Do Employee Buy-Outs Make Sense?

Social Security and other federal agencies are now "buying-out" many of their long time employees, that is offering them incentives to retire. The effect is to reduce the average experience level of Social Security employees. SSA and other agencies have explained employee buy-outs by saying that the government can save money by replacing these older employees who have high salaries with younger employees who receive lower salaries. The National Council of Social Security Management Associations (NCSSMA) is questioning this logic. The notes of a recent meeting of the NCSSMA board contain this interesting statement:

Our research shows that the benefit costs for new employees are much higher for new employees under FERS [Federal Employees Retirement System, which covers all federal employees first hired beginning in 1987] than the CSRS [Civil Service Retirement System, which only covers federal employees who started their government careers before 1987] employees they are replacing. The difference is 15.4% if you include matching the 5% thrift contribution. The question was raised why we offer early outs if it costs the agency more to do so. Linda McMahon [SSA Deputy Commissioner for Operations] responded that she likes to give this opportunity to people who want to leave to do so. It also gives the agency the opportunity to bring in fresh perspectives and new energy with new hires.