With downsizing a likely step as the government adjusts to budget realities, questions have been pouring in about how agencies will handle staff reductions.
Outside of relying on attrition, agencies have two options to get their numbers down while softening the blow for employees: the Voluntary Early Retirement Authority (VERA) and the Voluntary Separation Incentive Program (VSIP). Under VERA, an agency can offer employees an opportunity to retire early. The Office of Personnel Management designates the specific geographic area and occupations where the VERA applies. It also stipulates the time during which the “early outs” will be offered. If needed staff reductions occur before the end of that time, the agency can cancel the offer.
To be eligible for early retirement, Civil Service Retirement System or Federal Employees Retirement System employees must be at least age 50 with 20 years of service or any age with 25 years of service. Your early retirement annuity will be calculated under the same formula that would be used if you had met the age and service requirement to retire on a regular annuity.
The CSRS formula: 1.5 percent of your high-three — the average of your highest salaries over three years — multiplied by five years of creditable service; plus 1.75 percent of the high-three, multiplied by the next five years of creditable service; plus 2 percent of the high-three, multiplied by all remaining years and full months of service.
The FERS formula: 1 percent of your high-three, multiplied by all years and full months of service.
The consequences of retiring early differ for CSRS and FERS. Under CSRS, your annuity will be reduced by 1/6 percent for each month you are under age 55. That’s 2 percent per year. But you will be eligible to receive annual cost-of-living-adjustments on your annuity, regardless of the age at which you retire.
Under FERS, the usual 5 percent per year penalty for retiring before age 62, or age 60 if you have 20 years of service, is waived. When you reach your minimum retirement age, which varies depending on the year you were born, you will be eligible for a special retirement supplement that approximates the Social Security benefit you earned while employed under FERS. But, as a rule, FERS retirees aren’t eligible to receive cost-of-living adjustments until they reach age 62, and COLAs aren’t applied to the special retirement supplement.
VSIP differs in two ways from VERA. First, an agency can offer a separation payment — a “buyout” — but only if the plan has been approved by OPM and the Office of Management and Budget and is on file with the appropriate congressional committees. The buyout amount is equal to the least of the employee’s severance pay calculation, $25,000 or an amount determined by the agency head. Second, a buyout can be offered to any employee.
Before you put in your retirement papers or resign, be sure that you are financially able to do so. As a rule, you can only keep your Federal Employees Health Benefits Program coverage in retirement if you are currently enrolled and have been continuously enrolled for at least five years or from your earliest opportunity to enroll. If you aren’t eligible to carry your coverage into requirement, you will be given a 31-day extension of coverage at no cost to you. After that, you can request Temporary Continuation of Coverage for up to 18 months. However, you will have to pay the full premium, plus 2 percent to cover administrative costs. The same rules apply if you resign.
The Federal Employees’ Group Life Insurance program has the same five-year rule and 31-day extension of coverage. However, if you aren’t eligible to continue your coverage in retirement, you will have to convert all or part of your insurance to a private policy at your own expense.
Unlike under FEHBP, OPM has no authority to waive the five-year requirement. And just as is true of FEHBP, the same rules apply if you resign.