Buyouts Under the Federal Workforce Restructuring Act of 1994 Public Law 103-226 U.S. Office of Personnel Management TEXT OF THE FINAL REPORT TO CONGRESS December 1997

This is the Office of Personnel Management's (OPM) fourth and final required fiscal year report to Congress on the use of voluntary separation incentive payments (buyouts) under the Federal Workforce Restructuring Act of 1994, Public Law 103-226. The Federal Workforce Restructuring Act represented the first widescale use of buyouts in non-Defense agencies to reduce the size of the workforce.

Under the Act, agencies could offer voluntary separation incentive payments of up to $25,000 to employees between March 30, 1994, and March 31, 1995, to reduce the size of the workforce while minimizing or avoiding more costly and disruptive reductions in force. In certain cases, if the head of the agency determined that an employee's services were required to ensure continued performance of the agency's mission, the agency head could delay an employee's separation with a buyout until as late as March 31, 1997. In all cases, separations for a buyout under this law occurred by March 31, 1997.

This report focuses on the use of buyouts under Public Law 103-226 in fiscal year 1997. All buyouts in fiscal year 1997 were approved prior to April 1, 1995, with the separation delayed by the agency. OPM will issue a comprehensive report on the use of buyouts under all other authorities in 1998.

HIGHLIGHTS OF BUYOUT ACTIVITY UNDER THE FEDERAL WORKFORCE
RESTRUCTURING ACT OF 1994

BACKGROUND AND DEVELOPMENT OF THE FEDERAL BUYOUT PROGRAM

OTHER BUYOUT PROGRAMS

BUYOUTS VERSUS RIF -- COSTS AND SAVINGS

STATISTICAL HIGHLIGHTS & OVERVIEW
 
SCOPE AND METHODOLOGY OF THIS REPORT

CHARTS, GRAPHS, AND TABLES

NOTES ON HTML/WWW VERSION OF THIS REPORT

Between March 30, 1994, and March 31, 1997, non-Defense agencies paid 39,900 buyouts under the Federal Workforce Restructuring Act of 1994.

Buyouts were given to 20,069 optional retirements, 15,055 voluntary early retirements, 3,381 resignations, and 1,3951 ^{[Endnote 1]} others.

In Fiscal Year 1997:

Non-Defense Executive branch agencies paid 4,040 buyouts to 1,790 employees who retired, 1,811 employees who retired under voluntary early retirement authority, 247 paid to employees who resigned and 192 others (in which the type of separation could not be identified).

46.5% of the employees receiving buyouts were eligible for regular optional retirement, 47.1% retired early, and 6.4% resigned.

The average age of regular optional retirees separating with a buyout was 59.8 years. Those retiring early with a buyout averaged 52.3 years, and those who resigned and took a buyout averaged 44.0 years of age.

The average grade of regular optional retirees separating with a buyout was GS-1 1.9. Those retiring early with a buyout averaged GS-1 1.9, and those who resigned and took a buyout averaged GS-9.5.

The average amount of incentive payments was $24,648 fixfont for regular optional retirements, $24,891 for early retirements, and $17,000 for resignations.

The Federal Government has traditionally dealt with workforce reductions by voluntary attrition and reduced hiring. Voluntary early retirement has been an effective tool to deal with more significant cuts in workload and funding. However, sometimes voluntary means can fail to get the job done. In these cases, Federal agencies must involuntarily separate employees under reduction in force, or "RIF," procedures. RIFs are costly, disruptive, damaging to morale and productivity, and harmful to diversity of the workforce. For these reasons, agencies generally avoid using RIFs.

To provide agencies a less costly and disruptive tool for downsizing and restructuring, in October 1993, the Administration proposed legislation to provide buyout authority to nonDefense agencies. The ensuing legislative process further shaped the bill to not only allow for the use of buyouts, but to incorporate safeguards which ensured that:

1. buyouts made real and permanent reductions in the size of the Federal Government;
2. employees who took buyouts could not return to work in the Government; and
3. the buyout program not only saved taxpayer dollars, but paid for itself without any additional appropriation of funds.

Between March 30, 1994, the date of enactment of the Federal Workforce Restructuring Act of 1994, and March 31, 1997, the date by which all separations concluded, 39,900 nonDefense employees took buyouts, cutting excess layers of management and bringing overall Federal employment levels to a 30- year low. At the end of fiscal year 1997, full-time equivalent (FTE) levels in the Executive branch had been reduced to 1,873,300, some 90,000 FTEs lower than the statutory targeted FTE ceiling (1,963,300) for this fiscal year.

OTHER BUYOUT PROGRAMS

Because of the success and effectiveness of separation incentive programs, other agencies and departments have received buyout authority to assist with major restructuring in the Federal workforce. The Department of Defense will continue to offer buyouts through FY 2001 under Public Law 102-484. The Department of Agriculture and the National Aeronautics and Space Administration have both received specific authority from Congress to offer incentives to employees through fiscal year 2000. Additionally, between October 1, 1996, and December 30, 1997, targeted buyout authority was available for non- Defense agencies under Public Law 104-208. OPM will be preparing a comprehensive report on the use of that authority and other aspects of downsizing early in 1998.

BUYOUTS VERSUS RIF -- COSTS AND SAVINGS

One of the key factors behind Congressional approval and agency use of buyouts is that they are a less expensive and disruptive restructuring tool than reductions in force (RIFs). While it is difficult to compare RIF and buyout costs (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 2]}  Based on GAO's report, these are the costs (in 1996 dollars) 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 3]}  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 4]} 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 5]}

• 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.

NON-DEFENSE BUYOUTS PAID ^{[Endnote 6]}
 
 

BUYOUT AVERAGES:
 

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 1997:

(1)	"the number of employees who received a voluntary separation incentive payment under section 3" of this Act. [We have included that number (4,040) in the report].

(2)	"the agency from which each such employee separated." [We have presented this data in tabular format in the report].

(3)	"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 is included as an attachment].

(4)(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 1997].

In recent years, OPM has not been able to extract data from the Central Personnel Data File (CPDF) for use in this report. This is because of the timing of the report's due date to Congress. The report, due December 31, is typically required before full fiscal year data is available in CPDF. However, this year, since the buyout program concluded at the end of the second fiscal quarter, full data related to buyouts paid under this law was available.

Endnotes:

1. "Other" represent buyouts in the Central Personnel Data File (CPDF) in which the specific nature of their separation could not be determined. Includes 29 VA buyouts paid in FY 1994 which are not correctly coded in CPDF.

2. 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 1996 dollars.

3. Based on General Accounting Office report: FEDERAL DOWNSIZING: The Costs and Savings of Buyouts Versus Reductions-In-Force, GAO/GGD-96-63 May 1996

4.  From the May 17, 1995, GAO report entitled FEDERAL DOWNSIZING: Observations on Agencies' Implementation of the Buyout Authority, GAO/T-GGD-95-164

5.  Budgetary Program Newsletter, June 2, 1995.

6.  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. This report does not attempt to capture or report on buyouts paid under other buyout laws.

Charts, Graphs, and Tables

Not shown in these pages are several charts, graphs, and tables which present and compare data regarding buyouts under the workforce Restucturing Act.

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.

Mr. Greg Keller (202-606-0960; FAX 202-606-2329) of the Workforce Restructuring Office is the author of this report.

For additional information contact sjmcgarr@opm.gov

Updated 13 September 1999