Recently introduced legislation proposes to modernize the federal government’s primary tool for voluntary downsizing, potentially offering federal employees significantly larger financial incentives to leave their positions.
Introduced by Congressman Nick Langworthy (R-NY), the Federal Workforce Early Separation Incentives Act (H.R. 7256) seeks to overhaul the Voluntary Separation Incentive Payment (VSIP) program. Proponents of the bill argue that the current system is an outdated relic that fails to provide a meaningful “off-ramp” for long-tenured employees in an era of rising inflation and higher federal salaries.
How the VSIP Program Works Now
The Voluntary Separation Incentive Payment Authority, also known as the buyout authority, enables agencies undergoing downsizing or restructuring to offer federal employees lump-sum payments.
When authorized by the Office of Personnel Management (OPM), an agency can provide VSIP to employees occupying surplus positions or possessing skills that are no longer in demand in the workforce. If approved, employees can choose to separate by resignation, optional retirement, or voluntary early retirement. By allowing employees to voluntarily leave the government, agencies can minimize or eliminate the need for costly and disruptive reductions in force (RIFs).
Breaking the $25,000 Cap
At the heart of the legislation is a fundamental shift in how buyouts are calculated. Under current law, which has remained largely unchanged since the early 1990s, VSIP payouts are capped at a flat $25,000.
For many mid-to-late-career federal employees, particularly those in high-cost-of-living areas or specialized roles, this $25,000 pre-tax payment has become increasingly less attractive due to inflation and rising salaries. According to OPM, the average federal employee salary is now $110,874.
The legislation proposes to eliminate this hard cap entirely and allow agency heads to offer a payment of up to six months of the employee’s salary. The financial implications of this change would be substantial:
- Current System: An employee earning $120,000 a year is capped at a $25,000 buyout.
- Proposed System: That same employee could be eligible for a payout of up to $60,000—more than double the current limit.
Langworthy said, “Taxpayers deserve a federal government that is efficient, accountable, and appropriately sized. By ending the 30-year old cap, and instead tying the retirement incentive to earned income, we will make the VSIP more fair and potentially appealing. This legislation brings a common-sense update to a program that has been frozen in time, giving agencies a better option to reduce costs while treating federal employees fairly.”
Context of Recent Federal Workforce Reductions
The Federal Workforce Early Separation Incentives Act appears to be in line with the Trump administration’s objective of shrinking the federal workforce.
President Trump issued an executive order in February 2025 which mandated establishing a plan to require each federal agency to hire no more than one federal employee for every four that depart. OPM Director Scott Kupor said that the administration exceeded this goal, noting that approximately 68,000 federal employees were hired in 2025 while about 317,000 departed.
VSIPs were among the incentives used to facilitate last year’s federal workforce reduction, but critics and some agency leaders noted that the $25,000 cap limited their utility. Congressman James Comer (R-KY) recently described the “outdated federal law” as providing “only limited tools to downsize agency employment rolls.”
Because the incentive was often viewed as insufficient, the administration frequently relied on more disruptive measures, such as RIFs, to meet downsizing targets.
Legislative Outlook
The bill has seen early success, recently advancing through a markup session within the House Committee on Oversight and Government Reform with unanimous, bipartisan support.
Democratic members of the committee, while often at odds with the administration’s broader workforce policies, have signaled agreement that the 30-year-old cap is no longer functional. Congressman James Walkinshaw (D-VA) said during the markup hearing that the legislation “is long overdue,” adding that the “increase in future adjustments for inflation is appropriate.”
For federal employees, the legislation represents a potential shift in how they navigate the end of their careers. If passed, the act would provide a more lucrative voluntary exit path when a buyout opportunity arises.
