What is VERA and How Can It Benefit Federal Employees?
Eligibility Criteria for VERA: Are You Qualified?
Navigating the eligibility criteria for the Voluntary Early Retirement Authority (VERA) and Voluntary Separation Incentive Payments (VSIP) can be pivotal for federal employees considering these options. Understanding the requirements is essential for determining qualification. Key factors such as minimum retirement age and years of service play significant roles in eligibility assessment. The Employee must:
- Meet age & service requirements
- Age 50 with 20 years of service, or
- Any age with 25 years of service
- Have served in the position covered by the authorization for a minimum time frame (usually 30 days)
- Serving in a position covered by the agency’s VERA plan
- Retire by the period covered by the VERA
Benefits of the VERA
VERA allows an employee to retire early and avoid the pension penalty that typically applies. The plan essentially relaxes the age and service requirements so employees are eligible to retire earlier. Moreover, the employee would be eligible for the FERS Supplement once they reach their MRA or are already at the MRA. However, if they decide to work in the private sector, the FERS Supplement is still limited by the Earning Test.
VERA also benefits the agency to downsize and allows agencies to restructure and start the process for a reduction in force (RIF).
How does a VSIP (Voluntary Separation Incentive Payments) Work?
The Voluntary Separation Incentive Payment Authority, commonly known as buyout authority, enables agencies undergoing downsizing or restructuring to offer employees lump-sum payments, typically a lump sum of up to $25,000, as an incentive to voluntarily depart. When authorized by the Office of Personnel Management (OPM), agencies can extend VSIP offers to employees in surplus positions or those whose skills are no longer essential. If available and approved, eligible employees may choose to separate via resignation, optional retirement, or voluntary early retirement (VERA). This option allows agencies to reduce their workforce without resorting to involuntary separations, thus avoiding costly and disruptive reductions in force (RIFs). Certain agencies, such as the Department of Defense with agency-specific VSIP authority, are exempt from seeking OPM approval to utilize this option.
Eligibility Criteria for VSIP
Once an agency obtains approval from OPM to provide VSIPs, any employee who fulfills these standard eligibility criteria becomes eligible to receive an offer. The employee must:
- Serving in a position without a time limit
- Employed by the Executive Branch of the government continuously for at least 3 years
- In a position covered by the agency’s VSIP (area, organization, series & grade)
- Apply and receive approval from the agency
- Not included in the ineligibility categories below:
Who is not eligible for a VSIP?
- Rehired Annuitants
- Have a disability that would qualify for disability retirement
- Received notice of involuntary separation for misconduct or poor performance
- Previously received a VSIP
- Student loan payment was paid in the last 36 months or to be paid
- Recruitment or relocation incentive was paid in the last 24 months or to be paid
- Retention incentive was paid in the last 12 months or to be paid
Exploring the Incentives of VSIP: Is it Worth It?
While the financial benefit of a VSIP is enticing, there are multiple considerations. One of the biggest surprises for federal employees is that the VSIP is fully taxable. So, instead of getting the $25,000 maximum amount, they receive it after taxes and withholdings. Moreover, if you decide to return to work for the federal government within 5 years, you must pay back the entire $25,000, not just based on what they received. Next, you must review your retirement picture to see if you can manage the expenses with your retirement income. If you cannot cover your costs, the VSIP will not likely help in the long term. Lastly, speaking to a qualified financial planner can help you sort out these questions and help you avoid pitfalls in retirement income planning.
Strategic Considerations Before Opting for Early Retirement
While Voluntary Early Retirement Authority (VERA) and Voluntary Separation Incentive Payment (VSIP) programs can be tempting, it’s crucial to carefully weigh the long-term consequences before opting for them. These programs can significantly impact your future finances, particularly your Federal Employee Retirement System (FERS) annuity amount. Consider consulting with a retirement advisor to assess the financial implications of retiring early and determine if it aligns with your long-term goals. This professional guidance can help you decide whether it is the right path for you. Remember that you must also understand your retirement expenses to weigh them against your retirement income.
Reach Out to Us!
If you have additional federal benefit questions, reach out to our team of CERTIFIED FINANCIAL PLANNER™ (CFP®) and Chartered Federal Employee Benefits Consultants (ChFEBC℠). At PlanWell, we focus on retirement planning for federal employees. Learn more about our process designed for the career federal employee.
Preparing for a federal retirement? Check out our scheduled federal retirement workshops. Sign up for our no-cost federal retirement webinars here! Make sure to plan ahead and reserve your seat for our FERS webinar, held every three weeks. Want to have PlanWell host a federal retirement seminar for your agency? Reach out, and we’ll collaborate with HR to arrange an on-site FERS seminar.
Want to fast-track your federal retirement plan? Skip the FERS webinar and start a one-on-one conversation with a ChFEBC today. You can schedule a one-on-one meeting here.
