FEDweek

Buyouts Revisited

I’ve written about the rules governing the Voluntary Early Retirement Authority (VERA), deferred annuities, and the MRA+10 provision. This time I want to write about an incentive that agencies sometimes offer employees to encourage them to leave or retire. It’s called the Voluntary Separation Incentive Payment (VSIP)—more commonly known as a buyout.

The VSIP is a cash payment designed to avoid or at least minimize the involuntary separations resulting from RIFs, reorganizations, and transfers-of-function. Unlike a VERA, if you are offered a VSIP, you can accept it even if you aren’t eligible to retire.

Eligibility

To be eligible for a VSIP, you must meet the following criteria:

• be serving in an appointment without time limit,

• have been employed by the federal government for at least three years,

• be in a position targeted by your agency, and

• get an okay from your agency to accept the offer.

You won’t be eligible for a VSIP if you are:

• a reemployed annuitant,

• an employee with a disability such that you are or would be eligible for disability retirement, or

• someone who

–  has previously received a VSIP

–  was paid, or is to be paid, a student loan benefit within 36 months of separation

–  received, or will receive, a recruitment or relocation incentive, within 24 months of separation

–  received, or will receive, a retention incentive within 12 months of separation

Amount Payable

If you accept a VSIP, you’ll receive the lesser of the amount of severance pay you’d be entitled to or an amount determined by your agency head, not to exceed a maximum. That is $25,000 in most agencies, although DoD has authority to offer up to $40,000. Most agencies will give you the full amount in one payment, others may give you half the amount when you leave, the rest a year later.

Taxes

Federal taxes in the amount of 25 percent will automatically be deducted from the VSIP as will state and local taxes, if applicable. Further, CSRS employees who accept the VSIP will have 1.45 percent deducted for Medicare. FERS employees will have both the Medicare deduction and an additional 4.2 percent to cover their required contributions to the Social Security fund.

A closing note. That general $25,000 figure has been the maximum amount offered since the VSIP became law two decades ago. Because the value of the payment has diminished in value since then, many employees have hoped that the amount would be raised. So far, that has happened only for DoD (which ironically is not likely to offer many buyouts at all, since it is in growth mode). Read the FEDweek newsletter at www.fedweek.com to watch for whether that higher amount will be extended to other agencies.