Sick and Annual Leave for Retirees

If you retire directly from state employment, you can get service credit for both your unused sick and annual leave. ERS figures both of these accounts separately. The first 160 hours of leave gives you one month of service credit. Additional fractions of 160 hours are counted as full months of service credit. You may use this type of service credit to:

  • satisfy requirements for retirement, including retirement under the Rule of 80,
  • increase your retirement payment, and
  • satisfy requirements for GBP insurance as a retiree.
Hours of leave  Months of service credit
160 hours 1 month
161-320 hours 2 months
321-480 hours 3 months
481-640 hours 4 months
641-800 hours 5 months
801-960 hours 6 months
961-1,120 hours 7 months
1,121-1,280 hours 8 months
1,281-1,440 hours 9 months
1,441-1,600 hours 10 months
1,601-1,760 hours 11 months
1,761-1,920 hours 12 months
Note: Sick and annual are figured separately. 

You can earn more than 12 months of unused sick and annual leave, but this gives you an idea of how many months you can get. Your online retirement estimator includes sick and annual leave. Most agencies report this information to ERS so that we can figure it into your estimate. If your agency doesn’t report unused sick and annual leave to ERS, contact us to speak to a retirement counselor for a better idea of your payment and eligibility. 

Getting paid for your annual leave

A perk of retiring directly from state employment is, you can get service credit for your annual leave and get paid for it You’ll want to contact your benefits coordinator for information on receiving this payment. If you get paid in a lump sum, a percentage of the payment will be taken out for taxes. Some soon-to-be retirees have a two- or three-month supply of annual leave. Remember, taking this much money upfront can push you into a higher tax bracket for the year, depending on your situation. A tax advisor can give you more information. 

If you’re not retiring directly from state employment, you won’t get credit for any annual and sick leave you accumulated while working for the State of Texas. 

Note: If you were hired September 1, 2013 or after, you can get paid for you annual leave or use it to increase your monthly payment. 

Saving on taxes on an annual leave lump sum payment

You may defer all or part of your annual leave lump-sum payment into a Texa$aver account when you retire or leave state employment. You won’t pay income tax on that money until you withdraw it. Social Security and Medicare taxes will still be deducted. You can open a Texa$aver account while you’re employed by the State, but you can also open one right before you retire. That way, you can put it in a tax-free account and save on taxes. 

Tell your benefits coordinator, HR office and/or Payroll office that you want to defer your annual leave to your Texa$aver account when you go through the exit process. HHS Enterprise employees should contact the HHS Employee Service Center.

If you’re under 50, the most you can defer is $18,500. If you’re using the Age 50 and Over Catch-up Provision, you can defer up to $24,500. You can defer up to these maximums for both 401(k) and 457 Texa$aver Plan accounts. Remember that you can’t defer annual leave into Roth 401(k) or Roth 457 accounts because they are post-tax accounts, while your annual leave funds are pre-tax.

Active TRS members transferring service to ERS for retirement

You’re not eligible to convert your annual and sick leave to ERS service credit because you wouldn’t be retiring from a position in an ERS agency. Your survivors, however, can use your sick and annual leave to determine eligibility for the Death Benefit Plan in the event of your death.

Using unused sick and annual leave in your retirement

Employees hired on or after September 1, 2009 cannot use unused sick and annual leave to reach retirement eligibility. Employees in this group can use unused sick and annual leave to increase their monthly payment. 

Employees hired on or after September 1, 2013 can only use unused sick and annual leave toward retirement credit, and not toward eligibility. If they receive their annual leave in a lump sum payment from their agency upon retirement, they cannot receive retirement credit for it. In other words, you’d have to choose between a one-time lump sum payment or a slightly higher retirement payment.

Example #1 for an employee hired before September 1, 2009

Seth has 75 hours of unused annual leave and 225 hours of sick leave. 

  • 225 hours of unused sick leave divided by 160 = 1.406; rounds to 2 
  • 75 hours of unused annual leave is not enough for at least one month of service credit. He needs 160 hours for the first month of service credit.
  • Seth will receive two months of service credit at retirement that can be used to increase his annuity. It can also be used to meet retirement eligibility. 

Example #2 for an employee hired on or after September 1, 2009

Susie has 322 hours of unused annual leave and 159 hours of sick leave. 

  • 159 hours of unused sick leave is not enough for at least one month of service credit. She needs 160 hours for the first month of service credit.
  • 322 hours of unused annual leave divided by 160 = 2.013; rounds to 3.
  • Susie will receive three months of service credit at retirement that can be used to increase her annuity. It cannot be used to meet retirement eligibility.  

Example #3 regardless of hire date

Sam has 44 hours of unused sick leave. 44 hours of unused sick leave is not enough for at least one month of service credit. He needs 160 hours for the first month of service credit

Example #4 for an employee hired on or after September 1, 2013

Sarah has 340 hours of unused annual leave and 495 hours of unused sick leave.

  • 340 hours of unused annual leave gives her three months of service credit.
  • 495 hours of unused sick leave gives her four months of service credit. 
  • If Susie takes her annual leave in a lump sum, she’ll only get service credit for the sick leave, four months. 
  • The service credit will only increase her monthly payment. It won’t help her meet retirement eligibility sooner.