If you’re a public employee in Oregon planning your retirement, you’ve probably wondered: “Do my unused vacation hours count toward my pension?” The answer, like many things in the world of Oregon PERS, depends on which tier you’re in. Understanding how your Oregon PERS vacation payout is treated can help you avoid surprises and make smarter decisions in your final working years. Let’s walk through what counts, what doesn’t, and what you need to know before you retire.
If you learn better through auditory input, here’s a video:
Understanding “Subject Salary” and Why It Matters
Before diving into vacation hours specifically, it’s important to understand the concept of subject salary. This is PERS’s definition of the types of pay that count toward your retirement benefit. Subject salary determines two things:
- Your FAS (Final Average Salary) (which directly affects your pension), and
- Your IAP (Individual Account Program) contributions
Not all compensation is treated equally. Subject salary typically includes your regular wages, most overtime, and certain bonuses—but it excludes things like severance pay, reimbursements, and in many cases, Oregon PERS vacation payout.
Tier One: Vacation Payouts Can Boost Your Pension
If you’re a Tier One member, unused vacation time that is paid out at retirement does count toward your subject salary. That means it not only contributes to your IAP but also increases your Final Average Salary, which is the foundation for your monthly pension calculation.
For employees who have accrued significant vacation time, this can be a meaningful bump in pension benefits. There’s no hard cap from PERS on how many hours can be included, so if your employer allows it, those hours can work in your favor—within one key limit, which we’ll cover shortly.
Tier Two: Helpful for IAP, but Not Your Pension
For Tier Two members, the rules are slightly different. Vacation payouts at retirement are still counted as subject salary for contribution purposes—meaning they help grow your IAP—but they are not included in the Final Average Salary calculation used to determine your pension benefit.
So while cashing out vacation time can add value, it won’t increase your monthly pension directly.
OPSRP: Vacation Time Doesn’t Count at All
For members of the Oregon Public Service Retirement Plan (OPSRP), vacation payouts are excluded entirely. They’re not considered subject salary, which means they do not count toward either your IAP contributions or your Final Average Salary.
This is especially important for folks in roles like corrections or public safety, where vacation balances can accumulate rapidly. Even a large lump sum payout won’t increase your retirement benefit under OPSRP. Sorry.
What’s the Deal with the “300-Hour Cap”?
Many employees have heard there’s a 300-hour cap on vacation payouts. Here’s the truth: PERS does not impose a cap on vacation hours that can be counted for Tier One or Tier Two members. If your employer allows you to cash out 400 hours at retirement and you’re Tier One, it all counts—subject to one important limit.
The confusion often comes from two places:
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Some employers or union contracts do cap the number of hours that can be accrued or cashed out.
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For OPSRP members, there is a 300-hour annual cap on overtime that can be used in Final Average Salary calculations—but this applies to overtime, not vacation.
One More Limit: The SB 1049 Salary Cap
Even if you’re eligible to count all your vacation payout toward retirement, there’s still a statewide salary cap that limits how much subject salary can be used in pension calculations.
Under Senate Bill 1049, Oregon PERS sets an annual salary limit that applies to all members. In 2025, that cap is approximately $238,000. If your base pay, overtime, and vacation payouts exceed that amount in a given calendar year, anything above it won’t be counted toward your pension or IAP contributions.
For high earners or employees with large leave balances, this cap can reduce the benefit of a big year-end payout. PERS provides illustrative examples of how this works based on tier and payout type, which you can find here.
So Should You Cash Out Vacation Hours?
- If you’re in Tier One, cashing out vacation at retirement could be a smart strategy to increase both your pension and your IAP.
- If you’re in Tier Two, cashing out vacation can still be useful to boost your IAP balance, but it won’t affect your pension directly. Some folks choose to cash out vacation gradually in their final working years to spread out the tax impact, especially if your employer allows annual payouts.
- For OPSRP members, vacation cash-outs won’t affect your retirement benefit, but may still be worth considering as part of your broader income strategy.
Final Thoughts: Oregon PERS Vacation Payout and Pension Planning
Understanding the relationship between Oregon PERS vacation payouts and pension eligibility can make a real difference in how you plan for retirement—especially in your final working years. If you’re unsure how your vacation balance, sick leave, or subject salary fits into your specific retirement benefit, don’t hesitate to reach out. We specialize in helping Oregon PERS members make confident, informed decisions about the myriad of choices in front of them as they face retirement.
