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Excess vacation and retirement benefits

Ken Davis

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Rev. Rul. 75-539 states that sick leave accumulated at retirement that may not be received in cash but is used to purchase medical insurance is excluded from application of the constructive receipt doctrine. PLR

9840006 expands this concept to exclude from income excess annual sick leave used to increase the employee's account in a cash balance DB plan (again, the sick leave could not have been received in cash).

Any reason why this concept won't work for excess annual vacation? For example, a state university currently allows an employee to have up to two times annual vacation in the bank. For vacation earned in excess of that amount, the employee must either "use it or lose it." The idea would be that on an annual basis, vacation that would be lost would be automatically converted to sick leave, which would then be converted to additional State Teacher's Retirement System benefits at retirement. Sick leave may be accumulated without limit and under our state laws is automatically used to "buy" more service credits under our TRS.


Ken Davis

Univ. of South Alabama

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