Public workers get boost from sick time 'cash-out'

November 12, 2011 - 12:05 PM

Denny Johnston received more than a pension and a handshake when he retired from the Washington state corrections system in 2009.

Because he used only a quarter of his sick days over a three-decade-long career, he was able to convert $15,000 of unused sick time into a tax-free account to pay health care expenses.

While the benefit is extremely rare in the private sector, where use-it-or-lose-it policies prevail, state and local government workers around the country can convert unused sick time into straight cash, retirement credits or use them to pay for health care when they retire.

The perk can add up.

In Ohio, 2,164 state retirees eligible to cash out sick time at a 55 percent rate received an average of $5,646 in the 2011 fiscal year. More than 4,300 departing Florida employees who retired or otherwise left state service last fiscal year averaged about $3,000 in sick-time payments. At least five received 10 times that.

"I worked for 30 years, and I worked in what could be a high-pressure type situation from time to time," said Johnston, a 60-year-old Olympia resident who held a series of jobs in the Washington Department of Corrections, from counselor to manager, before retiring. "I didn't make as much money as I could have in the private sector, but I did enjoy having things like seniority rights and having benefits."

At least half the states allow eligible employees to turn unused sick time into cash when they retire or quit. More than a dozen others allow retiring employees to apply the unused sick time to pension credits or other benefits, according to a nationwide review by The Associated Press.

Many city and county workers around the country also receive the benefit.

It's at the local level where sick time cash-outs tend to attract attention after especially large payouts, such as an outgoing Miami-Dade county manager whose benefit package included $78,984 in unused sick time. These headline-grabbing cases typically involve administrative employees with higher salaries.

Precise counts showing how many employees receive sick time "cash-outs" are difficult because benefits vary among union contracts and even can differ by hiring date.

Proponents of the benefit say the ability to monetize leftover sick days encourages good attendance and is a fair trade-off for what they believe is lower pay for public workers.

Research differs on whether public or private employees have higher pay but generally shows that public employees have far better pensions, retiree health benefits and job security.

Critics see the sick time cash-outs as yet another example of government employees receiving benefits that are not available to those who work in the private sector. Just 4 percent of private sector companies offer sick leave cash-outs to employees, according to the Society for Human Resource Management, an Alexandria, Va.-based organization for human resource professionals.

"The fact is the private sector largely survives and works efficiently without these sorts of things," said Andrew Biggs, resident scholar at the American Enterprise Institute, a conservative-leaning think tank.

Sick time cash-outs cost relatively little compared to budget-busting public employee benefits such as the promise of lifetime pensions and retiree health care. Connecticut, for example, recently spent $8.1 million for the benefit out of a budget of roughly $20 billion.

Arizona spent at least $10 million a year for the last three years on its retirement accumulated sick time benefit. In Kansas, 289 retiring employees outside the university system received $3.2 million in fiscal 2010. In Pennsylvania, 2,200 of the 3,274 employees who retired took cash payouts for unused sick time at a cost of $3.1 million during the fiscal year that ended June 30, 2010.

The issue has generated relatively little attention compared to that given to public pensions and collective bargaining for government workers.

New Jersey Gov. Chris Christie, a critic of some public union benefits, has been the rare governor to spotlight the practice, telling one audience this year, "There's no way to justify paying people cash for not having been sick."

Steven Kreisberg, collective bargaining director for the American Federation of State, County and Municipal Employees, said it's unfair to target any single benefit for criticism. It's more accurate to examine the entire compensation package.

"This is something that the government determined that it was necessary for them to retain the workforce. It was something obviously that was put into place in much earlier years when pay was lousy," said state retiree Rick Carney of Meriden, Conn.

Carney, 64, said he had almost 400 unused sick days when he retired in 2003 after a 33-year career at the state labor department, much of it overseeing hearings on labor issues related to unemployment and medical leave. Because of a cap on the number of days he can claim, he figures he received roughly $14,600 in sick time payments between 2006 and 2008.

In Connecticut, employees receive a lump sum payment of one-fourth of their accrued sick leave upon retirement, up to a maximum payment equivalent to 60 days' pay. These sorts of partial payments and caps are typical among states. In Arkansas, state retirees can collect no more than $7,500 in unused sick time.

A number of states that do not allow straight cash-outs still allow retirees to count a portion of unused sick time when calculating pension benefits.

In Hawaii, employees with 20 unused sick days can get a month of credit added to pension calculations. In Maryland, 22 days equals a month of pension time for qualifying employees.

Utah and a few other states allow retirees to apply sick time credit toward health care expenses. Only a handful of states — Alaska and Kentucky among them — offer no sick time conversion for government retirees.

Conversion policies also are common among cities, towns and counties, although not all local governments offer the benefit.

In Vermont, 52 of 246 cities and towns give retiring employees some level of cash-out for unused sick pay, according to the Vermont League of Cities and Towns.

"They're all different," said Scott Tiedemann, a managing partner in the Los Angeles office of Liebert Cassidy Whitmore, a law firm that advises local governments on labor issues. "It's just whatever their unions have negotiated over time."

Examples of retiring public employees cashing out huge sums in unused sick time are uncommon. More typical are cases like that of Johnston, the retiree in Washington state, who said the money in his health care account will supplement his income from Social Security, a pension and his investments.

"So if anybody out there thinks I'm a fat-cat retired state employee, I never would have been retired had I not saw to other investment opportunities throughout my career," he said.