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OPM Updates Guidance on VERA/VSIP - Part II

In the second of two columns discussing OPM’s updated rules on VERAs and VSIPs, this week’s column discusses the rules for VSIPs. Included in the discussion are which employees are and are not eligible for a VSIP, how the VSIP is computed, the tax issues associated with a VSIP, and under what circumstances a VSIP has to be repaid.

Mainly as a result of anticipated budget reductions, many federal agencies are offering Voluntary Early Out Authority (VERA) and Voluntary Separation Incentive Payment (VSIP) to eligible employees. In the second of two “Informed Investor” columns discussing VERA and VSIP, this column discusses VSIP, also known as buyout authority. Included in the discussion are which employees are and are not eligible for a VSIP, how the VSIP is computed, and when is a VSIP repayment required.

Once an agency has received approval from the Office of Personnel Management (OPM) to offer a VSIP, any employee who meets the following general eligibility requirements may receive a VSIP offer. The employee must: (1) Be serving in an appointment without time limit; (2) be currently employed by the Executive Branch of the Federal government for a continuous period of at least three years; (3) be serving in a position covered by an agency with a VSIP plan. This means that the employee is working  in the specific geographic area, organization, series and grade; and (4) apply for, and receive approval for a VSIP, from the agency making the VSIP offer.

Employees in the following categories are not eligible for a VSIP: (1) A reemployed annuitant; (2) an employee who has a disability such that the individual is or would be eligible for a disability retirement;  (3) an employee who has received a decision of involuntary separation for misconduct or poor performance; (4) an employee who previously received a VSIP while previously in Federal service; (5) an employee who during the 36 month period preceding the date of separation, performed service for which a student loan prepayment was paid, or is to be paid; (6) an employee who during the 24 month period preceding the date of separation performed service for which a recruitment or relocation incentive was paid, or is to be paid; and (7) an employee during the 12 month period preceding the date of separation, performed service for which a retention incentive was paid, or is to be paid.

Computation of Incentive Payment

An agency computes a VSIP on the basis of the lesser of: (1) An amount equal to the amount of severance pay the employee would be entitled to receive without adjustment for any previous payment made; or (2) an amount determined by the agency head, not to exceed $25,000 (or $40,000 in the case of some Executive Department agencies).

Note that the amount that the departing employee actually receives is less than the amount determined using the above computation. This is because there are deductions for Federal and state income taxes, Social Security (FICA) and Medicare Part A (hospital insurance) payroll taxes. The VSIP also cannot be transferred into one’s traditional or Roth TSP accounts nor can it be transferred to a traditional or Roth IRA. The VSIP is fully Federal and state and local taxable, normally in the year received.

In counseling employees interested in voluntarily separating for a VSIP, the agency should advise employees that the agency may also reduce the gross amount of the VSIP for certain outstanding employee debts, including: (1) debt the employee owes to the agency; (2) commercial garnishment including supplemental fees or court-ordered interest; (3) alimony covered by a court order; and /or (4) child support covered by a court order.

Repayment Requirement

An employee who receives a VSIP and later accepts employment with the US Government within five years of the date of the separation in which the VSIP is based must repay the entire amount of the VSIP to the agency that paid it. This repayment must be done before the individual’s first day of reemployment.

If the proposed employment is with an agency other than the General Accountability Office (GAO), the United States Postal Service, or the Postal Rate Commission, the OPM Director may, at the request of the head of the agency, waive the repayment if: (1) The proposed reemployment is with an executive branch agency; (2) the individual involved possesses unique abilities and is the only qualified applicant available for the position; or (3) in case of emergency involving a direct threat to life or property, the individual  has skills directly related to resolving the emergency and will serve on a temporary basis only as long as the individual’s services are made necessary by the emergency.

 

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