Federal agencies are now competing for talent in a cut-throat seller’s market exacerbated by historically low unemployment and overheated worker demand, and that condition is likely to persist. To compound the problem, federal agencies are handcuffed to the past, competing for that talent from traditional sources—mostly younger, post-Millennial applicants for entry-level career positions. They’re also using tools (like pay and benefits), procedures and assumptions that are woefully out of date. And they are hampered by the relatively low opinion that many of those same younger recruits have of federal service, both generally and as a prospective career choice.  

The net result is that too many agencies find themselves with key positions that remain unfilled for months (or in some cases, forever), or perhaps even worse, filled by unqualified or under-qualified job seekers, especially those that are just looking for one of those “cushy” government jobs. Ironically, many of these vacancies are being fueled by a massive number of retirements from the very agencies—like the Internal Revenue Service, the Centers for Disease Control and Prevention, Social Security Administration, Federal Aviation Administration, Veterans Affairs Department and others—that are desperate to back-fill them. Yet, those very same retirees are also potential recruits, but for a civil service system that rejects them as a source of talent.

Why this irony? And more importantly, what can be done about it?

With the support of the Hewlett Foundation and the Democracy Fund, the Convergence Center for Policy Resolution brought together a group of civil service experts (including us) to answer these questions. And at the risk of stating the obvious, we concluded that most of those same agencies are forced—by that same obsolete federal civil service system—to neglect an increasingly large and well-qualified talent source: those of their own employees who are (or will soon become) retired, and who, if asked, would come back in a nanosecond, but for the financial penalty that they’d have to pay.

The Problem: The Annuity Offset Rule

These former public servants could be and should be a significant source of talent, coming as they do with a proven public service motivation and the requisite basic (and in many cases, advanced) skills for successful post-retirement employment. But most agencies do not even consider them a recruiting source—except of course, as individual part-time mentors, or worse, high-priced contractors—because of an archaic, mid-20th century rule that actively discourages them from returning to work: The so-called “annuity offset” rule.

By law, the pay of federal retirees who come back to work as civil servants is decreased by the amount of their annuity, often reducing their net pay down to a relatively meager amount (in some cases, below minimum wage), and substantially less than what the annuitants could earn as reemployed contractors or elsewhere in the private sector.

For example, if a federal retiree earning a $50,000 annuity under one of the government’s retirement systems goes back to work for an agency for a $75,000 annual paycheck, his or her new government salary is reduced by that $50,000 annuity. Thus, the reemployed annuitant gets paid just $25,000, below the minimum wage for federal employees, for doing a job that ordinarily pays $75,000.

Unless it is waived (see below), this offset applies regardless of the retiree’s reemployed capacity, whether it’s in a job that closely resembles the one they held immediately before retirement, or one that is completely different, even if it’s in a different agency. And to belabor the point, nothing stops those formers from coming back as contractors or consultants, with costs that may be higher and are certainly far less visible, but that’s another matter altogether.

It’s no wonder that federal retirees don’t usually come back as re-employed annuitants. It’s also why agencies don’t recruit them. Conversely, it’s just too easy for federal retirees to stay home, or if they do want to continue to work for Uncle Sam, to come back as a much higher priced contractor or consultant. But if federal agencies are to take full advantage of this talent source, the biases and disincentives that discourage them must be eliminated, or at least mitigated.

Blanket Exemptions, Reserve Corps and Waivers

So, what’s the answer? The Defense Department found one way. It confronted this problem years ago (primarily from a retiring military standpoint) and upon petitioning Congress for relief, got it in spades. Now, the entire Defense Department is exempted by law from the annuity offset. And it hasn’t resulted in widespread abuses, in part because the department knows that if it permits misuse, it risks losing that flexibility.

Much less visible but just as effective, several three-letter intelligence and law enforcement agencies like the CIA and FBI have also received statutory authority from Congress to establish their own “Reserve Corps” that may include the re-employment of highly skilled and experienced agency retirees, the latter without imposing annuity offsets on them. And just like the Defense Department, those agencies also know that if they allowed abuses of the offset—for example, to enable the re-employment of an agency retiree simply to escape civil service salary limitations—they risk losing that flexibility.  

But what about the rest of the federal government? Didn’t Congress already solve this problem? Congress gave agency heads the power to authorize their own annuity offset waivers via the fiscal 2010 National Defense Authorization Act (subsequently reauthorized in the fiscal 2015 and fiscal 2020 defense authorization acts). But it only applies on a temporary, part-time basis (520 hours during the first six months of retirement, 1,040 hours during any 12-month period, and 3,120 hours total), thus preventing its use for critical full-time and permanent jobs.

Phased retirement doesn’t help either. In 2014, Congress authorized the Office of Personnel Management to establish a phased retirement program for soon-to-be-former feds that allowed them to continue to work part-time as an annuitant while serving as a mentor or trainer, but without any offset. Once again, this only applies to annuitants on a part-time, transitional or temporary basis, leaving agencies with no permanent staffing solution other than to try to pigeon-hole a younger, full-time employee into that permanent job. It also includes additional time-consuming requirements that may not be worth the cost to agencies and annuitants.

And to make matters even worse, agencies (including OPM) have interpreted the authorities Congress has already given them as applying only to individual retirees under the most limited and temporary of circumstances. Thus, while OPM could possibly grant blanket offset waivers to agencies for significant numbers of federal retirees, as best we can tell, it has not done so. Indeed, one need only look at OPM’s guidance to see that everything about it—even the sample letters that OPM provides for agencies to use—is focused on individual retirees; that is, unique, one-off experts to be reemployed only under the most temporary and unusual circumstances.

In other words, it seems that everyone—OPM, Congress, and agencies (everyone except us)—believes that annuity offset waivers should only be the rarest of exceptions to the system. We think otherwise.

OPM Must Allow Agencies to Hire Retirees Where It Makes Sense

Bottom line: Federal agencies are losing the war for talent to non-government competitors (including government’s own contractors), and the evidence suggests that it is likely to get worse. Yet all the so-called fixes, statutory and administrative, treat federal retirees as long gone, or at best, a stopgap, temporary measure, rather than a permanent option. 

In our view, those interpretations are unduly and unnecessarily restrictive. The net result? These implicitly transitory and temporary limitations—expressly (and classically) established and administered by OPM to prevent the occasional well publicized case of individual abuse—have operated to discourage federal agencies from using their own retirees as a source of talent for permanent full- or part-time (that is, shared) positions.

Thus, for those agencies that can’t make the business case for legislative relief from Congress—a prospect that has long odds these days, given the partisan gridlock on Capitol Hill—and still want to reemploy federal annuitants for permanent work, a blanket salary offset waiver from OPM is their only option. But the bad news is that its authority notwithstanding, risk-averse OPM has rarely (if ever) granted waivers for anything other than in individual cases and in the narrowest of circumstances.

The good news is that that does not need to be the case. We believe that OPM has the ability today to grant or delegate the authority to provide blanket offset waivers to agencies for large numbers of retiree-recruits “in situations resulting from other unusual circumstances that do not rise to the level of a true emergency.” For example, it could do so for agencies like FAA, CDC, SSA, VA and IRS, and in so doing, allow them to tap a great source of talent for permanent full- or part-time work.

Note here that we are not letting agencies off the hook when it comes to concurrently recruiting younger workers. That is still essential, and reforms to the mind-numbingly complex entry-level civil service hiring system are clearly worth considering. But these are NOT mutually exclusive solutions. Neither source of talent (nor others, like laid-off private sector tech workers or veterans and their spouses, widows or dependents) is by itself the answer to an agency’s human capital needs. But for too long, those same agencies have been handcuffed from using their own work ready retirees for permanent work where it makes sense.

The bottom line: Let’s encourage OPM to exercise the waiver or delegation authority that it currently has to enable the reemployment of significant numbers of federal annuitants by an agency where it makes mission sense. Those retirees are out there ready and willing to work, so let agencies take advantage.