably all together. For statrters, and for some reason, to earn one year of service credit you only need to contribute 1440 hours of unused sick leave under CORRUPT CalPERS own RULES. Since when is a year equal to 1440 hours? By this standard one year of service (2080 – 1440) = 640 hours less than the standard 2080 work hours per year. I would love to know how that number was negotiated.

    To compound the problem, and since we’re talking sick leave, public employee union members typically receive between 96 – 120 hours of sick leave per year. I’ve seen where 40 hour employees receive upto 180 hours of sick leave year.

    So when is a year of service credit not really a year of sick leave? I’d say in every single instance sick leave service credit is granted. Afterall when you shrink a year to 1440 hours, and inflate the amount of sick leave hours you earn in a year, your essentially stiffing taxpayers at both ends of the formula. That is reason enough to reduce public employee sick leave to the private sector standard of 80 hours, while also increasing the number of hours to earn a years credit to between 2000 – 2080.

    And, to compound the problem, this is just one more component of unfunded pension liability that will cost EVEN MORE for decades.

  4. Captain Says:

    Seesaw, I don’t know anybody in the private sector that receives this Public Employee Union benefit – PENSION INCREASING PERK!

    Seesaw says: “Don’t know why the author thinks such benefits would be ok for private sector and unhealthy for public sector–people should not be going to work and exposing other workers to their illnesses–they need to take SL and stay home until they recover”

    Again, Seesaw, I don’t know anybody in the private sector that receives this Public Employee Union benefit – PENSION INCREASING PERK! And Public Employee Union Holiday Pay, when applied toward pension payouts for 25-30 years, is probably even more taxpayer abusive than the sick leave nonsense. Of course both these flawed policies eminate from Corrupt CalPERS and their Board of Administration.

  5. SeeSaw Says:

    So because some people accumulate more than they should, SL should be abolished? Its obviously a matter of the entity and its policies–so it is their responsibility to be responsible. My accumulation was 96 hrs/yr.and after two years on the job, the employer bought back one half of the unused accumulation so it would not build up. (Unfortunately, due to the economic crisis, my employer stopped the redemption practice.) Sick leave is a very important benefit, because, as I said, it helps keep sick people home where they should be, instead of exposing coworkers to their own illnesses. And, during my career, I had two extended leave periods with sick leave, which was necessary and which would have been drastic for me if I had not had income. I know nothing about the 1400 hour SL year with CalPERS because I did not convert. You must drive yourself crazy–all this checking up on what others get that you evidently don’t.

  6. SeeSaw Says:

    Its really not necessary to stipulate whether someone is a public employee union member or just a public employee. The benefits are identical, whether or not they are union members.

  7. Bring Back the WPA Says:

    @Captain — The CalPERS sick leave factor is 2000 hours per year, not 1440. Please see
    http://www.calpers.ca.gov/index.jsp?bc=/member/retirement/convertingsick.xml&pst=ACT&pca=ST

  8. Captain Says:

    SeeSaw Says: “So because some people accumulate more than they should, SL should be abolished?”

    I never said “sick leave” should be abolished, did I Seesaw?

    I guess we agree, based on your own statement, that public employee union members are accruing/accumulating more sick leave than they should, and that the CalPERS Board of Administration has legislated their own standard for what constitutes a year of work – as pathetically insulting as it is.

    What I am saying is that CalPERS has established the policies that allow for what amounts to abuse of the CalPERS Pension System – and that cost taxpayers tons of money – literally!

  9. Captain Says:

    WPA, the number is 1440 hours for Public Employee Union members that work a 40 hour week. Those employees receive anywhere from 96 – 180 hours of sick leave per year. That’s much different than the 80 hours per year that some in the private sector receive.

    I’m not familiar with anyone that gets to cash out sick leave in the private sector – it’s a benefit in the private sector while the Public Employee Unions seem to view it as a Pension Perk – or end of career cash bonus. And I do NOT know anybody (outside of California Public Employees) that get to convert these excessive hours of sick leave into PENSION enhancements that will pay additional benefits/dollars – monthly, over a period of 25 to 30 years. Taxpayers pay for that and the perk is probably only 70% funded. That means for this perk to continue to exist taxpayers need to continue to pay more (the normal cost + the unfunded liability cost) – so the employee/beneficiaries can pay less. Not that we have a say in the matter because Corrupt CalPERS just keeps telling us what dollar amount, as a percentage of payroll, we WILL pay.

    And I do not understand why a struggling pension administrator like CalPERS allows this to continue.

    CalPERS just might be the Worst and Most Destructive organization in this states history – and that says a lot!

  10. SeeSaw Says:

    I did not agree that are workers accruing more than they should. I just explained the process, since I was a part of it. I only know about my own experience; I make no judgments on any individual worker–I tell you that the term, “union members,” is not necessary, and you continue to use it–a public worker is just that, and the same benefits apply to all rank and file, union or not union–management benefits are a different subject altogether. I said that it is up to each entity to administer its own programs responsibly–I have no knowledge of the, respective, SL policies. I can state again, forcefully, that SL is the most important benefit for any worker, because we can control when and where we take vacation; we cannot control if or when we become ill, temporary or catastrophic; or when we might be called upon to care for a family member in such situation.

  11. SeeSaw Says:

    You need to read the CalPERS press release that WPA cites, Captain. It is the contract between the entity and CalPERS–the employer decides on what contract it is going to execute. If you are not a public employee yourself, you are certainly in a pathetic situation, choosing to keep tabs on all this stuff, all the time.

  12. SeeSaw Says:

    The private sector makes its own rules about SL, Captain so don’t try to mix apples and oranges. My spouse was on the management team at a development firm, the final years of his blue collar career–he cashed out what little SL he had on the books when he retired–the rank and file workers had no benefits at all. Why on earth would you desire to bring workers who do have perks down to the sad level where many private workers are. You should want to raise everyone up. You are sadly lacking a life, Captain–time you get one.

  13. Tough Love Says:

    Quoting SeeSaw …”Why on earth would you desire to bring workers who do have perks down to the sad level where many private workers are. ”

    Because the …”workers who do have perks” ….are only PUBLIC Sector employees …. yet these perks that only THEY get, are paid for by those who do NOT get them … PRIVATE Sector workers.

    Perhaps that’s fair and appropriate in your twisted little mind.

    What make Public Sector workers so “special”, and deserving of a better deal on the Taxpayers’ dime ?

  14. spension Says:

    TL wrote “Because the …”workers who do have perks” ….are only PUBLIC Sector employees …. yet these perks that only THEY get, are paid for by those who do NOT get them … PRIVATE Sector workers.”

    Here are 21 PRIVATE Sector workers who got >$100 million post-retirement packages:

    http://go.gmiratings.com/rs/gmiratings/images/GMIRatings_GoldenParachutes_012012.pdf

    You can read about a lot more private sector managers who raided their employee’s retirement benefits in this book by a Pulitzer-winning WSJ reporter:

    http://www.retirementheist.com

    Sorry, Tough Love, there are plenty of `Private’ sector workers who get incredibly rich post-retirement benefits. And many of their companies get rich primarily on the US taxpayer dime… UTC, UnitedHealth, GE, etc.

    I’d propose: if any company or public institution uses any public infrastructure of the US, or gets a single penny of taxpayer money in any way, shape, or form (payout or tax benefit, for example), their pension benefits be limited to 1.5% per year of service, with benefits payable no earlier than age 62, and an upper limit of $100,000.

  15. SeeSaw Says:

    You can propose whatever you want Spension. If such had been my reality, at the time of my retirement in 2008, my pension would have started $1868. I already pay my former employer $1465 out-of-pocket for my share of ABC Medical Insurance premiums for me and my spouse–such insurance is secondary only to Medicare, so I also must add $115/mo for my Medicare payment too. And with a few COLAS for five years, 2% or less, my pension would now be about $1998/mo. So propose away and any governing body can pass away–but they will then have to add millions to their own social services funding. (That’s my “twisted little mind” talking.)

  16. Jon Says:

    I currently have over 100 days of sick leave banked and I have worked as a teacher for 20 years. The value of the time at the end of my career is really not going to be that great. I bank the time so in case of an emergency I am ready. I had an emergency due to a life threatening illness with one of my kids – otherwise I would have 40 more days. But honestly I have done the calculator on the CALSTRS website and the increase in retirement pay is minimal.

    What I really wish we could talk about is the difference between CALSTRS (teachers) and CALPERS (most other cal public workers). If all public workers followed the formulas set by CALSTRS we would not have a looming pension problem.

    In addition CALSTRS retirement does not have a COLA so in retirement your take home is only increased by 2% (non-compounded) per year which over 10-20 years is a big difference.

    Maybe the cops and firefighters need to be able to retire a bit earlier than teachers I get that..but to see healthy folks retiring with 90- 100% pay at 55 just seems stupid.

  17. SeeSaw Says:

    The COLAS are 2% or less. It is figured on the CPI and it has been less than 2% most of the time. I don’t think you are going to find many public workers retiring at 55 with 90-100%. I was 72 when I retired. I had to work to that age to get a decent enough retirement to live on the rest of my life.

  18. SeeSaw Says:

    We might have COLAS, but we could not cash out all of our banked sick leave. It was one-half, converted to service time or one-half cashed out. You are right–it was not enough to make much impact.

  19. Jon Bath Says:

    See Saw – my comments about CALPERS being way more giving is related to many getting 3% multiplied by years worked so those that worked from 25-55 are getting 90%. Yes the COLA has been low lately due to low inflation but it increases your entire check. Every year your check grows due to this effect. I don’t think that is bad it is just another example of CALPERS being more generous than CALSTRS.

  20. SeeSaw Says:

    Yes, J.B.. I believe that all public-sector workers should support each other in the efforts to protect the pensions–there is always going to be those that get more than others, deserving and otherwise. We certainly don’t want to see another depression where everyone is out on the bread-lines–I think that is actually what the most vocal reformers want–misery loves company.

  21. Jon Says:

    I guess I just disagree See Saw. The outrage we see in California is due to folks frustrated hearing about public workers retiring with 90% pay at 55 for 30 years service. A teacher in California would get 45% of pay at 55 with 30 years of service. Yet we are lumped in together as getting these great pensions. I think defined benefit plans are excellent but when the benefits are too good the taxed public gets a bit annoyed and will not support any of us.

  22. SeeSaw Says:

    That’s just it–being frustrated hearing about it. How much of that is fact. I worked 40 years for a municipality. I never ran across anyone retiring at 55 with 30 years service until 2010, when I attended the retirement party of a former colleague who was age 53–he had worked continuosely with the public works department since he was 18–very rare event (and he was not public safety). If I were going to be so frustrated every time I bring up Transparent CA and look at the pension amounts for a lot of people I now know, since I belong to RPEA, I would go nuts.. Most make lots more than I make–and I can verify that state and county salary scales are higher than municipal.

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