OPEA

What is a Voluntary Out Benefit Offer (VOBO)? 

With the serious budget challenges facing state agencies, some are considering voluntary out benefit offers (VOBOs), which provide incentives for employees to leave their positions.  Agencies often offer VOBOs as an alternative to a reduction-in-force (RIF).  Below are some frequently asked questions about VOBOs.

What’s the difference between a VOBO and a RIF?

A VOBO is voluntary and can be declined if employees are not ready to leave their positions.  A RIF is mandatory.  While the benefit packages are similar, VOBOs usually have additional options to “sweeten the pot” and incentivize employees to take the offer.

What are the benefits offered in a VOBO?

A VOBO benefit package must provide the following:

• payment equal to 18 months of the health insurance premium for the employee only in a lump sum*, and
• the employee’s next longevity payment.  (This is a full longevity payment and is not prorated.)

In addition to the above items, one or more of the following may be added, as determined by the agency:

• one week of pay for each year of service,
• a maximum lump-sum payment of $5,000,
• payment for accumulated sick leave at one half the employee’s hourly rate, and
• payment of the health insurance premium for the employee only over 18 months.*

*The difference between the first and second health insurance provisions are the first is mandatory, paid in a lump sum and subject to payroll taxes.  The second optional provision is the payment of the insurance premiums over 18 months and is not subject to payroll taxes.  In OPEA’s experience with VOBOs, the second option has never been offered by agencies.

What is the process?

Agencies have used two different methods to offer VOBOs to employees.  The first has been used by several agencies in the recent budget shortfall.  Initially, the agency puts out a general notification to all employees that a VOBO is being considered.  This notification is not an offer, but a request for interest.  Employees express their interest by submitting a form to the agency.  After all the forms are received, the agency reviews staffing levels to determine if the position can be held open for at least a year or eliminated.  The agency then makes formal offers to employees in the positions that can be eliminated or held vacant.  Not everyone who expresses their interest will be offered a VOBO, because the agency needs their position.

In the second method, the agency determines needed staffing levels and makes the formal VOBO offer to the most senior employee in that classification.  If this person rejects the VOBO, the offer will often be made to the next senior employee.

A formal VOBO offer is different from the interest form in that it will be addressed to a specific employee.  When employees receive a VOBO offer, they have 45 days to respond and seven days after they sign to rescind their acceptance.  This process is in compliance with the federal Age Discrimination in Employment Act of 1967. 

Will employees who leave in a state VOBO be eligible for unemployment benefits? 

In general, yes. Because, by statute, when a VOBO is offered to state employees a RIF is imminent, the Oklahoma Employment Security Commission (OESC) considers state agency VOBOs within their rules for receiving unemployment benefits.  OPEA has been working to coordinate state agencies with OESC to ensure employees receive all possible benefits.  OESC has a rapid response team that has been attending agency meetings to famiiarize VOBO participants with unemployment processes.  Other factors, such as second jobs, could prevent employees from receiving unemployment benefits.  However, participation in a state VOBO does not disqualify employees from benefits.

If I receive an offer, does that mean I will be RIFed if I don’t accept?

Not necessarily.  VOBO offers are given to the most senior employee in a classification as a “privilege”.  Often the senior worker is retirement eligible or preparing for retirement and a VOBO makes it easier for them to retire.  Employees with the least tenure are RIFed.  Also, agencies are less likely to RIF if they can achieve the same results through VOBOs, furloughs, or attrition.  RIFs are very disruptive to an agency, because of the displacement process and morale issues.

RIFed employees receive the two mandatory benefits listed above, payment of the 18 months insurance premium and their next longevity payment.  Employees, who are RIFed, still have displacement opportunities and the standard severance package.  However, agencies are not mandated to offer the severance package to unclassified employees if no classified employees are included in the RIF.  Agencies may provide severance benefits to unclassified employees.  However, if one classified employee is included in the RIF, all employees must receive the severance package.  Unclassified employees may not exercise displacement opportunities. 

One of the most important issues state employees should consider when weighing their options in a VOBO is the tax consequences.  Although some of the funds can be recouped when taxes are filed in January, federal withholding guidelines for a VOBO are similar to the rules for longevity checks.  The VOBO check is often less than employees expect.  Contact your tax professional for help in this matter.