Buyout barrage: Mixed blessing?

Monday - 3/5/2012, 2:00am EST

Whether you are a brand-new employee, the oldest person in the building or even a recent retiree, you've got a stake in the growing buyout tidal wave. Currently, nine departments and agencies are offering civilian workers the chance to take regular or early retirement and get a $25,000 (before deductions) voluntary separation incentive payment (VSIP).

Last year, more than 20 agencies offered buyouts to tens of thousands of workers. Air Force and the U.S. Postal Service led the way and have continued into this year. Others have announced buyouts with quick accept-and-leave turnaround dates.

But the impact of buyouts is much wider than just to employees who are targeted. So far this year, nine agencies have offered buyouts and early-outs. IRS has announced two rounds of buyouts (targeted to 670 employees) and Treasury is offering right-sizing buyouts so it can restructure for "evolving mission requirements." For the latest in buyouts, click here.

If your agency has or will offer buyouts this year, they could have an impact on you even if you aren't eligible, don't want one or plan to continue working for many more years. It is the ripple effect.

Think of your government agency as a pond (not a cesspool, please!). If somebody tosses a rock in it, the ripples go everywhere. Example:

  • For new and mid-career employees, buyouts can open up the promotion pipeline. With the pay freeze still in effect, the only way workers can move up the pay ladder is by getting a within-grade raise or a promotion.

    Also for new people (with little seniority and lacking veterans-preference protection), a buyout may eliminate the need for the agency to conduct a budget-driven RIF (layoff) or be forced to furlough people later this year.

  • For retirement-age feds who are indifferent about their jobs, or feel they've reached a dead end or worry about their finances after retirement, getting a VSIP — worth $16,000 to $18,000 after deductions — might represent the tipping point in favor of pulling the plug. The buyout and any unused leave they get paid for at retirement can be used to tide them over until they start getting full (as opposed to partial interim) payments from OPM.

  • For people who retired last year, or are planning to retire this year — with or without a VSIP — the large number of buyouts could present a problem. When employees retire from government they often get an interim payment — 80 to 90 percent of their estimated annuity — until all their paperwork is cleared. But some people say their interim payments are, or were, only 40 to 50 percent of their estimated final annuity. And while the average processing time is about four months, some employees have gone a year or more on half or reduced rations.
Retirement applications jumped 24 percent last year partly because of a large number of buyout/early-out offers and partly because of the big-and-getting bigger US Postal Service downsizing.

As of the first of this year, there was a backlog of about 60,000 applications. OPM is moving more people and resources into the process. But it is largely a paperwork operation that requires human eyeballs to process applications. Even as OPM improves the operation, the number of monthly applications is expected to increase to between 6,000 and 8,000 for the rest of this year. And that could be much higher if regular or buyout-triggered retirements jump as they did last year.

Bottom line: Regardless of your age, job or length of service if there is a buyout around, it may have an impact on you. And if you are planning to retire this year consider a worse-case financial scenario where your retirement application (with a reduced benefit) takes a long time to process. Do you have savings, and could you (should you) dip into your TSP account sooner than you planned just to meet living expenses?


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By Jack Moore

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