Chapter 14: Conversion Of Unused Annual & Sick Leave

Chapter 14:ContentOverviewChoosing a Leave OptionCertifying Unused LeaveConversion of Unused LeavegConverting Leave toService CreditgLump Sum Paymentg Lump Sum Rollover to aQualified AccountgLeave Exceeding 100%of FAC (Final AverageCompensation)Certifying Unused Leave forNon-RetireesLeave Certification forUnclassified OfficialsQuick LinksConversion of Unused Annual & Sick LeaveOverviewAt the time of retirement, LASERS members may receive additional benefits fortheir unused, accumulated annual and sick leave. Members can choose oneof two options: a conversion to service credit, which is added to the member’smonthly benefit OR a lump sum payment, calculated at an actuarial value.Members who are out of state service at the time of retirement do not receivecredit for their unused annual and sick leave unless they were eligible for regularretirement upon termination of employment. Any member with at least 20 yearsof service at the date of termination, who is not in the Correctional Secondaryor Wildlife plans, is eligible to retire and therefore eligible for payment of leave,even if out of state service, assuming the leave was certified by the member'sagency.NOTE: If a member terminates employment and laterbecomes re-employed, the member must contribute toLASERS for at least 18 months before being eligible toreceive credit for any unused leave for benefit purposes.Reference MaterialgApplicable FormsgApplicable AgencyLiaison MemorandagApplicable LawsgApplicable Chapter inMember's Guide toRetirementgApplicable LASERS VideoChoosing a Leave OptionFrequently AskedQuestionsMembers may choose only one of these options and are unable to split theleave selection by converting to partial service credit and to a partial lumpsum. However, if conversion to service credit will result in the member’s benefitexceeding 100% of the Final Average Compensation, then a lump sum paymentof the excess amountwill automatically beAnnual and sick leave cannot bemade (refer to theused towards eligibility creditsection Leave Exceedingfor any retirement or other100% of FAC in thisbenefitspaid by LASERS. Memberschapter).SampleForm 07-01:Certification ofUnused Annual& Sick Leave14.1Revised August 2019The application for retirement includes a section in which the member makes aselection regarding his or her unused annual and sick leave. The three optionslisted on the application are:j Convert all unused annual and sick leave to retirement creditk Receive a one-time, lump sum payment of leave calculated at anactuarial valuel Make a direct rollover to an eligible account at a financial institutionmust reach eligibility in their enrolledretirement plan prior to any conversionof leave.LASERS Employer’s Guide to Retirement

LASERS Employer’s Guide to RetirementConverted retirement credit and lump sum paymentscannot be issued until all final earnings and leavebalances have been reported to LASERS by the agencyand all requested documents have been submitted toLASERS by the agency and the member. Leave is paidapproximately 90 days after the date of the member’sfirst retirement payment.Certifying Unused Annual andSick LeaveWithin 30 days of a member’s termination date, theagency is required to submit Form 07-01: Certificationof Unused Annual and Sick Leave, even if the memberhas a zero leave balance. This form is used for RegularRetirement, IBO, Actuarially Reduced Retirement,Disability Retirement and End of DROP Participation (itis not submitted when a member enters DROP).Form 07-01 certifies the balance of a member’s unusedannual and sick leave amounts, not including the300 hours of annual leave paid by most agenciesupon termination. The agency may pay a memberfor unused annual leave at their hourly rate of pay attermination; however, this paid leave is not eligiblefor conversion and should be excluded from the leavebalance reported.NOTE: If a member has earnedservice credit in multipleretirement plans within LASERS,his or her leave will be pro-ratedamong the benefit accrual ratesbased on the service credit earnedin each plan. This excludeswildlife agents enrolled in theWildlife Agents Plan (WLO2)whose last 10 years of servicewere earned in that plan. Also,pro-rating leave excludes servicecredit transferred to LASERS fromanother retirement system.Chapter 14: Conversion of Unused Annual & Sick LeaveForm 07-01 should be filled out in its entirety andshould be initialed and signed by an agency PersonnelOfficer (refer to the sample form at the end of thischapter).Conversion of Unused LeaveA member’s unused leave is converted to days byadding the hours of annual and sick leave and dividingthose hours by eight (8), representing an eight-hourwork day. Any fractional day of one-half (½) or morewill be granted as (1) day, and less than half a day willbe disregarded. The unused leave will be converted tocredit based on the following table:Days of 0.80209-2340.90235-2601 yearExample: Fred has 609 days of unused annualand sick leave. The credit for his unused leave iscalculated as follows:260 days 1.00 year260 days 1.00 year89 days 0.40 year609 days 2.40 yearsFred will receive a total of 2.40 years of servicecredit for his unused leave.14.2

LASERS Employer’s Guide to RetirementChapter 14: Conversion of Unused Annual & Sick LeaveConverting Leave to Service CreditMembers may elect to converttheir unused annual andsick leave to service credit.If converted, the unusedleave will be included in thetotal service credit used tocompute their retirementbenefits.Conversion of leave may notresult in a benefit exceeding100% of the member’s FinalAverage Compensation (referto the section Leave Exceeding100% of FAC in this chapter).Example: James is retiring at age 54 with 30 years of service credit. Hehas a Final Average Compensation (FAC) of 50,000. He has 150 days ofunused leave, which converts to 0.60 of a year of credit. His maximumretirement benefit would be calculated in the following manner:Retirement Benefit Calculation: 50,000 FAC x 2.5% accrual rate x 30 years 37,500 per year( 3,125 per month)Leave Conversion Calculation: 50,000 FAC x 2.5% accrual rate x 0.60 of a year 750 per year( 62.50 per month)Total Retirement Benefit 3,125 62.50 3,187.50 per monthBy converting his unused leave, James’ monthly benefit has increasedfrom 3,125 to 3,187.50, or 62.50 per month.Lump Sum PaymentMembers may elect to receive a lump sum paymentfor their unused annual and sick leave. The lump sumpayment will be paid at an actuarial rate, not at themember’s hourly rate of pay.The lump sum value is calculated by multiplying theadditional annual benefit by the actuarial reservefactor* for the member’s age at the time of retirement.Lump sum payments are subject to a mandatory20% federal income tax withholding. They can alsobe subject to a 10% federal early withdrawal penalty.LASERS encourages all members to seek advice froma tax consultant to determine if this applies to theirparticular situation.Example: If James decided to take a lump sum payment for his 150 days of unused leave, thepayment would be calculated in the following manner:Leave Conversion Calculation: 50,000 FAC x 2.5% accrual rate x 0.60 years 750 per yearLump Sum Calculation: 750 additional annual benefit x 11.46368 actuarial reserve factor* 8,597.76 lump sum paymentJames must decide whether to take an additional 62.50 monthly for his lifetime or accept a one-timelump sum payment of 8,597.76.*The actuarial reserve factor is based on the member’s life expectancy and is provided by the LASERSActuary. The factors change periodically.14.3

LASERS Employer’s Guide to RetirementLUMP SUM ROLLOVER TO A QUALIFIEDACCOUNTA member is allowed to roll over his or her lumpsum payment into an IRS qualified plan to avoid themandatory tax withholding. This choice should bemade on the member’s retirement application andForm 02-01A: Authorization for Direct Rollover must becompleted by the financial institution and submittedto LASERS.These funds areexempt fromLouisiana stateincome taxes.Members maybe subject toa 10% earlywithdrawalpenalty.LASERS will notaccept a financialinstitution’s directrollover form in lieu of acompleted Form 02-01A.LEAVE EXCEEDING 100% OF FINAL AVERAGECOMPENSATIONMembers who have unused leave that will causetheir retirement benefit to exceed 100% of their FinalAverage Compensation (FAC) will receive an actuariallump sum payment of the remaining leave. Theunused leave will be converted to service credit toreach 100% of the FAC and the remaining amount willautomatically be paid as a lump sum at an actuarialrate. The member also has the option to roll over thislump sum to a qualified plan.Example: Colleen has 38.50 years of service creditand chose to convert 2.50 years of leave, for a totalof 41.00 years. The credit for her unused leave iscalculated as follows:Retirement Benefit Calculation: 4,166.67 monthly FAC x 2.5% accrual rate x 41.00 years 4,270.83 monthly benefitSince the benefit exceeds 100% of the FAC, the monthlybenefit will be capped at 4,166.67.Lump Sum Calculation: 4,270.83 benefit - 4,166.67 FAC 104.16 104.16 difference x 12 months x 9.6138 actuarial factor 12,017.26 lump sum paymentColleen’s final monthly benefit amount is 4,166.67.The remaining leave would provide a lump sumpayment in the amount of 12,017.26.Chapter 14: Conversion of Unused Annual & Sick LeaveCertifying Unused Leave forNon-RetireesWhen a member terminates employment but is notretiring, LASERS recommends that the agency certifythe member’s unused leave (in certain circumstances)by submitting Form 07-01: Certification of UnusedAnnual and Sick Leave.Leave should be certified if:v The member has five years or more of servicecreditv The member has more than 300 hours of leaveIt is not necessary to certify leave if:v The member is refunding from LASERSv The member is accepting employment in anotherLASERS eligible positionThis will allow the member to receive credit for theunused leave if he or she should ever return to aLASERS eligible position or eventually retire.Form Quick CheckP Was a leave selection made on the member’sretirement application?PWas Form 07-01: Certification of Unused Annual &Sick Leave completed in its entirety and submittedwithin 30 days of the member’s termination date?PIf applicable, did the member submit Form 02-01A:Authorization for Direct Rollover?Leave Certification forElected Officials and CertainUnclassified OfficialsLeave earned while serving as an elected official oran official appointed by the Governor and confirmedby the Senate is exempted from the leave conversionprovisions of La R.S. 11:424, unless the official wasparticipating in the Senior Executive ExchangeProgram.14.4