Expert's View

Two things that can make the federal workforce sit up and take notice are early outs and buyouts. There was a time when getting an offer to retire early was rare and buyouts didn’t exist. Now the former is a commonplace event and the latter, if still uncommon, happens often enough to keep one’s hopes up.

The two authorities available to an agency looking to reduce the size of its workforce or reshape it, while reducing the impact on its employees, are the Voluntary Early Retirement Authorities (VERA) and the Voluntary Separation Incentive Program (VSIP). An agency may use one or both of these authorities.

Before I get into some important definitions, I want to make it clear that neither early outs nor buyouts are employee entitlements. An agency is only allowed to offer them when they will permit it to meet its specific staffing needs. Therefore, unless an agency is undergoing a colossal downsizing, offers will be targeted at those positions, grades, occupations and geographic areas where changes are needed.

VERAs

VERAs allow those employees with the right combination of age and service to retire early: at age 50 with 20 years service or at any age with 25 years of service. However, there are different rules that apply to CSRS and FERS employees who meet these criteria and retire.

Under CSRS, your annuity will be reduced by 1/6 percent for each month you are under age 55. That’s 2 percent per year. On the other hand, you will be eligible to receive annual cost-of-living-adjustments (COLAs) on your annuity, regardless of the age at which you retire.

Under FERS, the usual 5 percent per year penalty for retiring before age 62 (60 if you have 20 years of service) is waived. You will also be eligible for a special retirement supplement that approximates the Social Security benefit you earned while employed under FERS. However, the supplement will not begin until you reach your minimum retirement age (MRA). Also, you won’t be eligible to receive COLAs until you reach age 62. Note: COLAs are never paid on the special retirement supplement. If you will have a CSRS component in your FERS annuity, it will be subject to CSRS rules.

VSIPs

A separation incentive – or buyout – can be offered to any employee, not just those who meet the reduced age and service requirements to retire, but only if it will result in the elimination of a position identified in the agency’s strategic plan. That plan had to be approved by OPM and OMB and filed with the appropriate congressional committees. Everybody thinks that a buyout has to be $25,000, but it doesn’t. The amount must be equal to the lesser of the employee’s severance pay calculation, $25,000, or an amount determined by the agency head. Still, I haven’t heard of a single case where a buyout was more or less than $25,000, largely because more senior employees, to whom most buyouts are targeted, typically have a severance pay entitlement of at least $25,000.