Retiring Connecticut State Employee With Extra Vacation Days? Here’s What To Do
If you’ve worked for the State of Connecticut for more than 25 years and are starting to think about retirement, you likely have a buildup of unused vacation time.
You might be wondering:
Do I have to use all my personal vacation days and sick leave days before I retire?
What happens to my vacation time if I don’t use it all?
What Happens to your accrued retirement days?
What if you resign?
How does the state handle my unused time if I pass away before retiring?
If you take a lump sum payment instead of unused time off, how can you most effectively use the money?
In this article, you’ll discover what happens to your vacation, sick, and personal leave when you retire and a few strategies to take advantage of it in retirement.
Let’s cover your biggest questions about
What Happens to Your Accrued Vacation Days When You Retire?
To be eligible for vacation leave with pay, you must first be a full-time employee in state service for six months. Then, you’ll earn vacation leave at a rate of one and one-quarter workdays of vacation leave for each complete month of service after those six months. If you’re a part-time employee, you still earn vacation days — however, the number of days is prorated in proportion to the amount of time worked and recorded.
If you’ve completed 20 years of service, you’re allowed one day or seven additional working hours for each additional year up to 25 years of service.
Or, if you have 25 years of service, you’re capped at 20 days or 140 hours of vacation leave annually.
The current procedure states that any employee leaving CT state service will receive a lump sum payment for all vacation time accrued (unused) on the date of separation.
Read more about the rules in Section 5-252 of the State Personnel Act. Additionally, if you’re an employee in the unclassified service hired before July 1, 1972, you’ll receive a lump-sum payment if the appointing authority had included vacation accruals as a term of your employment and you can provide the necessary support. Therefore, if you’re a part of either of these groups, you qualify for the lump-sum payment of your vacation days.
If you receive a lump-sum payment, you’ll see it on your final normal paycheck.
Here’s how to calculate the amount: Take the amount of pay equal to the daily rate based on the employee’s salary on the termination date times the number of days accrued. The lump sum will still be subject to mandatory deductions, including a withholding tax, social security, retirement deductions, and wage executions.
If you want to receive your lump sum, both you and the agency you work with must report the number of accrued vacation days to the Comptroller’s Retirement Division. Find this information on form CO-898, “Application for Retirement,” or form CO-649, “Application for Disability Retirement.”
Benefits of the CT State Employee Retirement System
You can use your vacation leave credits toward a high year if the amount of time you’re paid needs to be included to make a high year.
This gives you the opportunity to increase your pension depending on the number of credits you’ve accrued. The current procedure rewards those who continue to work and lets their vacation days accrue until the limit is reached.
You can accrue a maximum amount of 60 or 120 vacation days (depending on your position) — any balance above that is eliminated. If you’ve accrued the maximum amount of vacation days (or are near it) and plan to continue working, then you should take some time off (and enjoy it!).
You don’t even have to go anywhere. Use your personal time off to enjoy a staycation — relax at home or get things done around the house. You’ve earned these paid days off, which will expire if you don’t use the time over the 60 to 120-day maximum.
Use those unused vacation days wisely.
What Happens to Your Vacation Days When You Resign?
The process for the payout of accrued retirement days due to retirement and resignation is similar. You’ll receive a lump-sum payment on your final paycheck and will be subject to the same mandatory deductions. The only difference is that the amount paid out will come from the “Payroll Notice” COP-6 form. The same conditions apply if you’re terminated. You’ll get a lump-sum payment on your final paycheck and be subject to the same deductions.
If you happen to return to employment for the State of Connecticut, you’ll need to first refund the portion of the lump sum that represents the period between the date of reemployment and the end of the lump-sum period.
If you resign to take a position with another state, you’ll receive a lump-sum payment on your last normal paycheck. From there, you’ll begin to earn vacation, sick, and personal leave with the new state, depending on said state’s policies.
What Happens to Your Vacation Days if You Pass Away While Still Employed?
There are a few differences in the accrued vacation leave procedure for employees who have passed away. For starters, the lump sum calculation takes more factors into consideration. The other difference is the deductions, as the lump-sum payment for a deceased employee is exempt from withholding tax (state/federal) and doesn’t include a wage execution deduction.
The first step of the calculation is to project the amount of vacation time accrued and unused at the time of death to determine the final calendar day for which the employee would be eligible to receive pay had they remained alive and on the payroll until the accrued vacation time has been fully paid. Next, the state will determine if you would have been eligible for a salary modification during that period.
Lastly, the rates determined in the prior steps are multiplied by the number of accrued vacation days the employee was eligible for (at each rate), and then the products are summed together.
Another matter for consideration is the determination of the payee. If the employee had a beneficiary under the State Employees Retirement System, the beneficiary will be sent CO-536 forms to sign, and then they’ll receive the payment. If there is no lawfully designated beneficiary, then the payment will go to the estate of the deceased. Lastly, if there are multiple beneficiaries, then the payment will be split based on the beneficiary documentation, so make sure those are correctly filled out.
What Happens to Personal and Sick Leave Days When You Retire?
Each year, State of Connecticut employees receive three days of paid personal leave. The personal leave days are designated for handling personal affairs and/or observing religious holidays. You can use these days whenever you want, but if you celebrate a few non-national holidays, then it would be wise to save them for that purpose. The important thing to remember is that the personal leave days you don’t use in the calendar year don’t accumulate. Therefore, you need to use these days each year — otherwise, they’ll expire.
Different State of Connecticut employees receive different amounts of sick leave each year. However, if you retire under the provisions of the State Employees Retirement Act Chapter 66 of the Connecticut General Statutes (unless otherwise specified by collective bargaining), you’ll receive a lump sum at a rate of one-fourth of your daily salary for sick leave accrued. There’s a maximum payment equal to 60 days of pay or 420 hours of pay. If you pass away with at least ten years of state service, then your beneficiary is compensated for sick leave at the same rate of one-fourth of your daily salary with a maximum of 60 days paid.
The payment is subject to federal and state tax and social security, but no retirement or other deductions are taken out. So, sick leave is compensated at a lower rate but is also subject to fewer deductions. It’s similar to vacation and sick accrual lump-sum payments in that both can be paid out on the last paycheck or be deferred and paid in increments.
If you’re retiring under the provisions of Chapter 66 (eligible to receive compensation for accrued sick leave — managerial employees, confidential employees, appointed officials, etc.) and if you’re either leaving state service but not retiring, retiring under other provisions or if your salary is set by statute, you’re not eligible for compensation of accrued sick leave.
Keep in mind that sick leave isn’t payable if you’re terminated — only if you retire or pass away. There’s no reason to be stingy with your sick days — use them or lose them.
Don’t leave money on the table.
Strategies to Effectively Use the Lump-Sum Payments in Retirement
There are various ways to effectively use the lump-sum payments, either from your vacation leave, sick leave, or both. Essentially, these are large amounts of money you stocked up on during employment by foregoing the paid days off, and you can now use the time to improve your retirement. The strategies you use will depend on your situation, but I’ll cover a few general strategies that a soon-to-be retiree can use.
Strategy #1: Delay receiving your pension and/or social security and use the lump sum to hold you over until it reaches a satisfactory amount.
Depending on your age and the size of the lump-sum payment, it could be useful if you believe you can survive a year or more supported by the lump-sum payment. Even if you must live frugally for a year, it could greatly benefit you in the long term as the increased monthly payouts add up significantly over time. This strategy would work well if you plan to retire early but are healthy and believe you need a larger monthly payout.
Strategy #2: This is the most common strategy. Contribute the amounts to your 403(b) or 457(b) plans if you haven’t met the maximum contribution for the year. You can send the money into either of these accounts pre-tax, allowing a larger amount of money to grow within your account. The maximum contribution in 2023 for the 403(b) plan is $22,500 and $23,000 for 2024. You can also contribute an extra $7,500 for 2023 and 2024 if you’re at least 50 years old. There’s also a special catch-up contribution if you have at least 15 years of tenure — then you can contribute an extra $3,000 annually.
The 457(b) plan allows employees to contribute $22,500 in 2023 and $23,000 for 2024. You can also contribute an additional $7,500 for 2023 and $7,500 for 2024 if you’re at least 50. Additionally, if you’re within three years of normal retirement age (depending on when you started working), then you may be eligible to contribute up to $45,000 in 2023 and $46,000 in 2024. Contributing to either of these plans would allow for more tax-advantaged money that will provide you income in retirement. Plus, this will likely be your last deposit into the account (last paycheck), so bulking up the account before retirement increases the income you’ll get from those accounts.
Strategy #3: If you’re a conservative investor and uncertain if your monthly income will be enough, you can roll the lump sum into an IRA and use it to purchase an immediate annuity from an insurance company. Your monthly payout depends on the amount you invest in the annuity. Either way, you’ll see additional income each month to help you cover your expenses.
Consider the Tax Implications.
One issue with taking a large lump-sum payment for vacation leave and/or sick leave is that a sizeable payment could push you into the next tax bracket. This is why it’s important to analyze your salary and how much you expect to make from the lump sum so you can run through various scenarios and their outcomes. There are situations where using a few days will allow you to save thousands of dollars in taxes.
As a Financial Planner, I specialize in helping clients 55 and older plan for retirement. We focus on helping clients in 3 key areas: retirement planning, investment management, and tax planning. In a free consultation, we’ll review your situation and determine if my expertise fits your financial goals. I love working with Connecticut State retirees, as my Grandfather was one. I’ve helped many plan and manage their retirement from The State of Connecticut.
Curious to see what some expert retirement planning advice could do for you?
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