By Stephen Barr
Wednesday, October 31, 2007; D04

Some federal employees nearing retirement seem to be taking sick leave at higher rates than their younger counterparts, recent studies show, raising concerns about possible abuse and whether a use-it-or-lose-it rule needs to be modified.

When employees covered by the Federal Employees Retirement System retire, they don't receive a benefit offered to those retirees covered by the old Civil Service Retirement System -- the ability to convert unused sick leave into a pension benefit.

The different policies may explain why FERS employees are using more sick leave than their CSRS counterparts as they approach retirement, a report by the Congressional Research Service said.

That pattern of use "lends credence to a longstanding hypothesis -- that FERS employees, who get no value for their unused sick leave, will use that leave rather than simply forfeiting it back to the government at retirement," the report said.

If that is the case, a substantial number of FERS employees may be gaming the system -- treating sick leave like vacation time.

It's relatively easy to take sick time in small amounts. If an employee is absent from work for three days or less, most federal agencies will take the employee's word that it was because of illness or to care for a sick child. For longer absences, agencies may require a doctor's note or other evidence before approving sick-leave requests.

William L. Bransford, general counsel at the Senior Executives Association, said federal managers have developed the perception "that you can't count on FERS employees as much as they get near retirement" because FERS does not offer them an incentive to bank sick leave for conversion into a pension credit or cash.

As more employees in FERS near retirement over the next two decades, managers will face tough decisions on how far to go in questioning employees who call in sick but do a good job when they are at work, Bransford said. "You don't want to accuse someone of abusing sick leave when you don't have the evidence," he said.

The Senior Executives Association and other groups, including the Federal Managers Association and the Professional Managers Association, have formed a Government Managers Coalition to address issues of mutual concern, such as the FERS sick-leave policy.

Darryl A. Perkinson, president of the Federal Managers Association, said the FERS policy can hamper productivity and may even encourage some employees, as they near retirement, to use up their sick leave beyond levels that are prudent for themselves and their families.

FERS, which features a 401(k)-type savings plan, was created by Congress in 1986 and covers more than 1.2 million employees. It is replacing the Civil Service Retirement System, a traditional pension program, which covers about 352,000 employees. By 2014, almost all civilian government employees will be in FERS.

Federal employees in both plans receive 13 days of sick leave each year, and may carry over unlimited amounts from year to year. It's only at retirement that the difference kicks in.

The sick-leave problem is not new. In the 1960s, about half of CSRS employees retired with zero sick-leave balances because of a use-it-or-lose-it rule. On average, retiring employees used 40 days of sick leave in their last year of employment.

To reduce the use of sick leave, Congress in 1969 decided to permit CSRS employees to receive credit for unused sick leave when their pensions were calculated.

For example, a 30-year employee earning $50,000 in salary who converted his sick leave to obtain credit for 31 years of service would increase his pretax pension by about $1,000 a year, according to the Congressional Research Service report.

To pay for that policy change, Congress increased the amount employees and their agencies pay into the civil service retirement trust fund.

Why Congress did not permit FERS employees to get retirement credit for unused sick leave is unclear, but such a benefit is costly and the sponsors of FERS wanted to create a system that would make it easier for employees to come and go. As CSRS employees retire, leaving a greater percentage of FERS employees in the federal system every year, agencies are studying the impact of the shift.

A review by the Office of Personnel Management, for example, found use of sick leave increased by more than 10 percent between 1994 and 2001. A study at the federal Bureau of Prisons found FERS that employees in that agency used more sick leave than those in CSRS, even with controlling for other possible factors, from 1994 through 2003.

And a CRS analysis of payroll data on nearly 500,000 employees showed that FERS employees eligible to retire used nearly 35 percent more sick leave than comparable CSRS employees.

In hopes of creating an incentive for FERS employees to keep their sick leave rather than use it up, Rep. James P. Moran Jr. (D-Va.) is drafting a bill that would provide a retiring worker with a one-time payment, based on a formula that would take into account salary and hours of sick leave accrued.

Moran's staff plans to work with the OPM, manager associations and unions to come up with a formula that saves the government money while providing an incentive for FERS employees to retain sick leave. Rep. Frank R. Wolf (R-Va.) plans to partner with Moran on finding a solution, aides said.

Moran would like to have a bill ready by late November, an aide said.