ProFeds Founder, Chris Kowalik, explores what happens when an employee is facing a RIF (reduction in force), but doesn’t qualify for an early out or a discontinued service retirement.
Key takeaways:
- Requirements to qualify for an Early Out
- Requirements to qualify for a Discontinued Service Retirement
- What an employee may be eligible to receive (such as a cash incentive or severance pay)
- How an employee may qualify for a federal pension later
To Watch on YouTube, CLICK HERE
Additional Resources:
- Link to full RIF training series: FedImpact.com/RIF-training-series
- Local workshop locations and dates: FedImpact.com/attend
- To be introduced to a local financial professional: FedImpact.com/request-to-meet
Subscribe and listen to episodes below or on your favorite podcast apps such as iTunes, Spotify, iHeartRadio, Audible, Amazon Music and YouTube!
Please GIVE FEEDBACK on this episode (and submit ideas for future episodes).
Prefer to read instead? A Transcript of this Podcast is Below:
Originally released on 3/7/2025
*******************
We’ve received a fair number of questions from employees who have found themselves not eligible for an early out or a discontinued service retirement, and they’re wondering what happens if they’re asked to leave the government.
Well, first we have to understand what it looks like to be eligible for one of those two programs, so you know what it is that we’re referring to.
For both an early out and a discontinued service retirement, we are looking at age 50 with 20 years of service, or any age with 25. If you don’t qualify, you don’t quite meet either the age or the service requirements for either one of those two options, now what?
That’s what we’re going to be talking about today. For instance, what happens to all of your years? What do you get, if anything, if you’re asked to leave?
Hi, I’m Chris Kowalik of ProFeds. Thanks for joining us on the episode today where we’re talking all about what happens if you don’t actually qualify for an early out or a discontinued service retirement. Of course, this is part of the larger RIF training series that we’ve put together for federal employees to help them sort through all of these details.
Reduction in Force – What if I Don’t Qualify for a VERA or DSR?
In the event that you don’t qualify for an early out or a discontinued service retirement, there are two other tools that the government has in their toolbox with respect to the reduction in force that they may use to eliminate more people in your agency, including you.
Here’s what it looks like. We’ve got the voluntary separation incentive payment, and then we have severance. So we’re going to talk more in depth about both of these processes.
For the VSIP, this is what we would consider the cash buyout. Most agencies have a $25,000 limit. It doesn’t mean they always offer that amount, but that’s their cap. For the Department of Defense, we’re looking at a $40,000 cap. There’s some talk about raising everyone’s cap to 40,000 regardless of the agency, but so far that hasn’t happened yet.
Requirements to qualify for an Early Out
In order to qualify for a cash buyout, or this VSIP, you need to have at least three years of federal service under your belt. Here we’re not talking about military service, it needs to be federal service that you’re looking at for this particular type of buyout.
The VSIP can be done all by itself as a standalone offer to try to entice those who are maybe close and ready to go ahead and leave government service, but it can also be paired with an early out. Now, the nature of this particular video is that you’ve already determined you don’t qualify for an early out, and so we’re going to just look at the VSIP all by itself to take a look at how this really works.
VSIP
The V in VSIP stands for voluntary. You are not forced to take a VSIP, this is your choice. What the agency is essentially doing is they’re looking out to their workforce and they’re asking, “Who would like to go if we gave you just a little incentive to do so?” If you take that cash buyout, it is a lump sum payment that you are going to receive, so all of it will be paid you up front, minus taxes of course.
I do want to point out that if you take the VSIP, you do not get a severance package. If you take the VSIP, you do not get severance. I share that with you because sometimes people think you can get both and then they’re really surprised. I’d love for you not to have any surprises when you walk out the door.
Severance Pay
With severance, let’s talk about this. Severance is paid only to those people who are involuntarily removed from their jobs. How it’s paid is it will simply be a continuation of your normal pay cycle up to a certain number of weeks, based on a calculation.
We’ll talk a little bit about that in a separate video, but in this particular video, just knowing that there is a severance package, it essentially means continued payments to you, and it maxes out at 52 weeks of severance pay. That’s a whole year.
That would be pretty impressive to be able to get a whole year of severance. It just doesn’t really work that way with the way the math shakes out for eligibility for pensions and all that good stuff. So that’s very unusual for someone to have gotten quite that much.
There are a couple of things with severance pay that I want to remind you of. The first is you only get severance pay if you do not have access to an immediate pension. An immediate pension could be a full pension, meaning you’re fully eligible to go and you simply choose to do so.
Discontinued Service Retirement
That can be an early out, called a VERA, or a discontinued service retirement, the involuntary version of the VERA, and all of those are paid to you right away. The same thing with MRA plus 10, for instance. You are eligible to receive your pension if you’ve met your minimum retirement age and have at least 10 years of service.
There’s going to be a penalty and all that good stuff, but you’re at least eligible to receive it right away. So you would not receive severance if in fact you decided to retire under those rules.
If you have at least five years of service, you will have a deferred pension. Because it’s not an immediate pension, what this means is you’re still eligible for severance. Let’s say you’re 35 years old and you’ve got your five years of service. You’re not going to be able to draw a pension until you’re 62, but at 35 years old, you are going to receive a severance package in addition to the deferred retirement that’s going to happen many years down the road.
A question we get asked an awful lot of is, if I take the severance, the agency sends me on my merry way, but I think I can get rehired with the government, what happens to my severance?
I have good news and bad news for you. The good news is your severance is there for you. The bad news is if you return back to the federal government, your severance will stop.
So if you’re going to be out of pocket for two or three months, and your severance has already run out, and you get rehired, then no harm, no foul. But if you get rehired right away, that severance is going to stop at that moment in time.
Get Connected & Next Steps
Boy, there is a lot to think about. If all these numbers running through your head is making your head spin, I encourage you to get real with your numbers, understand your situation, I would argue not just on the federal benefits side, but all the other parts of your financial life as well, because all of it plays a big factor in your decisions. I hope that you’ll stay connected to us.
If in fact you need some help, I encourage you to get connected with us by pulling out that phone and texting the word PODCAST to 224-444-6144, and we’ll get connected right away.
You’ll have access to all of our training materials, a library of webinar replays, podcasts, and of course, access to our flagship program, The Retirement Workshop, that we hold in person throughout the country. So subscribe to us here on this podcast and then let’s get connected so that you’re sure to get all of our updates.
*********************************
For an introduction to a financial professional in our network: FedImpact.com/request-to-meet
View all podcast episodes: FedImpact.com/podcasts
Find a comprehensive retirement workshop for your area: FedImpact.com/attend
