An early out, buyout or reduction in force (RIF) may be in your future under the Trump Administration’s plans for the federal workforce. Below is an overview on how these workforce shaping tools work.
President Trump campaigned on promises to create jobs, but that largely does not extend to the federal workforce, which he and his senior staff have said is too large. Shortly after January’s inauguration, the White House began putting this philosophy into practice with a general hiring freeze, allowing exceptions for national security and public safety positions, as the first step in long-term plan to reduce the federal workforce.
Next came an order requiring agencies to examine how they could streamline themselves and submit those findings to the Office of Management and Budget, which is to combine them into an overall plan to reorganize—that is, slim down—the government.
Most recently came Trump’s initial “skinny” budget proposal for the 2018 fiscal year seeking to boost spending at Defense, Homeland Security and Veterans Affairs at the cost of other agencies.
Some of those agencies such as the EPA and the Department of Labor, would face budgetary cuts of 20 percent or more while nearly two dozen—mostly smaller independent agencies and segments of Cabinet departments—would be eliminated.
Whether those proposals will make it through Congress is questionable. But even half a loaf—or less—coming out of the Capitol Hill budget process could have significant impact on the employment levels at those agencies. And the pattern of budget proposals has been that administrations go back to favored ideas time and time again, if they don’t get what they want.
Downsizing already is under way due to the hiring freeze, but attrition—not filling positions as employees leave for retirement or other reasons—alone would not produce savings on the scale needed to meet significant budget cuts within the time frame of just one year.
The government’s main tools to boost turnover are early retirements, and buyout incentives. A third tool, the reduction-in-force, “RIF,” is less commonly used but can be deployed to achieve workforce reduction targets.
Following is an explanation of how each works.
Under an agency’s early retirement authority, also called an early out, the basic age and service requirements are reduced to 20 years of service at age 50 or 25 years of service, regardless of age. This could mean eligibility for retirement well before the individual would normally be eligible.
Before offering early retirements for downsizing, an agency must request and receive authority from OPM (the Defense Department is an exception; it doesn’t need OPM approval). Early retirements may be requested by the agency and approved by OPM on as broad or narrow a basis as is necessary. Agency headquarters may request voluntary early retirement authority for the entire period of the major reduction-in-force, major reorganization, or major transfer of function, or through a specified date. Agencies are urged to use early retirements judiciously based on the agency’s need to downsize and to limit approvals based on the agency’s need to continue performing its mission.
In order to receive an agency-wide authority, the agency must demonstrate that the reorganization, reduction-in-force, or transfer of function will affect employees throughout the agency.
If OPM approves an agency request to offer voluntary early retirements agency-wide, the agency may offer them to employees in all agency organizational units or may make offers based on specific organizational unit(s), geographic area(s), occupational series or level(s), or any similar non-personal and objective factors during a single window period or in multiple windows based on any combination of factors.
An agency may also request a more targeted voluntary early retirement authority for only particular organizational units, geographic areas, occupational series and levels, grades, time periods, or any combination.
In general, agencies are not required to provide – and employees are not entitled to receive – an offer of voluntary early retirement. Further, there are some categories of employees ineligible for early retirement offers even if they fall within the parameters of an agency program.
These generally include employees who have not been on the agency’s rolls since at least 31 days before the request was made, employees on time-limited appointment, and employees in receipt of a removal notice for misconduct or performance reasons.
Agencies can limit early retirement window periods by an established closing date or by receipt of a specified number of applications for retirement. These windows can also be targeted to employees in specific organizational units, occupational series or levels, or geographic areas.
An employee’s decision to separate under an early retirement offer is entirely voluntary. Each agency with an approved voluntary early retirement authority must ensure that employees are not coerced into retiring early.
The agency should issue a statement to each employee affirming that early retirement is, in fact, voluntary. Also, if agency management becomes aware that any employee is coerced into early retirement, the agency must take appropriate corrective action. The decision to accept the offer is yours alone.
For some employees, the decision is made immediately. Some reject the idea out of hand, possibly because they haven’t reached a financial position from which they can stop working, even if they would be drawing an annuity. For some, it’s a lifestyle decision; they simply wish to continue working for a certain period longer, possibly in order to coordinate their retirement with that of a working spouse.
Similarly, some employees accept early retirement offers with little thought. They are eager to leave their federal government employment for a variety of reasons—an outside job opportunity, dissatisfaction with the way their program is being administered, even personality conflicts with co-workers or supervisors.
But before making a hasty decision in either direction, be sure to fully understand the consequences of taking early retirement. It might be a better deal than you expect and might open up opportunities for outside employment or retirement activities that you hadn’t anticipated. Or, it might be a worse deal than you expect, leaving you with a lifetime annuity smaller than you had been hoping for or even expecting.
Note: If you a CSRS employee and are under age 55, your basic annuity is reduced by 1/6 of one percent for each full month (2 percent a year) you are under age 55. Under FERS, for retiring under minimum retirement age with at least ten years of service but less than 30 (sometimes called the “MRA+10”), there is a 5/12 of one percent per month (5 percent per year) for beginning benefits under age 62. These reductions are permanent.
Buyouts, also called voluntary separation incentive payments, can be paid by certain agencies during downsizing in order to reduce the disruptions and cost associated with a reduction-in-force, or for workforce restructuring purposes.
Public Law 107-296 provided a permanent, government-wide buyout authority for workforce restructuring and Public Law 108-136 provided the Defense Department with authority to offer them for either downsizing or restructuring purposes without first needing Office of Personnel Management approval.
A buyout is equal to the lesser of an employee’s severance pay entitlement if separated by a RIF (see below) or a set amount, generally $25,000. Some buyout authorities mandate or allow lower amounts to be set by the agency head. Through September 2018, the Defense Department may, at its discretion, pay buyouts of up to $40,000.
Employees who accept buyout offers must sign an agreement promising to leave by a certain date. Those who accept an incentive payment and become reemployed with the federal government, under any appointment authority for any duration, in either a temporary or permanent status or under a personal services contract, for five years following the effective date of a separation, are required to repay the full (pretax) amount of the incentive payment prior to the first day of employment.
The rehiring restriction applies to quasi-governmental bodies as well as to part-time and temporary positions. A “personal services contract” generally includes consulting-type arrangements but not employment with a company under contract to the agency. Definitions vary from agency to agency, so check the specific provisions in advance.
Buyout authority for downsizing typically is granted by an act of Congress after an agency makes the case that it would suffer disruptions and other costs from conducting a reduction-in-force.
Eligibility varies among agencies according to the specific terms of the laws applying to them. In general, an employee is eligible to receive a buyout by accepting an offer and voluntarily resigning or retiring during an authorized window.
Generally, those not eligible for buyouts include those who:
· are reemployed annuitants;
· have a disability on the basis of which the employee is or would be eligible for a disability retirement;
· are serving under an appointment with a time limitation;
· have not met agency continuous service requirements;
· have received a specific notice of involuntary separation for misconduct or unacceptable performance;
· have received a buyout before but have not repaid it;
· are covered by statutory reemployment rights from another organization;
· have received a recruitment or relocation bonus within 24 months of separating to receive a buyout;
· are in “phased retirement” status; or,
· have received a retention bonus within 12 months of separating to receive a buyout.
Check with your agency for any specific variations from those general principles.
There are no age requirements, although in practice, most buyout recipients are eligible for either regular or early retirement. Early retirement offers often are coupled with buyout offers, but the buyout program is not a retirement program and it does not change standard rules on eligibility for retirement.
The decision whether or not to offer a buyout even once an agency has the authority is strictly up to the agency’s discretion; an employee is not entitled to a buyout even if the agency has the authority to offer them and in fact is offering them within the organization.
Agencies also have wide discretion to tailor their buyout programs, such as setting specific eligibility rules and crafting procedures for allocating buyouts if more employees agree to take them than are needed to prevent a RIF.
For example, an agency in that situation might choose recipients according to order of separation date, order of receipt of completed applications, seniority, and other factors. Incentives can be targeted at positions according to locations, organizations, and/or occupations (including grade levels), but may not be targeted for individuals.
Accepting a buyout offer also means giving up rights that would have accrued to the employee by staying with the agency through a reduction-in-force, as described below.
These include the standard severance pay entitlement as well as various forms of reemployment assistance. Buyout takers generally are deemed ineligible for unemployment compensation benefits. However, they may continue federal life and health insurance under the same terms as anyone resigning or retiring without a buyout.
When an agency conducts a significant job reduction, it must use formal reduction-in-force procedures published by the Office of Personnel Management. These rules create four standards for determining which employees are released, and which are retained, either in their current positions or in another position:
• tenure of employment (such as type of appointment);
• veterans preference;
• length of service; and
• performance ratings.
Note: Under P.L. 114-92, the Defense Department made an employee’s “rating of record” the first determining factor there, followed by tenure group, average score, veterans’ preference and service computation date.
The “rating of record” is the average of the employee’s last two performance evaluations, rounded up to the next whole number. For tenure groups, temporary employees and those with term appointments (Tenure Group III) always will be separated before any employees with career status (Tenure Group I) or with career-conditional status (less than three years of service; Tenure Group II).
The “average score” is the average of an individual’s ratings on specific performance standards, not rounded. Regarding veterans’ preference, first priority is for those with a 30 percent or more disability rating, then others with preference, then non-veterans. Other policies are the same as for other agencies.
An agency is required to use the RIF procedures when an employee is faced with separation or downgrading for a reason such as reorganization, lack of work, shortage of funds, insufficient personnel ceiling, or the exercise of certain reemployment or restoration rights.
A furlough of more than 30 calendar days, or of more than 22 discontinuous workdays, is also considered a RIF action.
The agency has the responsibility to decide whether a RIF is necessary, when it will take place, and what positions are abolished. Certain terms may be set by labor contracts in unionized workplaces, and unions may negotiate over the impact and implementation of the RIF.
RIF Procedures—First, the agency defines the competitive area (the geographical and organizational limits within which employees compete for retention). A competitive area may consist of all or part of an agency. The minimum competitive area in the departmental service is a bureau, major command, directorate, or other equivalent major subdivision of an agency within a local commuting area. An agency must obtain approval from OPM before changing a competitive area within 90 days of a RIF.
Next, the agency groups interchangeable positions into competitive levels based upon similarity of grade, series, qualifications, duties and working conditions. Positions with different types of work schedules (such as full-time, part-time, intermittent, seasonal, or on-call) are placed in different competitive levels.
Because of differences in duties and responsibilities, positions of supervisors and management officials are placed in competitive levels of only those positions. Finally, competitive and excepted service positions are placed in separate competitive levels.
The four retention factors are applied and the competitive level becomes a retention register, listing employees in the order of their retention standing:
1) Tenure. Employees are ranked on a retention register in three groups according to their types of appointment:
• Group I—Career employees who are not serving on probation. (A new supervisor or manager who is serving a probationary period required on initial appointment to that type of position is not considered to be serving on probation if the employee previously completed a probationary period.)
• Group II—Career employees who are serving a probationary period, and career-conditional employees.
• Group III—Employees serving under term and similar non-status appointments. (An employee serving under a temporary appointment in the competitive service is not a competing employee for RIF purposes and is not listed on the retention register.)
2) Veterans Preference. Each of those groups is divided into three subgroups reflecting their entitlement to veterans preference:
• Subgroup AD—Veterans with a compensable service-connected disability of 30% or more.
• Subgroup A—Veterans not included in subgroup AD.
• Subgroup B—Nonveterans.
A retired member of the Armed Forces is considered to be a veteran for RIF purposes only if one of the following conditions is met:
• the armed forces retired pay is directly based upon a combat-incurred disability or injury;
• the armed forces retirement is based upon less than 20 years of active service; or
• the employee has been working for the government since November 30, 1964, without a break in service of more than 30 days.
3) Length of Service. Employees are ranked by service dates within each subgroup. The service dates include creditable civilian and military service, and additional service credit for certain performance ratings.
4) Performance. Employees receive extra RIF service credit for performance based upon the average of their last three annual performance ratings of record received during the four-year period prior to the date the agency issues RIF notices. The four-year period is the earlier of the date the agency issues RIF notices, or the date the agency freezes ratings before issuing RIF notices.
An employee is given additional service credit based on the mathematical average (rounded in the case of a fraction to the next whole number) of the value of the employee’s last three annual ratings.
If an employee received more than three annual ratings during the four-year period, the three most recent annual ratings are used. If an employee received fewer than three annual ratings during the four-year period, credit is given for an assumed rating of “Fully Successful” to bring the employee’s ratings up to three, regardless of the employee’s actual length of service.
Service credit is broken down by:
• 20 additional years for an “outstanding” rating;
• 16 additional years for an “exceeds fully successful” rating; and
• 12 additional years for a “fully successful” rating.
For example, an employee with two years of federal service has one annual rating of “Outstanding” (20) and one of “Exceeds Fully Successful” (16). The employee would receive additional RIF service credit based upon the two actual ratings plus one assumed rating of “Fully Successful” (12), or 20 + 16 + 12 = 48, divided by 3 = 16 years of RIF credit for performance.
Employees are released from the retention register in the inverse order of their retention standing (such as the employee with the lowest standing is the individual who is actually reached for a RIF action).
All employees in Group III are released before employees in Group II, and all employees in Group II are released before employees in Group I. Then within subgroups, all employees in Subgroup B are released before employees in Subgroup A, and all employees in Subgroup A are released before employees in Subgroup AD. Any employee reached for release out of this regular order must be notified of the reasons.
Rights to Other Positions—Employees in Groups I and II with current performance ratings of “unsuccessful,” and all employees in Group III, have no assignment rights to other positions. Employees holding excepted service positions have no assignment rights unless their agency, at its discretion, chooses to offer these rights.
Employees in Groups I and II with current performance ratings of at least “minimally successful” are entitled to an offer of assignment if they have “bumping” or “retreating” rights to an available position in the same competitive area.
“Bumping” means displacing an employee in the same competitive area that is in a lower tenure group, or in a lower subgroup within the released employee’s own tenure group.
“Retreating,” means displacing an employee in the same competitive area who has less service within the released employee’s own tenure group and subgroup.
An employee with a current annual performance rating of “minimally successful” only has retreat rights to positions held by employees with the same or lower ratings.
Pay and Benefits—Severance pay is paid to permanent employees with at least one year of service who are separated through no fault of their own, such as in a RIF.
The basic severance pay allowance consists of:
· one week of pay at the rate of basic pay for the position held by the employee at the time of separation for each full year of creditable service through 10 years;
· two weeks of pay at the rate of basic pay for the position held by the employee at the time of separation for each full year of creditable service beyond 10 years; and
· twenty-five percent of the otherwise applicable amount for each full three months of creditable service beyond the final full year.
That is augmented by an age adjustment allowance consisting of 2.5 percent of the basic severance pay allowance for each full three months of age over 40 years.
There is a 52 weeks of pay lifetime-maximum for severance pay.
Retirement is allowed during a RIF at standard age and service requirements. Early retirement, with its more lenient combinations, generally is offered during RIFs, sometimes accompanied by buyout offers when the agency is eligible to make such offers.
Employees also may elect a deferred annuity at age 62 if they have at least five years of service at separation. FERS employees also are allowed a deferred annuity at their minimum retirement age with 10 years of service, although the annuity is reduced 5 percent for each year the annuitant is under age 62 when benefit payments begin.
Flexible spending accounts are closed on separation. Unspent money in a health care FSA is not refunded, although claims for purchases up to the date of separation still will be paid.
Unspent money in a childcare FSA will remain available for use through the plan year.
Both Federal Employees’ Group Life Insurance and Federal Employees Health Benefits coverage continue free of charge for 31 days after a RIF separation. Those retiring can carry FEHB and FEGLI coverage into retirement under the same terms as voluntary retirees.
For those not retiring, FEHB coverage can be continued for up to 18 months by paying both the employer and employee share of the premium plus an administrative fee. (Note: Certain persons involuntarily separated for reasons other than misconduct may be eligible for assistance with this premium.
For those not retiring, FEGLI coverage can be converted to an individual policy without the need for a physical exam, with the enrollee paying all premiums.
Coverage under the Federal Dental and Vision Insurance Program ends upon separation.
Coverage under the Federal Long Term Care Insurance Program continues so long as the enrollee continues to pay the premiums.
Employees separated by RIF normally are eligible for unemployment compensation.
Job Placement—Competitive service employees in Groups I and II who have received a specific notice of separation by a RIF are eligible for placement assistance in finding other positions.
Under the Interagency Career Placement Program, all surplus and displaced employees who work in executive branch agencies are eligible to receive career transition assistance from their agencies.
They also may receive special selection priority for positions in their agency within the local commuting area for which they apply and are found well qualified.
Eligibility begins when the employee receives either a specific RIF notice of separation, or a more general notice that the employee is likely to be separated through RIF, or for declining a directed reassignment to another commuting area.
Employees are entitled to see a copy of their agency’s career transition assistance plan detailing the services available, and the special selection priority for which they may be eligible.
The Reemployment Priority List is a post-RIF program that provides separated employees first opportunity for positions within their former agency that would otherwise be filled by their agency from outside the agency.
Provided that the separated employee did not refuse a RIF offer of assignment to a position at the same grade, a separated Group I employee is placed on the RPL for two years; a separated Group II employee is placed on the list for one year.
Appeals and Grievances—An employee who has been separated, downgraded, or furloughed for more than 30 days by a RIF has the right to appeal to the Merit Systems Protection Board if he or she believes the agency did not properly follow the RIF regulations. The appeal must be filed during the 30-day period beginning the day after the effective date of the RIF action.
An employee in a bargaining unit covered by a negotiated grievance procedure that does not exclude a RIF must use the negotiated grievance procedure and may not appeal the RIF action to MSPB unless the employee alleges the action was based upon discrimination. The time limits for filing a grievance under a negotiated grievance procedure are set in the collective bargaining agreement.