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210.1 Types of Vacation Pay 

210.1.1 Payment in Lieu of Vacation 

Payment in lieu of vacation is a lump-sum the employer pays the employee for vacation 

he has not taken and is still due him. 

If the employee is still in railroad service at the time the payment is made, the 

compensation can be credited to the month the payment was made or at the end of the 

employer’s accounting year. 

If the employee is no longer in railroad service when the payment is made, the 

compensation should be credited to the DLW-RR or last day on the payroll. 

The employer should not report a service month for the month in which a lump sum in 

lieu of vacation is paid. 

210.1.2 Payment for Vacation Taken 

Payment for vacation taken is compensation the employee receives for vacation he 

actually takes. The compensation earned for a month in which vacation is taken should 

be credited to that month. 

A month in which vacation is taken is considered a month of compensated service and 

the employer should report it as a service month. 

210.2 Crediting Vacation Months 

210.2.1 RRB Can Determine How Vacation Months Should be Credited 

RRB has the authority to determine how a month in which vacation is taken (vacation 

month) should be credited. This means that the RRB has the option to credit or not 

credit a vacation month based on what most benefits the employee or family, even 

though the month has been reported as a month of compensated service. 

Although the RRB has the authority to determine how vacation months should be 

credited, it does not have the authority to remove service months from an employee’s 

service and compensation record that have been properly reported by the employer, 

including vacation months. Therefore, even if reported vacation months are not 

credited, they will remain on EDM as service months. 

NOTE: Programming is being developed to identify not credited vacation months on 

EDM. 

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210.2.2 When Not Crediting Vacation Months Benefits the Employee 

Because an annuity is not payable for a credited vacation month, it generally most 

benefits the employee to not credit (not use) vacation months when the additional 

service months will not make him eligible for any additional benefits and will: 

 Delay the beginning of his annuity; or 

 Create an overpayment. 

Additional service months normally increase the monthly annuity rate. However, when 

vacation months are used in these cases, the increase usually is not large enough to 

offset the amount the employee would lose by delaying the start of his annuity or 

creating an overpayment. 

EXAMPLE: The employee applies for a disability annuity 04/24/2008. He last 

performed service for the employer on 04/16/2007; took vacation in all months from 

05/2007 through 09/2007; is rated disabled with an onset date of 12/19/2006; his 

earliest allowable ABD is 06/01/2007. 

If the vacation months are used, he has 306 service months through 09/2007 and his 

annuity rate is $2,864.10. However, the annuity is not payable until 10/01/2007, 4 

months after the earliest allowable ABD. 

If the vacation months are not used, he has 302 service months through 05/2007 and 

his annuity rate is $2,854.05. The annuity is payable from 06/01/2007, the earliest 

allowable ABD. 

Using the 4 additional vacation months increases the annuity rate by $10.05, but the 

annuity is not payable for those months. However, if the 4 vacation months are not 

used, the employee is payable $11,416.20 for those months ($2,854.05 x 4). The 

$10.05 increase is not large enough to offset the amount the employee would lose by 

using the vacation months. Therefore, the vacation months should not be used. Note: 

In order for the rate increase to offset the amount the employee would lose, he would 

have to live at least 94 more years [ (11,416.20 10.05)  12 = 94) ]. 

This same principle applies to using or not using vacation months when they are after 

the ABD. See FOM1 207.12.7.C for examples. 

210.2.3 When Crediting Vacation Months Benefits the Employee 

It generally most benefits the employee to use vacation months when the additional 

service months will make him or his family eligible for additional benefits. 

EXAMPLE: Same facts as in the example in 210.2.2, above, except the employee has 

356 service months through 05/2007 if the vacation months after the earliest allowable 

ABD are not used and 360 service months through 09/2007 if they are. Also, the 

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employee is married and his spouse could qualify for a full age spouse annuity at age 

60. 

Although the employee’s annuity is payable from the earliest allowable ABD if the 4 

vacation months are not used, he would have only 356 service months, which is not 

enough to qualify his spouse for a full age spouse annuity when she attains age 60. 

Using the vacation months gives him 360 service months, which would qualify his 

spouse for the annuity. Therefore, it most benefits the employee and family to credit the 

vacation months, even though his annuity is not payable for 4 months after the earliest 

allowable ABD. 

This same principle applies to crediting or not crediting vacation months when they are 

after the ABD. See FOM1 207.12.7 .C for examples. 

210.2.4 When Vacation Months Previously Not Credited Can Be Credited 

It may benefit an employee to have a vacation month credited that was previously not 

credited (e.g., the service month is needed at later date to make him eligible for a 

different benefit). In order to credit the vacation month, the annuity that was previously 

paid for that month must be recovered. 

210.3 Initial Applications or Inquiries 

An employee may want to take or schedule vacation after he last performed service for 

the employer in order to: 

 Continue receiving health insurance or other benefits from the employer; or 

 Have additional service months to qualify for additional benefits. 

Employee Takes Vacation to Continue Benefits 

Taking vacation does not prevent an annuity from being paid from the earliest allowable 

ABD. Although vacation is compensated service that can allow the employee to 

continue receiving benefits from the employer, vacation months do not have to be 

credited if it affects his ABD. Therefore, the DLW-RR does not have to be the 

employee’s last vacation month, if he takes vacation. It can be as early the date he last 

performed service for the employer. This means we can pay the annuity with the 

earliest allowable ABD, regardless of how many vacation months there are after that 

ABD. 

Employee Takes Vacation for Additional Service Months 

In order for vacation months after the earliest allowable to be credited, the DLW-RR 

should be the last month the employee takes or schedules vacation. Because the ABD 

can be no earlier than the month following the DLW-RR, all the vacation months prior to 

the ABD will be credited. 

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Vacation Months Reviewed the Following Year 

In both cases, when the employer submits the service and compensation report the 

following year, if there are service months after the ABD and we verify they are vacation 

months, we will determine whether or not it benefits the employee to credit them. If it 

does not benefit the employee to credit the vacation months, they will not be credited 

and will not affect his annuity. However, if vacation months are not credited, they also 

cannot be credited for any other benefits the employee or family may be eligible for, 

unless the annuity that was paid for those months is returned or recovered. 

NOTE: RBD should always notify CESC if vacation months are not credited in a case 

(see FOM1 207.12.7.C). 

Regardless of how we determine vacation months should be credited to most benefit 

the employee, if he does not accept the determination, we will reverse our action. 

210.4 Vacation Pay Made In Death Cases 

210.4.1 Paid in Month of Employee's Death or Later 

Vacation pay paid in the month in which an employee dies is creditable as 

compensation for the month in which he died if he performed some creditable service 

during that month. A payment made in lieu of a vacation after an employee dies is 

creditable as compensation for the month in which death occurred if, during that month, 

the deceased performed some creditable service and the payment was made the same 

year as his death. 

210.4.2 Paid in Lieu of Vacation Before Employee's Death 

A. Retirement Annuity Awarded - Any allocation properly made of a payment in lieu 

of vacation and used as the basis of an award of a retirement annuity may not be 

altered after the death of the annuitant. 

B. Not Used in Retirement Annuity Award - When a payment in lieu of vacation was 

made before the employee's death and before relinquishment of rights, but was 

not used as a basis of an award of a retirement annuity, the vacation pay will be 

credited as a service month, if: 

	 Credit for additional service is needed for establishing the jurisdiction or 

current connection; or 

	 The allocation of the payment to a month, other than the month in which the 

employee last performed service would increase the death benefits. 

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210.5 Crediting Payment in Lieu of Vacation for Retirement Work 

Deductions 

When crediting a payment of accrued vacation pay in lieu of taking the vacation for work 

deductions, RBD follows the guidelines in the Social Security Administration's RS 

02505.035. Accrued vacation pay (or annual leave) paid in a lump-sum at retirement is 

for service performed prior to the date the employment relationship terminated. 

Example: 

Case History: Mr. Jones made arrangements to work January through May 1987 for 

exactly the annual exempt amount and then retired. His objective was to limit the 

amount of his earnings for the year of retirement to the allowable amount. His annuity 

beginning date (ABD) is June 1, 1987. 

However, the employer then paid him $2,500.00 in lieu of vacation. In the case of an 

employee having the seniority Mr. Jones had, the union contract provided for a vacation 

of 4 weeks, such 4 weeks to be credited for his use as of January 1 of the following year 

if he was then on the company payroll. 

The contract also had a provision, however, under which Mr. Jones would get less than 

4 weeks if he was absent from work under certain conditions for more than a certain 

number of days in the year prior to January. In such a situation, the number of paid 

vacation days would be reduced to compensate for the days of absence. 

The contract also provided for crediting additional days of vacation in the year of 

retirement. The retiring individual was, in addition to a full vacation, entitled to a pro rata 

part of a full vacation in the proportion that the number of full months worked in that year 

bore to 12 months. 

Thus, for Mr. Jones' year of retirement after he had worked 3 months, he was eligible for 

1 additional week's vacation, making a total of 5 weeks to his credit when he retired. 

The question is: When were the services rendered for the 5 weeks' payment of 

$2,500.00 in lieu of vacation? 

Rule Applied: Since there was a written plan which shows that services for $2,000.00 of 

the payment were for the 4 weeks earned for services rendered in 1986, it may be 

found that the vacation pay was earned in 1986, even though use of the vacation could 

not start until January 1, of the following year. The services for the week's payment in 

lieu of vacation ($500.00) was for the services performed in January through March of 

1987. 

In the absence of a written contract which shows the payment is for prior services, the 

vacation may still be considered to have been based on services rendered prior to the 

last month worked if the employee could have received payment for, or could have 

taken the vacation, before the year of retirement. In such cases, the vacation would be 

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considered to be based on services in the year in which the accrued vacation was 

available for the employee's use. 

Example: In the example given in Section A, if the written plan had not stipulated a 

basis on which services were rendered, but $2,000.00 of the $2,500.00 had actually 

been credited to Mr. Jones and made available for his immediate use in 1986, the 

services for this part ($2,000.00) would be considered to have been rendered in 1986. 

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