How are Buyouts and Early Outs Different?

by | Nov 6, 2017

Last Updated June 11, 2024

early

There are two programs used by the federal government to reduce the number of employees within its agencies; Voluntary Separation Incentive Payments (VSIP) and Voluntary Early Retirement Authority (VERA).

VSIP

The program is also called Buy Out Authority. It’s an incentive program that pays a cash lump sum for separation from federal service. The general amount offered is $25,000, with $40,000 being offered to Department of Defense employees. There hasn’t been a change to the $25,000 amount for years and inflation has made that amount less appealing than it used to be. After figuring in taxes, the typical employee would bring home less than $19,000, depending on tax bracket.

Legislation was introduced in September 2017 that would increase the buyout amount to $40,000 with a clause in it to link that amount to the Consumer Price Index (CPI) and have it adjusted for inflation every year. This proposed new amount would yield between $27,000 and $30,000, depending on tax bracket. That’s quite a difference.

This program appeals mostly to those who have been contemplating leaving federal service. The rule is you must be employed 3 years to be eligible for Buy-Out Authority.

Sometimes, a VSIP rumor may have an unintended consequence. An employee may not voluntarily separate from service when they normally would have if they believe a VSIP is in the works.

VERA

This is also called an Early Out. This incentive program offers full retirement benefits to those not yet eligible for a traditional full retirement. The minimum requirements are age 50 with 20 years of service or any age with 25 years of service. Because of these rules, VERA’s make less of an impact on reducing the workforce than VSIP does.

It’s utilized when an agency wants to target a certain class of employees for reduction.

For those under CSRS, there is a 2% per year penalty on your annuity if you retire with an early out under age 55. Those under FERS have no age penalty.

Early Out retirees also have a right to continue FEHB in retirement if they’ve been participating in the program for the last 5 consecutive years. The Special Retirement Supplement also kicks in when early retirees reach their minimum retirement age.

VERA’s appeal to those in their mid to late careers. Either to those who are financially ready to retire or feel they are still young enough to retire from the government and begin a career in the private sector. It’s not an incentive for early career employees because many don’t have the age or years of service. Also, late-career employees who are already eligible for full retirement benefits have no incentive to take VERA.

Eligible for Both

Mid to late career employees are eligible for both incentive programs. The VERA pays out much more over the long term than VSIP. VSIP is a one-time payment and VERA pays out yearly, possibly multiple years, depending on age.

Your specific situation will determine which is better for you.

 

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