ProFeds Founder, Chris Kowalik, explores what happens during a Reduction in Force for employees who have less than 5 years of federal service.
Key takeaways:
- What happens to the money already paid into FERS
- What happens if you return to federal service after being RIF’ed
- How access to the TSP may be limited
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Transcript of this episode coming soon:
Originally released on 3/7/2025
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If you’re a federal employee with less than five years of service, you might be wondering what options you have during a reduction in force. How does all of this really work for you? Today’s episode is going to cover just that.
Hi, I’m Chris Kowalik of ProFeds, and welcome to the FedImpact Podcast, where we offer candid insights on your federal retirement.
Reduction in Force – What if I Have Less than 5 Years of Federal Service?
Let’s talk about options. First, if you have not met at least five years of federal service, there is no pension for you. I want to be very clear and upfront right out of the gate, there will be no pension. You need to have at least five years to be vested for a federal pension.
What happens to the money already paid into FERS?
However, the money that you have contributed to FERS, I’m not talking about TSP, but what you have contributed each and every pay period into the FERS program can be refunded to you.
You’ll use a special form called the SF 3106. That is where you’ll request a refund of your FERS contributions. Those are the contributions you made to the pension fund. Your agency also makes contributions to that fund, but when you get a refund, it is only your money that you are getting back, it’s not your agency’s money.
What happens if you return to federal service after being RIF’ed?
If you take a refund of that money and you leave federal service and then later return, you have a couple of options. You are not required to pay that money back, but the original service that you have that you got refunded to you will not count for eligibility purposes or in the calculation of your pension. Really, really important that you understand what the ramifications are.
The good news is you’re at least able to put it back. That rule actually changed not all that long ago that it used to be once you took a refund, you were never ever allowed to put that money back in under FERS. That is no longer the case. You have a lot of flexibility in what it is that you choose to do.
Again, there’s no inherent benefit to leaving the money in there. You might as well take it and just know if you keep it in a safe spot, if you ever return back to government service, you’re able to redeposit that money back in the account.
If There’s No Pension, What Can Be Paid?
If there’s no pension, what can be paid? Surely there’s something, the government doesn’t just give you a pink slip. Well, there are two programs that you may find yourself eligible for and that your agency is putting out there with respect to their RIF policy.
The first is, to voluntarily try to get you to leave, they can offer a VSIP. This is the Voluntary Separation Incentive Payment, better known as a cash buyout. Most agencies have a $25,000 limit. The Department of Defense has a $40,000 limit.
There’s some talks about making everyone $40,000, but as of right now, we’re still looking at most agencies being at that $25,000 limit. The VSIP can be offered all by itself, but it can also be offered in conjunction with the early out.
Given the fact that you have less than five years of service, there isn’t an early out component for you. So I’m not going to go into the details of an early out. But for you, if you have at least three years of federal service, but you don’t quite have five to be fully vested for a pension, so you’re within that three to five year window, you now have the opportunity to get a cash buyout to sweeten the deal at least on your way out.
With a VSIP, the V in VSIP stands for voluntary. This cash buyout or this cash incentive is designed to entice people who are maybe on the fence to get them to voluntarily go before they move into the involuntary dismissals or layoffs of the federal workforce.
If you qualify for a VSIP, meaning you’ve got the right number of years and your agency offers it, this would be a lump sum payment to you. Again, 25 to 40,000, but keep in mind, taxes are going to be due out of that money. And because you’re taking a voluntary separation, you will not have severance pay.
Severance Pay
Severance pay is reserved for those people who are involuntarily removed from their position versus voluntarily removed. So just want to make sure you realize you will not get both the VSIP and severance pay.
But let’s talk about severance pay because maybe your agency doesn’t offer the VSIP, and this is the last resort. Severance pay is for an involuntary removal from your government position. There are some rules with respect to other offers of other positions and that type of thing, but we’re going to assume that your agency has gone through that process to determine whether you are eligible for another position.
If in fact, you do get severance pay, you will… The way severance pay is paid out is it simply continues your pay for a certain number of weeks. There is a cap, it’s 52 weeks. That would be an exorbitant amount of time that you’ve spent with the government, yet still didn’t qualify for a pension.
This is unusual to have a super high severance, but something to at least consider. You may go through the severance calculation process to determine is it better if you’re involuntarily removed or is it better if you voluntarily go under the VSIP? So doing the math might help inform that decision.
Just as a reminder, severance pay is only available for employees who are not eligible for an immediate pension. And given the nature of this video as far as the topic that we’re covering, if you have less than five years of service, you don’t have a pension at all, immediate or otherwise. This certainly would apply to you.
If you decide to return back to work with the federal government, you are able to put the money back into the FERS program to regain all of your original credit, but you are not required to do so.
Get Connected & Next Steps
I hope that this has been helpful. If you want to stay connected with us and make sure that you’re getting all of our updates and training resources, specifically, for federal employees, you can go pick up your phone, text the word podcast to 224-444-6144, and we will get back to you right away.
You’ll have access to all of those resources, our workshops, webinars, podcasts, articles, all of those pieces to be able to help you on your retirement journey.
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