CalPERS New Circular Determines Vacation Time Used To Stay in Paid Status During Fixed School Breaks is No Longer Creditable Towards Retirement

06.12.2026

A CalPERS Circular[1] published on May 18, 2026, introduces significant changes impacting how school employers may report compensation earned during vacation time which is required to be taken during non-work time, such as school breaks.

It is well established that compensation reportable to CalPERS includes payment for vacation time. Government Code Section 20630 provides, in part:

[C]ompensation means the remuneration paid out of funds controlled by the employer in payment for the member’s services performed during normal working hours or for time during which the member is excused from work because of any of the following:

(1) Holidays.

…

(4) Vacation.

Historically, many school employers have considered the time when schools are closed for winter and spring break to be non-work periods, during which employees who wish to remain in paid status may use vacation days. Employers have typically reported vacation days taken during winter/spring break to CalPERS no differently than vacation days taken on days when schools were in session.

In its Circular, CalPERS announced a new interpretation of statute (including Government Code Sections 7522.34, 20630, and 20636.1) which would prohibit reporting vacation days used during breaks or other non-work periods, and would allow reporting of vacation pay only where the employee’s use of a vacation day excused them from a day of work they would otherwise have been obligated to perform.  

Districts should carefully consider the implications of CalPERS’ new interpretation when developing and negotiating employee work calendars. If any employees are scheduled to work during school breaks, the District should maintain dedicated duty calendars for those employees. Employees who are not scheduled to work during school breaks can continue to use vacation days to remain in paid status with the District; however, those vacation days will no longer be reportable to CalPERS.

Moving forward, CalPERS advises school employers to: “Report vacation pay only for time excused from work . . . [and] [d]iscontinue the practice of prorating and/or reporting vacation payouts.”  It remains to be seen whether CalPERS will attempt to enforce this guidance retroactively (i.e. through audits), though school employers should be aware of this risk.

If you have any questions or concerns about the topic of this Alert or with respect to CalPERS reporting generally, please do not hesitate to contact the authors of this Alert or your AALRR counsel for clarification and guidance.

[1] Circular Letter 200-023-26 is available at: https://www.calpers.ca.gov/employers/policies-and-procedures/circular-letters/200-023-26.

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