Government downsizing: What you need to know

In January, the Postal Service offered up to $15,000 in early retirement incentives for certain employees. With all of the talk from the current administration about downsizing the federal workforce, it’s likely this won’t be the last time we see an agency use voluntary early retirement authority (VERA) — or even conduct a reduction-in-force (RIF) — in the near future. DOGE has set its sights on cutting federal spending and it does seem likely that targete reductions in the federal workforce will occur.

Schedule F is back, a new designation for thousands of federal employees in policymaking positions that would exclude them from civil service protections. Initial estimates found roughly 50,000 federal employees would be impacted by Schedule F when it was first introduced, although federal employee unions say there’s evidence of a “far higher” impact on the federal workforce.

So what do federal employees need to know about how all of this could affect them?

How would VERAs or RIFs affect your benefits, and what can you do to prepare?

VERA

Because VERAs are voluntary, the big question federal employees should be asking is whether taking a VERA is the right move for them. Their main consideration in this should be their age and their retirement plans. If they’re planning to retire from work altogether, then they’ll need to run the numbers on their retirement accounts, Social Security, annuity and what their expected budget will be for the lifestyle they intend to lead. That will be a personal calculation for each individual, and they should work with a federal retirement consultant to make that determination.

One other thing to remember while deliberating over a VERA: If a federal employee is in their 50s, they may have a decade or more before they can take Social Security. That means they’d likely be relying more on their Thrift Savings Plan earlier in their retirement, which may not be desirable. Every withdrawal from the TSP comes with a long-term ripple effect, as that’s less capital gaining compounding interest over time.

Meanwhile, federal employees who may consider taking a VERA and transitioning into the private sector should not take Social Security, whether it’s an option or not. They should also roll their TSP into an IRA when they leave federal service, as there’s no limitations on an IRA the way there are on the TSP or other 401k plans.

RIF

An RIF is an entirely different beast, as it’s not voluntary. Federal employees whose agencies are talking about the possibility of RIFs may want to prepare, just in case. So what can they do?

Again, their best move in this case would be to see a federal retirement consultant and run the numbers. They’ll need to bring their current TSP information, their pension information — including years of service and their average high-three salary — their Social Security estimate, and any other outside investments they may have. They should also visit the Office of Personnel Management’s webpage about RIFs to ensure they’re eligible for severance pay, and calculate what that would be.

They should also know that if they’re not immediately eligible for an annuity, they will only continue receiving Federal Employee Health Benefits for free for 31 days after separation. After that, they can request in writing within the first 60 days of their separation a temporary extension of up to 18 months. However, continuing the plan in this manner would require them to pay their own portion of the coverage, the government’s portion, and a 2% administrative fee, totaling 102% of the cost of the plan.

Finally, they should consider their stage of investment in the TSP, and the amount of risk they currently have in their portfolio. They may want to adjust their risk exposure to be more conservative if the possibility of an RIF would significantly shorten their timeframe to retirement.