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Posted August 16, 2007 The full Governing Management Letter | Subscribe to The Governing Management Letter Bonus columns: GIRARD MILLER’S BENEFITS BEAT Rx for Sick Leave A ‘4 percent solution’ to OPEB Questions, success stories or anecdotes about benefit issues in government? No other employee benefit is abused as often as sick leave. When I first worked in local government, a young co-worker regularly called in sick to hang out at the bar with his girlfriends or head to the New Jersey beaches. As a public manager, I faced the Monday morning sick leave calls from employees who had "tied one on" over the weekend. Then there were the firefighters who magically never used sick leave as they built up huge sick leave banks which they cashed out just before retirement in order to sweeten their pensions. (Their secret: They swap shifts with a co-worker when they are actually ill.) 
People get sick. Their children get sick. Sick workers can infect other employees if they don't go home for fear of lost income. It's humane for employers to provide sick leave benefits to their employees. Yet many private sector employers offer no such benefits and economists are divided on the market costs of mandating sick leave benefits by legislation. Nonetheless, some states and localities are following San Francisco's Proposition F, which now compels private employers to provide sick leave benefits. But despite best intentions, we hear repeatedly of abuses in sick leave in both the public and private sector. The private sector has migrated toward policies that provide sick leave on a "use it or lose it" basis. With government employees strongly represented by labor unions, however, sick leave has become a government entitlement, and that is the root of a problem. One news report suggests that public employees take 50 percent more sick leave than their private sector counterparts.
Somehow the incentive structures have been distorted, and it's time for public officials to take a hard look at how sick leave fits into their government's overall compensation and human resources programs, including retiree medical benefits funding. In some cases, it may make sense to combine some sick leave benefits with other paid time off. Younger workers in particular would prefer to have more discretionary time off, and allowing "personal leave" is often a better solution with greater flexibility. Those who squander their leave time for frivolous escapes will have less available for illnesses when they occur. When a public agency pays employees to not use a benefit they have been given, to promote better attendance, it's usually the sign of a problem. To control such abuse, a New Jersey legislative panel recommends putting limits on sick-bank payouts. Better yet, public officials should install "use it or lose it" policies for their employees. Private companies have adopted this approach to both sick leave and vacation time, especially for (professionally) exempt employees. Governments that "buy back" accumulated sick leave are really just funding an informal deferred compensation plan. If that's your current practice, then formalize it to the taxpayers' advantage. Redirect that monetary benefit into a retirement health savings account so that the employer gets credit for its financial contributions throughout the employee's entire lifetime. If the plan is nondiscretionary, then the medical disbursements in retirement can be tax-free. That could go a long way toward solving "OPEB" retiree medical funding problems. This plan design also eliminates the practice of sick-bank hoarding in order to "spike" the pension plan upon retirement. (See my May column on pension spiking.) Most public employers provide two weeks of paid sick leave annually. Many provide a day per month. That's 4 percent of a working year. Thus, employees who are frugal with sick leave could accumulate as much as 4 percent of their lifetime earnings in a retiree medical savings account, and even more from the resulting investment income. Over a 30-year career, the projected savings could fund a lifetime of annual retiree medical benefits worth as much as 25 percent of their final salaries. Bingo! You will have pre-funded a respectable employer's share of their retiree medical needs. It's the "4 Percent Solution" to OPEB. Not a complete answer, for sure, but a smart place to start. Plus it cuts down on absenteeism, once workers realize that they are squandering their retirement security when they call in sick just to play hooky. Last month: Girard Miller, an analyst of benefits and investments with 30 years of experience in the public, private and nonprofit sectors, can be reached at Girardinmalibu@charter.net. © 2007, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
