Where Are All the Buyouts? Many Expected, Few Offered


When Congress OK'd a plan to offer buyouts and early retirement incentives to federal employees just over a year ago, the Congressional Budget Office predicted 14,400 employees would take the money and run.

They weren't even close. To date, only 1,214 employees have taken buyouts worth up to $25,000, according to preliminary Office of Personnel Management data. About five times that number have taken early retirements.

To make such offers, agencies need only the approval of OPM. But so far, few have asked. The most aggressive: The Defense Department, with nearly 3,000 early retirements, followed by the Veterans Affairs Department, with 701. When it comes to buyouts, only a handful of agencies have made significant use of them. The General Services Administration leads the pack with 399.

Why haven't more departments and agencies climbed on the bandwagon? There are a host of reasons:

"There wasn't an incentive for managers to use them," says Beth Asch, a senior economist with the RAND Corp. "It took a lot of work to request and justify them, the discretion was with people much higher in the hierarchy than the manager, and there was not too much payoff to the manager whether it worked or not."

Few budgeted for the buyouts. "We're a cash-strapped agency with severe resource constraints," said David Grinberg, a spokesman for the Equal Employment Opportunity Commission. "We have not offered buyouts because we're so cash-strapped."

The buyouts are too small for some to accept, says Al Ressler, director of the center for human resources management at the National Academy of Public Administration in Washington. "The $25,000 amount needs to be revisited."

It's hard to implement early retirement and buyout programs fairly and effectively. One Navy manager objected to favoritism in how buyouts were offered; another described how too many senior people took early retirement offers, leaving his office shorthanded and "in the ridiculous position of borrowing personnel from other activities."

Not using these tools poses a problem, experts warn: Avoiding use of early retirements and buyouts now will only make the coming retirement boom hit harder.

Sens. George Voinovich, R-Ohio, and Daniel Akaka, D-Hawaii, authored the legislation last year that streamlined the buyout and early-retirement rules. The measures passed Congress as part of the 2002 law that created the Homeland Security Department. In a statement to Federal Times, Voinovich said he is not concerned about the seemingly low use of the authority.

"When providing agencies early out and buyout authority, my goal was to give agencies the autonomy and flexibility to shape their work force in a manner that is consistent with their mission and their strategic work force plans," Voinovich said. "They were not designed to specifically create an increase in the number of retirements. However, as time goes by, I believe that more agencies and federal employees will utilize these flexibilities to the fullest extent practical."

Buyouts are incentive payments to encourage civil service employees to leave the federal work force. Early retirements are opportunities to retire before meeting the age and service requirements normally needed. Employees are eligible for early retirement at any age if they have 25 years of service, or at age 50 with 20 years of service. Employees who take early retirement see their annuity reduced by two percentage points for each year they are short of age 55.

Leaders used to have to beg Congress for the right to use buyouts. Serious budget problems or major reorganizations leading to layoffs would have to be documented in order to get approval to offer the incentives. And workers who accepted buyouts could not be replaced.

That has all changed. Now, agencies need only get approval from OPM, they do not have to deposit a lump sum into the employees' pension fund, and they do not lose an employee slot for each person taking a buyout.

The Problem With Buyouts

Despite the easier access to them, buyouts are getting little play in the federal workplace. One of the most frequently mentioned reasons is lack of funding.

"If there's no money in their budget, what is the point of having buyout authority?" said Asch at the RAND Corp.

The Equal Employment Opportunity Commission is a good example. It offers early retirement, but can't afford to offer buyouts. Despite a recommendation in February from the National Academy of Public Administration that EEOC streamline services and move or close field offices all prime reasons for offering buyouts the agency said its budget problems prevent it from offering buyouts. Earlier this year, EEOC needed $15 million in emergency funds to avoid furloughing all of its 2,800 employees.

Another problem is that buyouts appear to have lost their luster. Employees complain they're not big enough to entice them to leave their job and that they're poorly managed.

John Kaffenberg is a 57-year-old IRS manager. He said buyouts are unattractive because after taxes, he would receive only $18,000 of a $25,000 buyout. Combined with the dent in annuity payments, he cannot afford to take a buyout.

Further, he thinks the impending retirements will lead to a drain on experience and skills governmentwide. "Instead of offering early outs, they should be offering bonuses to stay on," Kaffenberg said.

One public health adviser at the Centers for Disease Control and Prevention who asked to remain anonymous said the reduced annuity and the loss of accrued sick leave concern her.

Some experts, like NAPA's Ressler, said the buyout amount, which has not changed for almost a decade, needs to be more flexible to work effectively as an incentive for people in higher pay grades.

One Navy manager said early retirement offers are disruptive because unions often demand they be based on seniority. As a result, experienced people are not around to mentor new hires.

"We lost senior people in areas of very high workload and got into the ridiculous position of borrowing personnel from other activities" when early outs were offered, said the manager, who asked not to be identified.

One branch head in the production area of a naval depot, who asked not to be named, said that seniority should at least be a consideration. He said he witnesses cronyism in the way that buyouts are offered.

"I want a fair system so everyone has an opportunity to get a buyout. Seniority should count somewhere," said the manager, who has 36 years' experience with the government. He said that when he asked about an early retirement, he was told his job was too critical and the agency couldn't afford to lose him.

And while the rules for offering buyouts have been streamlined, there remains considerable bureaucracy to wade through for managers interested in using them.

One human resources manager at the Education Department said she looked into offering buyouts at her department but decided against it, saying the paperwork involved was "overwhelming." The manager said she began the paperwork but soon realized that agency leaders wanted more control over who was targeted for the buyout. Ultimately, she decided the process was not worth it.

"I had no real incentive to increase my workload by hours each week and lead a change effort that might be painful on the small chance I could make the program more efficient," she said.

One good way to reduce the bureaucracy involved is to scrap the need for OPM approval, said Ray Woolner, president of the Washington-based Professional Managers Association.

"It's not that OPM doesn't act quickly, it's just a delaying step in the process that's probably unnecessary," he said.

Some Buyouts Rejected

Sometimes circumstances get in the way.

Nearly 150 employees in the loan-support division of the Agriculture Department's Farm Service Agency lost a competitive sourcing bid with the private sector. The agency applied for, and received, authority to offer separation incentives to the employees whose jobs were being outsourced. But at the last minute, Congress stepped in and nullified the results of the competitive sourcing study, thereby removing the need for buyouts.

The Health and Human Services Department consolidated back-office functions in December 2003 to improve efficiency. Marissa Huttinger, director of the office of administrative services in HHS' Administration on Aging, requested early retirements for some of the 50 administrative positions within her division. Only two workers accepted the offer. Later in the year, Huttinger offered buyouts to four department employees who lost their jobs in a competitive sourcing contest. To get the buyouts, though, they would have had to quit their jobs before they found new jobs. They all declined, opting instead to remain temporarily while receiving assistance from agency personnel officials to find new jobs.

"We have not been very successful with early outs and buyouts," Huttinger said.

While she will not rule out offering buyouts in the future, she said her agency's problem is not getting rid of people, but making sure knowledge is transferred to new employees before the experienced staff retire.

"Because the buyouts are available we decided to use them in case it made our employees' decisions easier if they lost their job," Huttinger said. "As it turned out, staff are not using it in this agency."

How It Should Work

Managers need to take a close look at which skills they need to get their work done before they launch a buyout program, experts say.

"Buyouts are a work force restructuring tool with a known result: You're going to have gaps and holes," NAPA's Ressler said. He said agencies should predetermine where the holes will be lest random depletion prevents an agency from accomplishing its mission.

Employees throughout the Centers for Disease Control and Prevention are engaged in working groups to help the agency restructure its work force to better accomplish its mission in a world where bioterrorism and public health crises are a significant threat.

"Literally everybody is involved in our strategic planning process," said Bill Gimson, chief operating officer of the agency.

CDC is offering buyouts to human resources employees in the facilities and management office. As of Dec. 15, 29 employees of 160 eligible had accepted a buyout. The buyout was offered because the agency is consolidating 40 personnel offices into four.

Such targeting is key to an effective buyout strategy, said Ken McDaniels, Federal Managers Association conference chair.

"These are targeted tools and shouldn't be viewed as bonuses to get people out the door," he said.

By canvassing employees' skills, agency leaders can determine if particular individuals have skills applicable for multiple jobs, said Ressler. That information comes in handy when employees need to fill a specific gap created by a buyout.

"Buyouts are not necessarily the immediate panacea people think they are," Ressler said. "Before you engage in a buyout process, you need to have long-term strategic thinking of the organization."