Buyouts, sometimes called voluntary separation incentive payments, can be paid by certain agencies during downsizing in order to reduce the disruptions and costs 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 gave the Defense Department permanent authority to pay up to 25,000 buyouts annually for either restructuring or downsizing, with buyouts related to base closings not counting against that limit.

Defense Department employees getting buyout payments may elect to receive the payment as one sum or as biweekly or two-part installment payments. Employees electing biweekly installment payments may select the rate preferred although they may not stretch the payments over more than one year. Alternatively, they may choose to receive half of the payment up-front and the other half six months later, which could be valuable to those wishing to move money into the following tax year.

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General Buyout Policies

An incentive payment is the lowest of:

  • the amount of severance pay you would get if separated involuntarily;
  • $25,000 (generally; amounts can be lower);
  • an amount determined by the agency head, if the buyout authority provides such discretion for the agency; or
  • a figure set by the law authorizing buyouts for the agency, if that law provides for a lower amount.

Whether 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.

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. Further, a buyout recipient cannot become a “phased” retiree because that does not involve separation from service but rather remaining employed on only a part-time basis.

Coercing an employee to take a buyout is prohibited. Even if an agency uses buyouts in a downsizing situation, it is possible that buyouts will not result in a sufficient number of voluntary separations and the agency may need to carry out a reduction-in-force. A buyout offer does not protect the employee from RIF.

A buyout taker must repay the entire (pre-tax) amount of the incentive to the agency which paid the buyout if the employee accepts employment with the government of the United States or under a personal services contract within five years of separating with the incentive. (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.) The direct rehiring restriction applies to quasi-governmental bodies such as the U.S. Postal Service as well as to part-time and temporary positions.

The repayment would have to be completed before the individual’s first day of work in the new position.

In some cases the Office of Personnel Management may waive repayment at the request of the agency head if the individual possessed unique abilities and is the only qualified applicant available for the position. Repayment could also be waived in situations involving emergencies that threaten life or property.

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. 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.

If you have received a buyout and are found to be eligible for disability retirement later, you are then responsible for repaying the entire amount of the buyout to the agency that paid the buyout to you.

Buyout Authority for Workforce Restructuring

Public Law 107-296 authorized buyouts across the executive and judicial branches of the federal government for the purposes of workforce restructuring. The goal is to grant agencies the authority to reduce high-grade, managerial, or supervisory positions, correct skill imbalances, or reduce operating costs without position loss, without linking their use to eliminating full time equivalent positions, the use of involuntary separations, or changes to lower grade.

Offers can be targeted on the basis of organizational unit, occupational series or level, geographic location, specific periods, skills, knowledge, or other job related factors, or a combination of these factors, but not performance.

An agency that uses buyouts for workforce restructuring is required to submit to OPM a detailed plan describing the use of the authority and how the agency’s workforce would be restructured. An agency plan could not be implemented without the approval of OPM, which could modify the plan before approving it. The plan must specify the time period during which the authority would be used, as well as the number of employees for which it would be used, although the law does not impose a cap on the number of employees to whom buyouts can be offered.

Agencies are required to pay buyouts in a lump sum to employees who voluntarily retire or resign in accordance with their approved plans.

Certain employees are excluded from eligibility, including reemployed annuitants, employees eligible for disability retirement, employees about to be separated for misconduct or unacceptable performance, and employees who have previously received a buyout from the federal government. Employees generally need at least three years of current consecutive years of service, although not necessarily all with the agency offering the buyout.

Buyout Authority for Downsizing

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 (some agencies have separate authority to use buyouts for downsizing; check with your personnel office). 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; those who 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; or have received a retention bonus within 12 months of separating to receive a buyout. Check with your agency for any specific variations.