Despite significant cuts in the workforce for this
period, the representation of women and minorities in
the Federal workforce has not been adversely affected.
BACKGROUND AND DEVELOPMENT OF THE FEDERAL BUYOUT PROGRAM
The Federal Government has traditionally dealt with
workforce reductions by voluntary attrition and reduced
hiring. Offering voluntary early retirement has been an
effective tool to deal with more significant cuts in
workload and funding. But at times when voluntary means
fail to get the job done, Federal agencies are forced to use
involuntary separations known as reductions in force, or
"RIFs." RIFs are costly, disruptive, damaging to morale and
productivity, and harmful to diversity of the workforce.
For these reasons, agencies generally avoid using RIFs.
On February 10, 1993, President Clinton signed Executive
Order 12839 which called for reductions in the size of the
Federal workforce by 100,000 positions, mainly in middle
management and supervisory areas. The President also called
for a reduction in the proportion of supervisors to
employees. In late 1993, the National Performance Review
(NPR) took that goal a step further and recommended reducing
the size of the Federal bureaucracy by a total of 252,000
employees, building a Government that works better and costs
less. Cuts were recommended in positions dealing with
budgeting, oversight, personnel functions, procurement, and
other so-called "overhead" positions. The NPR also
supported the reduction in the number of supervisors and
managers in Government. The proposed cut of 252,000
included the 100,000 cuts ordered in the Executive Order.
At the same time, voluntary attrition rates -- influenced by
a sluggish economy and reduced Federal hiring -- were
declining to near record lows. From FY 1983 through FY
1992, the attrition rate in the Federal workforce averaged
7.6 percent annually. In FY 1993, it dropped to a ten year
low of 2.9 percent. Governmentwide voluntary early
retirement take rates were falling from an average of 25
percent to as low as 4.5 percent. Regular optional
retirement rates were off as well. <Endnote #3>
In an effort to stimulate stalled attrition, reduce the size
of the Government, and avoid involuntary separations and
layoffs, the Administration determined that voluntary
separation incentive payments, or "buyouts" should be tried.
Many private sector models had shown that buyouts can be a
less expensive, more humane, and more manageable way to
reduce the workforce. The Department of Defense began
successfully using buyouts in January 1993, to close
military bases and reshape its force structure while
minimizing involuntary separations.
In October 1993, the Administration proposed legislation to
provide buyout authority to non-Defense agencies to assist
in downsizing and streamlining the workforce. The ensuing
legislative process further shaped the bill to not only
allow for the use of buyouts, but to incorporate safeguards
which ensured that:
- buyouts made real and permanent reductions in the
size of the Federal Government;
- employees who took buyouts could not return to work
in the Government; and
- the buyout program not only saved taxpayer dollars,
but paid for itself without any additional
appropriation of funds.
The resulting legislation approved by Congress is Public Law
103-226, the Federal Workforce Restructuring Act of 1994.
On March 30, 1994, the President signed the Workforce
Restructuring Act, authorizing the immediate availability of
up to $25,000 to non-Defense federal employees who
volunteered to retire, resign, or take voluntary early
retirement during periods of major downsizing.
BUYOUT RESULTS TO DATE
The Administration's advance planning allowed over 11,000
non-Defense employees to separate with buyouts during the
first 5 weeks buyouts were available. Between
March 30, 1994, the date of enactment of the Federal
Workforce Restructuring Act of 1994, and September 30, 1996,
36,035 non-Defense employees took buyouts, cutting excess
layers of management and reducing overall employment levels
to a 30-year low.
The law included annual fiscal year reductions in the
overall size of Government (effectively reducing the
Executive branch, non-Postal workforce from 2.08 million
employees in FY 93 to 1.88 million by FY 1999). To date,
buyouts have been a major tool in efforts to achieve a net
reduction of nearly 255,000 workers <Endnote #4> between January 1993,
and September 1996, with only 27,000 involuntary separations
over essentially the same period. By 1999, the Federal
workforce will have at least 272,900 fewer employees than in
1993.
At least 92,432 Defense employees have separated with
buyouts since FY 1993. Combined with 36,035 non-Defense
buyouts, 128,467 Executive Branch employees have left the
rolls.
The Department of Defense will continue to offer buyouts
through FY 1999 under Public Law 102-484. Several other
agencies (including the Department of Agriculture, National
Aeronautics and Space Administration, the Railroad
Retirement Board and RRB Inspector General) received
specific authority from the Congress to offer buyouts. In
the summer of 1996, the Administration proposed new,
targeted buyout legislation for non-Defense agencies. The
Congress passed a version of that legislation allowing
certain non-defense agencies to use buyouts from October 1,
1996, through December 1997. The President signed Public
Law 104-208, enacting targeted buyout authority on October
1, 1996. OPM will be preparing a report on the use of that
authority in the future.
BUYOUTS HAVE PROVEN EFFECTIVE AT ENCOURAGING SEPARATIONS
Private sector organizations, state and local governments,
the Department of Defense, and non-Defense Federal agencies,
have found that buyouts and voluntary retirement incentive
programs save money, eliminate disruption, protect
diversity, and allow for downsizing with minimal involuntary
separations. OPM has long maintained that buyouts are less
costly and more effective than RIFs. This has been verified
by several recent General Accounting Office (GAO) studies
and reports on downsizing prepared for the Congress.
In a March 1995 report, GAO explored downsizing strategies
utilized by 25 private sector and state government
organizations. <Endnote #5> Most of these organizations offered monetary
incentives to employees who agreed to separate voluntarily.
Lump-sum cash payments were often a feature of these
separation incentive programs (though most separation
incentive packages were more generous than the Federal
incentive program). Generally, separation incentive
packages in these organizations were based on the
organization's severance pay formula and were available to
employees who resigned or retired.
As in the private sector, buyouts seem to be a more
attractive tool among Federal employees eligible to retire.
Only 7.6 percent (252) of FY 1996 non-Defense buyouts were
taken by employees who were not eligible to retire and who
left employment without an annuity payment (and who are now
restricted from returning to work for the Government for a
period of 5 years after separating).
By contrast, 92.4 percent of all non-Defense buyouts were
taken by employees eligible to separate with an annuity.
Buyouts become more attractive when the employee can leave
his or her job (despite the 5-year repayment requirement)
and still have some income in the form of a monthly annuity
payment. However, simply meeting the age and service
eligibility requirements for retirement is not a guarantee
that an employee will retire. The buyout simply provides an
added incentive to an employee who is close to deciding
abut leaving Government.
BUYOUTS VERSUS RIF -- COSTS AND SAVINGS
It is difficult to compare the cost of a RIF with the cost
of a buyout because the two actions are quite dissimilar.
In the past, OPM has relied on a 1985 General Accounting
Office study to estimate the cost of a typical RIF
separation. <Endnote #6> Based on GAO's report, these are the costs that
could be expected with a typical reduction in force action.
In this sample, a GS-9 employee is separated and two other
employees downgraded.
|
Personnel Processing
|
$4,350
|
|
Annual Leave
| $4,244
|
|
Appeals | $2,546
|
|
Unemployment | $1,803
|
Pay/Grade Retention
(for other affected) | $17,823
|
|
Severance Pay | $7,745
|
|
TOTAL | $38,511
|
GAO recently reviewed the cost of buyouts versus reductions
in force and GAO's findings agree with OPM's position:
buyouts are generally cheaper than RIFs and save more money
over a 5-year period. GAO concluded that buyouts could
generate over $60,000 more in net savings than RIFs
(involving bumping and retreating) for each position vacated
over a 5-year period. <Endnote #7> When no bumping or retreating takes
place, RIFs could generate up to $22,000 more in net savings
over buyouts over a 5-year period. However, GAO also notes
that each RIF typically creates AT LEAST one bump or retreat
action.
GAO surveyed 34 agencies in May 1995, and found that 9 of
those agencies were able to avoid reductions in force
through the use of buyouts. <Endnote #8> Among those 9 agencies, 8
reported that in FY 1994, they were able to avoid the
involuntary separations of as many as 2,800 employees.
Among the agencies surveyed, 12 would probably have needed
to RIF over 8,000 workers in FY 1995 without buyouts to help
them make cuts.
Moreover, in June 1995, the Congressional Budget Office said
that, with buyouts, "the Government saves 2 to 5 times the
near-term costs by the fifth year and 12 to 33 times by the
30th year." <Endnote #9>
-
Additional related costs can take the price tag on a
RIF even higher. Relocation and outplacement cost can
run roughly $30,000 and $5,000 per employee,
respectively. For these reasons, agencies must attempt
to avoid the use of RIF. Buyouts have proven to be
extremely successful at making cuts, saving the taxpayer
money, and reducing the size of Government humanely.
STATISTICAL HIGHLIGHTS & OVERVIEW
NON-DEFENSE BUYOUTS PAID: <Endnote #10>
|
FY 94
|
14,531
|
|
FY 95
|
18,203
|
|
FY 96
|
3,301
|
|
TOTAL:
|
36,035
|
TYPE OF SEPARATION:
|
Optional Retirement:
|
18,534
|
|
Voluntary Early Retirement:
|
13,343
|
|
Resignation:
|
3,168
|
|
Other: <Endnote #11>
|
990
|
|
TOTAL:
|
36,035
|
OVERALL BUYOUT AVERAGES:
|
FISCAL YEAR
|
AGE
|
GRADE
|
AMOUNT
|
|
94
|
56.8
|
11.0
|
$23,880
|
|
95
|
57.0
|
10.6
|
$23,569
|
|
96 data was not available from CPDF at this time.
|
|
CUMULATIVE
|
56.9
|
10.7
|
$23,670
|
SCOPE AND METHODOLOGY OF THIS REPORT
Section 6 of the buyout law requires OPM to make annual
fiscal year reports to Congress on each agency's use of
buyouts. These annual reports are due by December 31 of
each year.
Section 6 of the law requires OPM to provide the following
data with respect to Fiscal Year 1996:
- "the number of employees who received a voluntary
separation incentive payment under section 3" of this
Act.
[We have included that number (3,301) in the
report].
- "the agency from which each such employee
separated."
[We have presented this data in tabular format in
the report].
- "at the time of separation from service by each such
employee--
(A) such employee's grade or pay level; and
(B) the geographic location of such employee's
official duty station, by region, State, and
city..."
[This data was provided to OPM by each agency and
we have included each agency's report in the
attachment].
- "(A) the number of waivers made (in the repayment
upon subsequent employment) by each agency or other
authority under section 3 or the amendments made by
section 8..."
[OPM did not approve any waivers of repayment in FY
1996].
The Central Personnel Data File (CPDF) is not updated with
full fiscal year agency data until nearly 3 months after the
statutory reporting date in this law (December 31). In
order to provide the data to Congress as required by law,
OPM instructed agencies to provide data directly to its
Workforce Restructuring Office (separate from their routine
submissions of data to CPDF). While agencies received
standardized and uniform reporting formats, OPM accepts what
agencies are able to provide from their record systems
within the time frames required, provided OPM is able to
adapt the data to fit the required data report and meet the
statutory reporting obligations. OPM acknowledges that
compiling data in this manner does not provide completely
uniform data, but it does provide data required in the law
and allows OPM to discharge its obligation to report to the
Congress by December 31 of each year. We have summarized
the information required by law into tabular format and have
added supplemental data available from CPDF to provide a
more usable report.
To provide a broader overview and analysis of the entire
buyout program, OPM included buyout data for Defense and
non-Defense agencies in this report with respect to
FYs 1993, 1994, and 1995. This report reviews buyout
activity in non-Defense agencies for FYs 1994 through 1996
and in Defense agencies for FYs 1993 through 1996.
Data relative to the number and type of FY 1996 Defense
buyouts was obtained from the Department of Defense,
Civilian Personnel Management Division.
Any discrepancies between data from CPDF and from agency
reports are acknowledged and attributed to the disparate
nature of reporting systems utilized to collect data in time
to be included in annual fiscal year reports.
OPM acknowledges differences in buyout totals for the
Department of Defense in several areas of this report.
There are several reasons for the differences. Buyout data
for Defense is drawn from two different sources. Defense
data in the table "DEFENSE AND NON-DEFENSE BUYOUT TOTALS" is
drawn exclusively from Department of Defense's announced
buyout totals. Defense buyout data in the table "BUYOUTS BY
TYPE OF SEPARATION -- WHERE TYPE OF SEPARATION IS AVAILABLE"
is drawn from CPDF. The type of separation for a
significant portion of Defense buyouts paid in FYs 1993 and
1994 cannot be identified due to coding methods used to
identify buyouts paid early in the program. DOD's FY 1993
and 1994 numbers are considered to be a more accurate
reflection of total buyout use than CPDF while demographic
comparisons, average ages/grades, types of separation, etc.,
are more accurately drawn from CPDF.
The overall average age, average grade, and average amount
of FY 1996 non-Defense buyouts were not available from CPDF
in time to meet the statutory reporting date. OPM
calculated these averages by weighting each agency's
reported average against all other agencies.
- EXAMPLE: An agency reported an average age of 55 for
its 5 early retirement buyouts. The agency's total
number of early retirement buyouts was multiplied by the
reported average age (5 people x 55 years average age
=275 total years). The resulting number (275)
represents the age total for all employees who took an
early retirement buyout . That number was combined with
all other agencies' age total number. This resulting
number (69995) was then divided by the total number of
non-Defense early retirement buyouts (1313). The result
is an estimated non-Defense early retirement buyout
average age of 53.3.
LISTING OF DATA, CHARTS AND TABLES
- DEFENSE AND NON-DEFENSE BUYOUT TOTALS (table)
- ANNUAL FY BUYOUT TOTALS (chart)
DOD/NON-DOD
- CUMULATIVE BUYOUT TOTALS (2 charts)
DOD/NON-DOD
- TOTAL: ALL BUYOUTS (chart)
DOD/NON-DOD FY 93 TO FY 96
- NON-DOD BUYOUT TOTALS (chart)
FY 94 TO 96
- BUYOUTS BY TYPE OF SEPARATION WHERE TYPE OF SEPARATION IS
AVAILABLE (table)
DOD/NON-DOD FISCAL YEAR AND CUMULATIVE
- CUMULATIVE BUYOUTS (chart)
DOD/NON-DOD JANUARY 93 TO SEPTEMBER 96
- FY 96 DOD/NON-DOD BUYOUTS (chart)
- FY 95 DOD/NON-DOD BUYOUTS (chart)
- FY 94 DOD/NON-DOD BUYOUTS (chart)
- FY 93 DOD/NON-DOD BUYOUTS (chart)
- CUMULATIVE NON-DOD BUYOUTS (chart)
MARCH 94 TO SEPTEMBER 96
- FY 96 NON-DOD BUYOUTS (chart)
- NON-DOD BUYOUTS BY TYPE OF SEPARATION (table)
- FY 94 DOD/NON-DOD BUYOUTS (chart)
- AGENCY BUYOUT PAYMENTS (table)
- BUYOUTS BY TYPE OF SEPARATION (chart)
FY 93 TO 96 DOD/NON-DOD
- RIF SEPARATIONS BY FISCAL YEAR (table)
ALL AGENCIES
- FY 93 THROUGH FY 96 RIF SEPARATIONS (chart)
TOTAL, DOD, AND NON-DOD
- COMPARISON OF RIF SEPARATIONS (chart)
DOD VERSUS NON-DOD
- TRENDS IN GOVERNMENTWIDE DIVERSITY (chart)
MINORITY VERSUS NON-MINORITY
- TRENDS IN GOVERNMENTWIDE DIVERSITY (chart)
MALE VERSUS FEMALE
INDIVIDUAL AGENCY DATA SUBMISSIONS
Public Law 103-226 requires OPM to provide to the Congress data specific to each buyout paid.
Because of the number of buyouts paid, this data is quite voluminous and difficult to analyze.
Generally, the data is relatively unusable in its raw form. OPM includes that data in its annual
report to Congress but relies on this consolidated summary report to assist in analysis of the
program and to provide easy-to-use information on the program. The detailed raw data required
by statute is not provided in this report.
Notes on HTML/WWW Version of this Report
This report has been formatted for browsing on the World Wide Web, and does
not contain the tables and charts that are present in the actual report
presented to Congress. The title has also been modified to begin with the words "Buyouts Under", so that the subject matter can be easily recognized by visitors to this Web site.
A second version of this report is also available on
this Web site in the Adobe PDF format (552K file). This file contains an exact reproduction
of the original report, complete with all charts and tables. The document also
has hyperlink navigation tools. You may view this and similar PDF documents on
line by installing the freeware Adobe Acrobat Reader, Version 3.0, on your computer.
Mr. Greg Keller (202-606-0960; FAX 202-606-2329) of the Workforce
Restructuring Office is the author of this report.
End Notes
1.
According to OPM's Central Personnel Data File, total Federal on-board employment
(not FTEs) stood at 1,933,823 employees at the end of FY 96. The workforce has not
been that small since FY 65 when it totalled 1,900,578 employees. These numbers
represent all Executive Branch Civilian (non-Postal) employment of all work schedules
(full-time/part-time/intermittent) and all tenure groups (permanent and temporary).
2.
The 27,000 RIF separations took place from FY 1993 through June 30, 1996.
3.
The "take rate" is the percentage of employees eligible for voluntary early retirement
who will actually take advantage of early out and retire when it is offered to them.
4.
CPDF shows total on Executive Branch non-Postal on board employment stood at
2,188,704 in January 1993. That level dropped to 1,933,823 by September 1996.
5.
GAO report entitled WORKFORCE REDUCTIONS: Downsizing Strategies Used in
Selected Organizations. GAO/GGD-95-54. March 1995
6.
The reduction in force cost estimate ($38,511) does not represent an "OPM estimate of
the average RIF cost." The costs are based on a 1985 General Accounting Office study
entitled "Reduction in Force Can Sometimes be More Costly to Agencies Than
Attrition and Furlough" (GAO/PEMD-85-6, July 24, 1985). The $38,511 cost is
simply the GAO figures updated to reflect 1997 dollars.
7.
Based on General Accounting Office report: FEDERAL DOWNSIZING: The Costs
and Savings of Buyouts Versus Reductions-In-Force. GAO/GGD-96-63 May 1996
8.
From the May 17, 1995, GAO report entitled FEDERAL DOWNSIZING:
Observations on Agencies' Implementation of the Buyout Authority. GAO/T-GGD-95-164
9.
(Budgetary Program Newsletter, June 2, 1995).
10.
Except as noted, buyout totals and numbers represent Executive branch, non-Defense,
non-Postal buyouts paid under Public Law 103-226, The Federal Workforce
Restructuring Act of 1994, and include buyouts paid under a buyout program
established by the Administrative Office of the U.S. Courts under section 3(f) of P.L.
103-226. Buyouts totals include 62 buyouts paid by the Federal Deposit Insurance
Corporation under separate authority. These 62 appear in overall counts and
demographic data taken from CPDF. This report does not attempt to capture or report
on buyouts paid under other buyout laws (i.e., Smithsonian Institution's FY 96 buyout
authority).
11.
"Other" are former employees whose CPDF records indicate they were paid a buyout
but did not identify the specific nature of their separation as "regular retirement,"
"early retirement," or "resignation."
For additional information contact sjmcgarr@opm.gov
Page created 04/14/97
