Buyouts: To Be Or Not To Be?

Is there a buyout/early retirement offer in your future? If so could you qualify and would you take it?

Nobody can say for sure, but the odds are good that more agencies will be offering VSIPs ($25,000 buyouts) and VERAs (early retirement with an immediate annuity and continuing health benefits ) over the next couple of months. Under a VERA, workers can retire at age 50 with 20 years service, or at any age with 25 years of federal service.

For the past 11 years various experts have predicted a massive brain drain, a retirement tsunami that will — when and if it happens — strip Uncle Sam of some of his most experienced workers. It hasn’t happened yet and — given the unemployment rate in the private sector — it is unlikely the government will be brain dead for some time to come. Still…

There are several things that might happen that might jump start retirements:

  • A growing number of federal agencies are offering targeted buyouts and early-outs in order to cut the payroll. Some are doing it because of anticipated (or known) cuts in their budgets. Others (like the Air Force) have frozen civilian hiring and are offering both incentives to get senior (and more expensive) people to retire. Others like the Education Department are doing it to reshape their workforce and make it less expensive. Agriculture and GAO are also offering targeted — as opposed to agency-wide — buyouts and early-outs. The maximum payment is a one-shot lump sum amount of $25,000, less deductions. The buyouts offered by the U.S. Postal Service were $20,000 after deductions, payable in two installments.
  • The BRAC-like congressional panel considering ways to cut costs may decide on a number of mild to draconian changes in federal pay and benefits. That could include an extension of the current two-year pay freeze; a much less generous pension plan (as in no civil service retirement benefit) for new hires; higher retirement plan contributions for current and future feds under the CSRS and FERS system, to name a few.

    If the pay freeze is extended another year or two that could be the last straw for many feds, especially those with skills that are easily transferable to the private sector. Requiring workers to kick in more toward their retirement (which would produce a permanent drop in take-home pay) could also convince long-time feds it is time to go. Especially if a buyout was available.

  • For many federal and postal workers fear that Congress will change the retirement formula is the number one retire-or-stay motivator. Although it has been been formally proposed in Congress, many feds are fixated on the possibility that future benefits might be calculated on their highest five-year average salary rather than under the current high-three system. Pro-fed lobbyists and groups say the high-three to high-five is the least likely change to be made, and the one with the least impact on federal workers. Even so many employees have said they will pull the before the effective date if Congress makes the change.

    Workers in most agencies should have a better picture of how their budgets will look over the next few weeks and what that does for their buyout chances.

    What Next? That special bipartisan congressional panel is supposed to make recommendations to accomplish major spending cuts. For the federal family this could include an extended pay freeze, benefits changes and higher health premiums. Meantime the U.S. Postal Service is looking to trim 38 percent of its workforce and is exploring the idea of getting out of the FEHBP health program. So what are the odds? Today at 10 a.m. on our Your Turn radio show Federal Times senior writers Steve Losey and Sean Reilly look at the laundry list of hits feds and retirees may be asked to take and what it would mean to your time in government, your pay and your pension. You can listen on your computer or, if you are near a radio in the D.C. area, on 1500 AM.

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