Buyout Or Bust

Several agencies are offering cash incentives to encourage employees to leave, but most might be better off staying put.

More than a few employees in and outside government dream of being paid to leave their jobs. In an ideal world, workers would take the money and run, as the Steve Miller Band advised in the 1976 song, to another job or to a well-deserved retirement. But this is not an ideal world, and when it comes to buyouts, federal employees might be better served to heed the wisdom in another 1970s song, The Gambler: "You've got to know when to hold 'em, know when to fold 'em."

The reality is, for most people, $25,000 just doesn't stretch as far as it once did. That's the maximum amount of cash-before taxes-available to eligible federal employees in buyouts, or voluntary separation incentive payments, as they are known in government jargon. After taxes, the amount shrinks to about $16,000 or $17,000, according to Arthur Stein, a certified financial planner with SPC Financial in Rockville, Md., who counts many federal employees among his clients.

For workers who are not planning an imminent retirement already and for those enrolled in the Federal Employees Retirement System-which is the bulk of the government workforce-taking a buyout can mean losing more money over time. "I don't think it's much of an incentive," says Stein. "The key question is can you afford to take a buyout?" Stein says FERS employees who accept a buyout risk reduced Social Security benefits and losing the employer match in the Thrift Savings Plan, the government's 401(k)-style program. On the other hand, buyouts can be strong incentives for those planning to retire in any event, or for those employees covered under the Civil Service Retirement System. CSRS participants receive up to 80 percent of their annuity but are not eligible for Social Security or TSP benefits.

The federal buyout of $25,000, however, is "just not a lot of money," Stein says. Employees in the private sector who accept buyouts often can receive up to one year's salary. The 2002 Homeland Security Act allowed non-Defense agencies to seek buyout authority from the Office of Personnel Management when appropriate to manage the workforce, capping the pay out at $25,000. Congress is unlikely to increase that figure in the middle of a federal pay freeze and fights over government spending.

While the benefit of a buyout from an employee's perspective depends on individual circumstances, the advantages to agencies are clear. In recent months, agencies increasingly have turned to buyouts and early retirement packages as a way to save money and to avoid potential layoffs or furloughs in the face of impending budget cuts over the next decade. Agencies can combine the cash incentives with early-out options, which provide an early retirement with a reduced pension to eligible employees who are 50 or older and have 20 years of service, or those who have 25 years of service at any age. It's a more attractive option for agencies looking to downsize or reshape their workforce. It's also cheaper: Laying off employees still costs money because those workers are entitled to severance pay.

The appeal of buyouts to agencies has grown after the failure of the joint select committee on deficit reduction to agree on a plan to reduce spending by $1.2 trillion triggered across-the-board automatic spending cuts. Those cuts are slated to take effect in January 2013 unless Congress repeals sequestration. While there are no official figures available yet on how many employees accepted such incentives in 2011, tens of thousands were offered, and agencies en masse are sure to offer another round of buyouts heading into fiscal 2013.

In November, OPM Director John Berry sent a memo to agency human resources chiefs addressing the tools available to restructure the federal workforce, including buyouts, early outs, layoffs and reassignments. "The federal government is experiencing restructuring and downsizing in an increasing number of agencies," the memo stated. "As a result, some federal employees may ultimately find themselves in a position of having to transition to a new job."

The last time the government relied heavily on buyouts and early outs to reshape the federal workforce was during the 1990s as part of the Clinton administration's reinventing government initiative. The difference between then and now, however, is that agencies' use of the incentive in the 1990s was not budget-driven, but part of an overall initiative aimed at making government more efficient and streamlined. "In the 1990s, people felt they could leave the federal government and get a job," Stein says.

John Palguta, vice president for policy at the nonprofit Partnership for Public Service, says that while buyouts still are an effective incentive for "a decent number of employees," they are not as effective as they were during the Clinton years. Palguta and Stein say buyouts can be a good deal for federal employees who are eligible for retirement or have only a few years of service and not much invested in their pensions and TSP accounts.

Workers should weigh their options carefully when considering a buyout, observers say. "Federal employees still have very good benefits compared to most private sector employees, and they have better job security than your average private sector employee," says John Grobe, president of Federal Career Experts, an Illinois-based consulting firm.

Grobe spent more than two decades working at the Internal Revenue Service and took a buyout in 1997. "Anyone considering a buyout or leaving in general should sit back and focus on where they want to go, not where they want to be from," he says. "The decisions we make should be forward-looking."

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
Close [ x ] More from GovExec

Thank you for subscribing to newsletters from
We think these reports might interest you:

  • Sponsored by G Suite

    Cross-Agency Teamwork, Anytime and Anywhere

    Dan McCrae, director of IT service delivery division, National Oceanic and Atmospheric Administration (NOAA)

  • Data-Centric Security vs. Database-Level Security

    Database-level encryption had its origins in the 1990s and early 2000s in response to very basic risks which largely revolved around the theft of servers, backup tapes and other physical-layer assets. As noted in Verizon’s 2014, Data Breach Investigations Report (DBIR)1, threats today are far more advanced and dangerous.

  • Sponsored by One Identity

    One Nation Under Guard: Securing User Identities Across State and Local Government

    In 2016, the government can expect even more sophisticated threats on the horizon, making it all the more imperative that agencies enforce proper identity and access management (IAM) practices. In order to better measure the current state of IAM at the state and local level, Government Business Council (GBC) conducted an in-depth research study of state and local employees.

  • Sponsored by Aquilent

    The Next Federal Evolution of Cloud

    This GBC report explains the evolution of cloud computing in federal government, and provides an outlook for the future of the cloud in government IT.

  • Sponsored by LTC Partners, administrators of the Federal Long Term Care Insurance Program

    Approaching the Brink of Federal Retirement

    Approximately 10,000 baby boomers are reaching retirement age per day, and a growing number of federal employees are preparing themselves for the next chapter of their lives. Learn how to tackle the challenges that today's workforce faces in laying the groundwork for a smooth and secure retirement.

  • Sponsored by Hewlett Packard Enterprise

    Cyber Defense 101: Arming the Next Generation of Government Employees

    Read this issue brief to learn about the sector's most potent challenges in the new cyber landscape and how government organizations are building a robust, threat-aware infrastructure

  • Sponsored by Aquilent

    GBC Issue Brief: Cultivating Digital Services in the Federal Landscape

    Read this GBC issue brief to learn more about the current state of digital services in the government, and how key players are pushing enhancements towards a user-centric approach.


When you download a report, your information may be shared with the underwriters of that document.