Know the facts before accepting early out or buyout

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Agencies looking to downsize staffs as budgets shrink may offer incentives to encourage employees to leave before they otherwise might. Early retirement and buyout offers are two such means. Some employees, who might leave anyway, wait for the early retirement or buyout opportunity to improve their options.

Two widely held beliefs are that the buyout is $25,000 and that bets can be hedged on the early out by putting in for it and then changing your mind before the retirement takes place. Neither is always the case. Caution should be taken, and full information obtained before making a decision.

Early retirement
Voluntary Early Retirement Authority (VERA) is granted to agencies by the Office of Personnel Management. Agencies can then offer early outs to certain employees either in conjunction with buyout offers or alone. To be eligible for an early out, an employee must have 20 years of federal service and be age 50, or have 25 years of service at any age.

A Civil Service Retirement System employee who takes an early out will have a 2 percent reduction in annuity for each year he is under age 55. A Federal Employees Retirement System employee who takes an early out when he is younger than his minimum retirement age, which ranges between 55 and 57, will receive an unreduced annuity. However, he won’t begin receiving the special retirement supplement until he reaches his minimum retirement age. The supplement will end at age 62 when he is eligible for a Social Security benefit.

CSRS employees who have converted to FERS and who are under age 55 will have their annuity reduced by 2 percent for each year they are under 55 for the CSRS portion only.

An employee who takes an early out unaccompanied by a buyout is free to accept future federal employment, but will do so as a re-employed annuitant. A re-employed annuitant works at the pleasure of the agency head (no Merit Systems Protection Board appeal rights) and receives a salary reduced by the amount of the annuity, unless OPM grants an exception or the re-employed annuitant works at the Defense Department.

Buyouts
The Voluntary Separation Incentive Payment (VSIP) is commonly called a buyout. OPM grants authority to agencies to offer buyouts. Most employees who receive buyouts will be paid the maximum $25,000, but some will get less. The buyout amount is $25,000, unless the employee would receive a lower amount as severance pay. Buyouts are thus most attractive to senior employees whose severance pay would be more than $25,000 and who would also be able to retire and receive an annuity.

To be eligible for a buyout, the employee must have been continuously employed in an indefinite appointment for at least three years. The employee cannot have received a previous buyout or have a decision on involuntary removal for performance or misconduct.

An employee who receives a buyout may not accept re-employment with the federal government or work for the government under a personal-services contract or other direct contract. Exceptions may be made by the OPM director.

Payments received on a VSIP are fully taxable, including any Social Security or Medicare taxes that must be paid.

An employee who has accepted an early out or buyout will be considered to have resigned his job. Of course, that resignation may be for a future date.

Many employees are aware of the personnel rule that a resignation may be withdrawn before its effective date. That  rule has exceptions. One is if the agency relies on the employee’s resignation. There is Merit Systems Protection Board precedent that states that an employee who accepts a buyout for separation at a future date may not withdraw the resignation date because the agency relies on the resignation for workforce restructuring. The same reasoning likely also applies to early-out resignations.

So when thinking about early outs and buyouts, be certain. Once you sign on the dotted line, you probably will not be able to change your mind.

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About Author

Debra Roth

Debra L. Roth is a partner at the law firm Shaw Bransford & Roth, a federal employment law firm in Washington, D.C. She is general counsel to the Senior Executives Association and the Federal Managers Association, host of the “FEDtalk” program on Federal News Radio, and a regular contributor to Federal News Radio’s “Federal Drive” morning show. Email your legal questions to lawyer@federaltimes.com.

5 Comments

  1. Amber Herrington on

    Regarding this portion in your article about VERA/VSIP:
    “An employee who receives a buyout may not accept re-employment with the federal government or work for the government under a personal-services contract or other direct contract. Exceptions may be made by the OPM director.”

    I thought that the reemployment restriction was only in place for 5 years following acceptance of a VSIP, the above statement seems to indicate that the restriction is permanent. Will you please address this?

  2. Your article is not correct about FERS employee younger than MRA receives the full annunity and Social Security Supplement. FERS employees do NOT receive the Social Security Supplement unless at their MRA when taking early retirement. See excerpt from OPM website.

    Eligibility for the Annuity Supplement
    If you retire voluntarily on an immediate annuity which is not reduced for age, you may be eligible for the annuity supplement, in addition to your regular monthly FERS benefit. You may also receive the supplement if you retired involuntarily before attaining your Minimum Retirement Age (MRA) or voluntarily because of a major reorganization, reduction in force, or an early retirement for Members of Congress. However, in these three instances, you will not be eligible for the annuity supplement until you reach your Minimum Retirement Age (MRA). If you receive a deferred benefit, a disability benefit or an immediate MRA+10 benefit, you will not be eligible for the annuity supplement.

  3. Larry Forbes on

    Under “Early retirement”, second paragraph, you say “…will not have his annuity reduced by the normal 5 percent for every year under age 62,” shouldn’t it be, “will have….” ?

  4. norm from ga on

    “The Voluntary Separation Incentive Payment (VSIP) is commonly called a buyout…. Most employees who receive buyouts will be paid the maximum $25,000, but some will get less. The buyout amount is $25,000, unless the employee would receive a lower amount as severance pay.”

    VSIP=buyout=severance pay.

    So far, so good.

    “Buyouts are thus most attractive to senior employees whose severance pay would be more than $25,000…” ???

    The $25k IS the maximum severance pay…unless you know of some secret recipe for brewing up a better deal…

  5. An error in the article: A FERS employee under MRA (age 55 to 57) who accepts an early retirement in fact DOES NOT qualify for the FERS supplement. They only get the FERS pension itself while they are under MRA.

    At attainment of MRA (age 55 to 57), they can then begin to receive the supplement until Social Security payments begin at age 62.

    Thus, those who accept early retirements who are under age 55 face a significant reduction in their retirement pension until age 55.

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