An accelerated payout plan added $1,250 a month - and an $80,000 problem
Splitting vacation and sick leave payouts into installments does not make them pensionable. That is the appellate court’s ruling handed down on October 16.
Seven retired Illinois State Board of Education (ISBE) employees argued that because their accumulated leave was paid out bimonthly rather than in a single check at retirement, those payments should count as regular compensation in pension calculations. The Appellate Court of Illinois disagreed, affirming the State Employees’ Retirement System (SERS) in a first-of-its-kind ruling.
The dispute traced to a provision in the employees’ collective bargaining agreement. Workers nearing retirement could lock in an irrevocable departure date two or three years out. In return, unused vacation and sick days would be liquidated across remaining paychecks instead of paid in one sum at the end.
One retiree’s case anchored the appeal. He retired on December 31, 2011, after 32 years. By triggering the accelerated plan around January 2009, he liquidated 75 vacation days and 58.6 sick days - adding roughly $1,250 a month to his salary. SERS estimated the resulting pension overpayment at $80,000 over a decade.
The problem surfaced in late 2021 when SERS found ISBE had been reporting the accelerated payments as “base pay.” SERS recalculated pensions, cut annuities, and demanded repayment of overpayments.
The retirees had dictionary definitions on their side. A “lump sum” means one payment, they argued, and theirs came in seventy-two. The court acknowledged the point - then moved past it. What matters under the Pension Code, it held, is the source of the payment, not the delivery method.
The court called the retirees’ reading an invitation to “absurd results.” Two identical employees - same role, same pay, same stockpiled leave - would receive different lifetime pensions depending on whether unused days were cashed out once or spread across several paychecks. Folding years of accumulated leave into the final salary window would create a thirteen-month year, inflating the average the pension is built on. That, the court said, is pension spiking - regardless of how many envelopes it arrives in.
The retirees’ fallback - that ambiguous pension statutes must be read in their favor - did not land. The court held their reading was unreasonable when the statute was read whole.
For benefits teams administering public-sector leave provisions, the takeaway is direct: how you structure the disbursement does not change what the payment is for, and accelerated payout plans need to be designed with that limit in mind.
The appellate court affirmed SERS’s decision. No further proceedings were indicated.
