Do you need a solution to large leave balances?

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Many California agencies are struggling to save money with the tremendous payouts that employees are receiving when they cash out their unused leave time.  Sometimes these benefits can cost hundreds of thousands of dollars.  This leaves many questioning whether or not they can balance both employee leave liabilities and their budgets.  The PARS Leave Conversion Plan (LCP) can help to accomplish both with a smart, low-cost approach that enables your employees to supplement their retirement benefits while limiting growth of future leave liabilities.

The City of Lakewood

The City of Lakewood is a California municipality with more than 170 full-time employees.  In 2001, the City implemented a multi-tiered PARS Retirement Savings Program for all full-time City employees.  The City’s PARS LCP allows full-time employees the flexibility to convert their leave (sick or vacation for example) into a tax-qualified retirement plan.  This enables employees to increase retirement savings during employment when they would have otherwise received unused leave as taxable wages upon retirement or termination.  Participants have a wide variety of benefit payment options, including lifetime and fixed-term benefits that can be rolled over to an IRA.

Howard Chambers, City Manager for the City of Lakewood comments, “We are happy to provide our employees an option that not only supplements their retirement benefit but also reduces liability to the City.  Our employees appreciate deferring taxes while we are able to save money in tight economic times.”

The PARS Plan also helps the City of Lakewood retain key employees by providing a supplemental retirement benefit without adding costs to the City.

How does the PARS Leave Conversion Plan work?

Vacation, sick leave, compensatory time, administrative leave, floating holidays, or any other form of leave can be converted throughout active employment years into a PARS Leave Conversion retirement plan, thereby avoiding a large lump sum payment at termination of employment with the resulting loss in taxes.

What are the advantages of PARS Leave Conversion for EMPLOYERS?

  • Reduced costs due to contributions being made over time and based on pay rate at the time of contribution rather than pay rate at retirement (often the employee’s highest rate)
  • Local control of plan design – the ability to set eligibility and vesting requirements and other variables (e.g., caps, additional incentives, etc.)
  • Improved employee retention
  • Incentive for employees to reduce their sick leave usage

 What are the advantages of the PARS Leave Conversion Plan for EMPLOYEES?

  • Reduced tax resulting from the ability to defer taxation
  • Reduced possibility of moving into a higher tax bracket (without a PARS Leave Conversion Plan, added income in the year of separation from service or retirement could result in higher taxes on all income)
  • Flexible distribution options for employees, including Lump sum payout, IRA rollover, lifetime, joint-and-survivor, Fixed term monthly payouts ranging from 5 to 15 years

Contact PARS about designing a similar Leave Conversion Plan
to allow your employees to convert unused leave time annually into a tax-deferred retirement plan. 

800.540.6369 x 127


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