There is a lot of uncertainty for federal employees these days, though probably not as much as we had in 2013. Still, it is a lot less uncertainty than the average private sector employee faces. We have the continuous budget bickering, we have threats to our benefirs coming from the House of Representatives (many) and the White House (not as many). And the recommendations of the Commission on Fiscal Responsibility and Reform (Simpson-Bowles) have not gone away. One item that every “threatener” seems to favor is reducing federal employment. A common way to reduce federal employment is by offering early outs and buy outs.
An early out is officially called a Voluntary Early Retirement Authorization (VERA) and is usually offered to employees who are affected by a re-organization. If a re-organization affects the entire agency, the early out may cover all agency employees. If, on the other hand it affects only part of an agency, it might cover only those who are employed in the particular segment where the re-organization is taking place.
In order to be eligible for an early out, an employee must have 20 years of service and have reached the age of 50, or have 25 years of service regardless of age. This is true for both the CSRS and FERS retirement systems.
A CSRS employee will face a 2% per year penalty (1/6 of 1% per month) for being under the age of 55, but will begin earning cost-of-living-adjustments immediately upon their retirement. A FERS employee will face no reduction in pension, but will not begin earning cost-of-living-adjustments until age 62 in most instances.
Some questions that anyone who is thinking of taking an early out should ask themselves are:
- Can I afford to live on the amount I will get as an early out pension?
- How much in future pension benefits will I be giving up if I take an early out?
- If I cannot afford to live on my pension, what can I do to supplement my pension income?
- Do I have the skills needed to do whatever it is I need to do to bring in the extra income?
- Are there actual opportunities in my area where I can make enough money using the skills I now have?
A buy-out is officially called a Voluntary Separation Incentive Payment (VSIP) and may or may not be offered with an early out. The amount of a buy-out is the lesser of $25,000 or the amount of severance pay to which an employee would be entitled based on their length of service. Normally the $25,000 is the smaller amount. An employee who accepts a buy-out will have to re-pay it if they return to the government either as an employee or on a personal services contract within five years of receiving the buy-out.
Too many people who accept an early out or buyout offer are focused on the fact that they don’t like where they are now. This is especially true if they don’t begin thinking about their choice until the window period is nearly over. They focus on the from part of the transition they will be making. Adequate time must be given to considering the to part of the equation.
You should begin to think of whether you want to take an early out or buyout long before it is offered. This will allow you to consider all of the pros and cons without feeling the pressure of having to make a decision before the offer of buyout or early out is withdrawn. With buyouts and early outs, as with other decisions we make in life, the more prepared we are and the more information we have – the better decision we will make.