Public Pensions May Rethink Vacation Payouts After Court Ruling

Cities and states that let retiring public employees boost their pension benefits with payouts for unused vacation days may rethink that practice after a ruling late last week.

The Arizona Supreme Court said a one-time payout for unused vacation days doesn’t form part of an employee’s compensation when calculating pension benefits. Though the decision was specific to the city of Phoenix’s pension plan, attorneys and pension consultants say it could have broader implications as municipalities across the country struggle to maintain plans that are underfunded.

“This is a big victory for municipalities going forward,” said Eric M. Fraser, a ...