It’s a benefit designed to retain long-term employees, but the practice of allowing retiring government workers to cash out unused leave may turn into an actuarial time bomb. The problem: Local governments are shedding employees at a record pace, often through early-retirement packages. And the leave liability is largely unfunded.
Hennepin County, for example, pays retiring workers (with at least eight years of service) for an average of 100 days of unused leave when they retire. That can be a tidy sum. When the county’s chief information officer recently retired after 38 years of service recently, he received a lump sum payment of $87,776.
He wasn’t the only employee to cash in a big chunk of leave. The total tab for the county last year was a record $4.8 million, a figure that has grown by 41% since 2007. In all, the county owes about $97 million to employees, but had only allocated $71 million as of the end of 2010.
Not every municipality is as generous as Hennepin County. Minneapolis only pays unused leave benefits to workers who retire with more than 20 years of service. Retirees can cash out 60 days of unused sick leave, with the money going into a health savings account (HSA). Payments for unused vacation time are capped at 50 days.
St. Paul employees can receive cash for unused sick days after 14 years of service. Like Minneapolis, the money goes into an HSA.
Note: Employers that allow this benefit should consider the long-term costs when negotiating labor contracts. In most municipalities, leave payouts are part of collective bargaining agreements. Those benefits may improve retention and maintain morale, but they still have to paid for at some point. As baby boomers retire in large numbers, the bill is coming due.