Buyouts (Voluntary Separation Incentive Payments)

Chapter 9: Section 3

A buyout, also called a voluntary separation incentive payment (VSIP), may be offered to encourage eligible employees to separate voluntarily through resignation, early retirement, or regular retirement during an agency downsizing or restructuring. Offers can be targeted on the basis of organizational unit, occupational series or level, geographic location, skills, knowledge, or other job related factors, or a combination. 

A buyout is a lump-sum payment equivalent to an employee’s severance pay entitlement, generally up to a maximum of $25,000. Some buyout maximums have been lower, especially in the U.S. Postal Service; the Defense Department has authority to pay up to $40,000. 

Buyout payments are taxable for purposes of federal withholding, Medicare, applicable state and local taxes, and Social Security for those covered by that system. They also are subject to reduction for debt owed to the agency, commercial garnishment, or court-ordered alimony or child support. The payments are not counted as basic pay for purposes of calculating benefits such as annuities and cannot be invested in Thrift Savings Plan accounts.

Buyout offers commonly are coupled with early retirement offers although there is no requirement that both be offered. 

A buyout recipient is ineligible to go into phased retirement (see Phased Retirement in Chapter 3, Section 1) because phased retirees do not separate from service but rather change to part-time employment (while drawing a partial annuity). Those already in phased retirement may take a buyout to retire fully, if they meet the agency’s eligibility criteria.

An agency is responsible for ensuring that employees are not coerced into separation and for ensuring that the employee’s decision is not based on erroneous or misleading information. An employee who separates with a buyout but who believes that the separation was involuntary may appeal to the Merit Systems Protection Board.

The following applies to buyouts created by the general authority under P.L. 107-296 at 5 U.S.C. 3521-3523 and regulations at 5 CFR 576. An agency with other statutory buyout authority (including the Defense Department; see below) may choose which authority it wishes to use, or offer incentives under both. Also see

Requirements for Approval—An agency (other than the Defense Department; see below) seeking to use buyouts must submit to OPM a detailed plan describing the intended use of the incentive payments. This is to include the specific positions and functions to be reduced or eliminated, identified by organizational unit, geographic location, occupational series, grade level and any other factors related to the position; a description of the categories of employees who will receive offers, identified by organizational unit, geographic location, occupational series, grade level, and any other factors, such as skills, knowledge, or retirement eligibility; the period during which incentives may be paid; the number and maximum amounts to be offered; a description of how the agency will operate without the eliminated or restructured positions and functions; a proposed chart displaying the expected changes in the organizations; and, if applicable, details of how voluntary early retirement authority will be used in conjunction with the incentives. 

OPM may alter terms of a plan before approving it and will set a range of allowable dates. An agency may offer more than one buyout “window” within that range.

Eligibility—To be eligible, an employee must: be serving in a position for which an offer is made under an appointment without time limit; have been currently employed by the Executive Branch for a continuous period of at least three years; and apply within the designated period. 

Agencies must inform employees currently away from the workplace for reasons such as leave without pay, workers’ compensation or details outside the agency of offers that would cover them. An employee on active duty in the Armed Forces who would otherwise be eligible for an offer will have 30 days following restoration to the agency to accept or reject the offer, even if the opportunity has expired by then.

Certain employees are ineligible, including re-employed annuitants, employees eligible for disability retirement, employees about to be separated for misconduct or unacceptable performance, and employees who have previously received a buyout from the federal government. Also ineligible are those who have received (or are pending receipt of): a student loan reimbursement during the 36 months prior to separation; a recruitment or relocation incentive during the prior 24 months; or a retention incentive during the prior 12 months. 

Note: Employees who take buyout incentives for either early or standard optional retirement must meet the age and service requirements for retirement eligibility by the effective date of their retirement. 

An agency may stop accepting employee applications before the closing date once it receives a specified number of applications. If an agency may need to limit the number it approves, it is to communicate to employees an impartial formal procedure to make those decisions, based on factors such as total creditable federal civilian service, service within the agency or organizational component, or the order applications are received from employees.

Terms and Conditions—Employees who accept buyouts lose eligibility for benefits that would have applied if they had been laid off in a RIF. These include the full amount of the severance pay entitlement (which could be larger than the buyout maximum), discontinued service retirement (if otherwise eligible), selection priority under the Career Transition Assistance Program (CTAP) and Interagency Career Transition Assistance Program (ICTAP), and job search assistance. In addition, most states consider buyout takers ineligible for unemployment compensation benefits.

Those accepting buyout offers generally must promise to separate on an agreed-upon date and may withdraw their acceptance up to that date, except when the agency can show a valid reason why allowing them to change their minds would cause a hardship to the agency. Such reasons may include that the person’s position already has been abolished, the agency does not have enough other buyout takers to avoid a RIF, or another employee whose job had been saved by the separation agreement would be adversely affected.

Employees leaving with a buyout have the same options to continue federally sponsored insurance as do similarly situated workers retiring or resigning, as pertinent, without an incentive payment. See Chapter 2 for insurance policies for those retiring and see Chapter 8, Section 5, for policies for those separating before retirement eligibility.

Re-Employment Restrictions—Employees accepting the incentives must agree not to return to another federal job within five years unless they repay the full (pretax) amount of their payments prior to their first day at the new government job. This applies to any appointment, of any duration, full- or part-time, temporary or permanent, including in the Postal Service.

The general rule is that the restriction covers any position in which the salary is paid by the government. In some cases, the re-employment ban also applies to working for an agency under a personal services contract, the definition of which covers most consulting type arrangements. Working as an employee of a company under contract to the government may not protect an employee from falling under the definition of a personal services contract. OPM can waive the repayment at the request of an Executive Branch agency if the individual possessed unique abilities and is the only qualified applicant available or in situations involving emergencies that threaten life or property. Similar authority applies to the deciding authority for buyouts offered by the Legislative or Judicial Branches.

Employees who have received buyouts should check with the legal counsel at the agency that paid the buyout before returning to work. 

DoD Authority

Public Law 108-136 created permanent authority at 5 U.S.C. 9902(i) for the Defense Department to offer buyouts (as well as early retirement; see Chapter 3, Section 5) for either downsizing or restructuring purposes. The number of buyouts is limited to 25,000 a year department-wide, not counting actions related to base closing activities or offers made to non-appropriated fund employees. The total is allocated among DoD components according to their percentage of the department’s civilian workforce.

Under internal DoD policy, the incentives may be used to reshape or reduce the workforce, create vacancies for the placement of employees subject to involuntary separation by RIF, or avoid the need for involuntary separations during a RIF. Employees accepting a buyout must separate from service voluntarily by retirement or resignation. Terms of the offers and the re-employment restrictions parallel those described above.

Downsizing buyouts may be offered at any time and location where the acceptance of an incentive will avoid involuntary separations and typically are offered at least 30 days before RIF notices are to be issued, although a component head may waive that deadline. 

A restructuring buyout must be tied directly to workplace restructuring actions where management offers the buyout to create vacancies that will be reshaped to meet mission objectives. Restructuring buyouts may be used to correct skill imbalances or to reduce the number of high grade, managerial or supervisory positions. Position restructuring is restricted to the vacancy created by application of the buyout. 

DoD may pay buyouts in lump sums or installments: biweekly payments at a rate selected by the employee until the full amount of the buyout is paid, up to one year, or in two equal payments, one following separation and the other half six months later.

Only those employed within the department continuously for more than 12 months are eligible. Also ineligible are: employees serving under time-limited appointments; re-employed annuitants; those with disabilities that would qualify them for disability retirement; those who have previously received buyouts; those who have accepted a position in another federal agency; those who have declined to relocate with their position or declined a transfer of function; those who have received a specific notice of RIF separation; and those in receipt of involuntary separation notices for misconduct or unsatisfactory performance. 

Buyouts are available only with waivers to those: covered by a written service agreement resulting from permanent change of station or training; in receipt of recruitment, relocation or retention incentive payments; in a position for which special salary rates are approved; occupying a position defined as hard to fill; or in senior executive or equivalent levels.

In addition to the requirement to repay a buyout if they return to federal employment within five years (see above), recipients of buyouts from DoD generally cannot be re-employed by that department under any circumstances within 12 months of their separation date, under departmental policy at DoDI 1400.25. Both restrictions apply to all federally compensated forms of employment, including temporary appointments, as well as employment in nonappropriated fund organizations or as a government contractor. The department may waive either re-employment restriction if the individual is the only qualified applicant available for the position. Since OPM does not have jurisdiction over the department’s authority, waiver authorities granted by OPM do not apply to DoD buyouts.

Phase II—Under a program known as Voluntary Separation Incentive Pay Phase II (5 U.S.C. 9902(i)), DoD may offer cash incentives to encourage employees at non-downsizing installations to resign or retire to create vacancies for Priority Placement Program registrants who are facing involuntary separation at downsizing or closing activities. The authority to offer Phase II buyouts is delegated to installation commanders and activity heads.

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