Buyouts (Voluntary Separation Incentive Payments)

Chapter 9: Section 3

General Rules and Procedures

A buyout, also called a voluntary separation incentive payment (VSIP), generally is offered to encourage eligible employees to separate voluntarily through resignation, early retirement, or regular retirement, during an agency downsizing or restructuring. Following several rounds of temporary government-wide and agency-specific buyout authorities, permanent government-wide buyout authority for restructuring purposes was granted in 2002 by P.L. 107-296 at 5 U.S.C. 3521-3523 and 5 CFR 576. In recent years, buyouts for downsizing primarily have been authorized on a short-term, case-by-case basis, although some agencies have standing authority as described below.

As a practical matter, buyout offers commonly are coupled with early retirement offers. The voluntary early retirement authority (VERA) allows employees to retire at age 50 or older with at least 20 years of service, or at any age with at least 25 years of service; there is a reduction in annuity for CSRS employees who are under age 55 (see Chapter 3, Section 5). 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.

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 USPS further has used varying policies regarding the timing of separation dates and payments. Also, the Defense Department is authorized to 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.

Buyout payments are taxable for purposes of federal withholding, Medicare, applicable state and local taxes, and Social Security for those covered by that system. 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.

Note: 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.

The following rules generally apply in buyouts. Differing policies may be set by laws allowing buyouts at individual agencies. The Guide to Voluntary Separation Incentive Payments is at

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 have been 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 takers to avoid a RIF, and another employee whose job had been saved by the separation agreement would be adversely affected.

Where the number of employees applying for a buyout exceeds the number of offers available, the agency must choose who gets the payments based on “fair and objective” criteria. These standards are not defined by law. However, commonly used criteria include order of separation date, order of receipt of completed application, or seniority.

Employees leaving with a buyout have the same options to continue federally sponsored insurance as do similarly situated workers retiring or resigning 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 if they are re-employed, often 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, in the Postal Service as well as other parts of the federal government.

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.” Under exceptional circumstances, and at the request of the hiring agency, OPM may waive the repayment requirement for former Executive Branch employees. 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.

Only employees 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 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; or occupying a position defined as hard to fill. Senior executives and those in equivalent levels are not eligible unless a waiver is granted.

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.

Buyouts for Restructuring

P.L. 107-296 of 2002 created permanent authority for the use of voluntary separation incentive pay across the Executive Branch for the purposes of workforce restructuring. This authority, in 5 U.S.C. 3521-3523, grants agencies the authority to de-layer, correct skill imbalances, or reduce operating costs without linking buyouts to eliminating full time equivalent positions. Implementing rules are at 5 CFR 576.

An agency (other than the Defense Department; see above) that uses buyouts for workforce restructuring must submit to OPM a detailed plan describing the use of the authority and how the agency’s workforce would be restructured, listing employees by organizational unit, geographic location, occupational category, and grade level. An agency plan could not be implemented without the approval of OPM, which could modify the plan before approving it. The plan would also have to specify the period during which the authority would be used, as well as the number of employees for which it would be used, although there is no cap on the number of employees to whom buyouts can be offered. An agency with other statutory buyout authority (for example, authority for downsizing) may choose which authority it wishes to use, or offer incentives under both.

Certain employees are ineligible for buyouts, 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. Restrictions also may apply based on receipt of student loan reimbursements or of recruitment, retention or relocation incentives; check with the employing agency for those and other potential limits.

Offers typically can be targeted on the basis of organizational unit, occupational series or level, geographic location, specific periods, skills, knowledge, or other job related factors, or a combination of these factors, but not performance.

Employees are required to repay the entire pretax amount of a buyout if they accept any paid employment with the federal government, including under a personal services contract, within five years after separating. OPM can waive the repayment at the request of the agency head if the individual possessed unique abilities and is the only qualified applicant available for the position or in situations involving emergencies that threaten life or property.

Buyouts for Downsizing

Under buyouts for downsizing, the goal is to minimize the need for layoffs. Thus, the incentives are offered most commonly in offices and program functions scheduled for a personnel cut. However, separation payments sometimes will be offered at other sites where the acceptance of an incentive will, through subsequent placements or job abolishment, avoid the need for an involuntary separation. One full-time equivalent position usually is cut for each buyout separation.

Agencies with permanent buyout authority for downsizing include: the National Security Agency (under P.L. 106-567), Defense Department (under P.L. 108-136—see above), National Aeronautics and Space Administration (under P.L. 108-201), and Government Accountability Office (under P.L. 108-271). To use buyouts for downsizing, other agencies have to get specific legislation enacted by making the case to the White House and Congress that they otherwise would face layoffs.

Precise terms of downsizing buyout authorities beyond the general rules described above may vary depending on the specific terms of the law applying to the agency. In general, a downsizing buyout may not be paid if the employee: is a re-employed annuitant; has a disability on the basis of which the employee is or would be eligible for a disability retirement; or is serving under an appointment with a time limitation.

Agencies with the authority typically may offer downsizing buyouts at their discretion. They might define eligibility according to agency component, job classification, grade level, geographic location, and similar considerations. They also might distinguish according to work schedule (for example, making offers only to full-time employees) and type of appointment (for example, excluding political appointees). They also might in effect choose by retirement eligibility status by giving priority to applicants who would retire over those who would resign. They may not, however, differentiate among individuals within the same category.

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