Reg Jones Expert's View

Early outs and buyouts. Those words galvanize the workforce on a daily basis, either because they are being offered by their agencies or because employees hope they will be offered.

First let’s get the terminology straight. There are two authorities an agency can use to reduce the size and/or shape of its workforce. The first and oldest one is the Voluntary Early Retirement Authorities (VERA). The second is the Voluntary Separation Incentive Program (VSIP). An agency may use one or both of these authorities when it is facing serious staffing problems that will lead to a reduction-in-force (RIF), reorganization or transfer of function.

While they appear to be nearly identical, the VSIP is different in two important ways. First, under the VSIP an opportunity to separate from the service may be offered to any employee, not just those who meet the reduced age and service requirements to retire. Second, the agency may offer a separation payment – also known as a “buyout” – but only to the extent that it needs to eliminate a position identified in its strategic plan. That plan had to be approved by OPM and OMB and filed with the appropriate congressional committees. The amount of the buyout payment is equal to the lesser of the employee’s severance pay calculation, $25,000, or an amount determined by the agency head.

Civil Service Retirement System (CSRS) or Federal Employees Retirement System (FERS) employees may leave at any time. However, if they want to retire, they need to meet these criteria: age 50 with 20 years service or at any age with 25 years of service. And there are different rules that apply to CSRS and FERS employees after their eligibility to retire has been determined.

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.

Under FERS, the usual 5 percent per year penalty for retiring before age 62 is waived. If you are involuntarily retired, 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 any COLAs until you reach age 62. Note: COLAs are never paid on the special retirement supplement.

Now you know the rules. The next question is this: If you are offered a chance to retire (or just leave) early, is it in your best interest to do so? I’ll talk about that in next week’s article.