Early retirement offers and buyouts: the rules and terms to check before you sign

The letter calls it voluntary. It offers a lump sum, maybe some months of paid health coverage, and a date by which you have to say yes. You're in your late 50s or early 60s, and the question underneath is whether taking it now beats staying and risking a layoff later on worse terms.

If you feel pushed and pulled at the same time, that's normal. A buyout is framed as a choice, yet it often arrives with a deadline and quiet hints about what comes next. I'm John Schrup, and at FirstSourceTeam we've coached people through offers like this since 2006. Nobody can answer the question from the outside, but the rules around the offer are fixed, and so are the numbers to compare. If you're 40 or older and the employer wants you to give up age discrimination claims in exchange for the package, a 1990 federal law, the Older Workers Benefit Protection Act (OWBPA), gives you at least 45 days to consider the release and 7 days after signing to revoke it. The employer also has to hand you a written list of the job titles and ages of the people who were and weren't offered the deal. The details are in a regulation issued by the federal agency that handles job discrimination complaints, the Equal Employment Opportunity Commission (EEOC), at 29 CFR 1625.22.

The law sets the process. The money, the health coverage and the pension terms are set by the employer's plan, and the EEOC says the terms of group programs are typically non-negotiable. So the work in those 45 days is mostly reading and comparing. An employment lawyer reviews the release in a specific agreement; this page explains the rules and the numbers around it.

Individual versus group buyout offers

The regulation names two kinds of group offers. An exit incentive program is usually voluntary: a group of employees is offered something of value, beyond what they're already entitled to, if they resign and sign a waiver. Any other employment termination program is usually involuntary. The 45-day and disclosure rules apply to both.

The EEOC's guidance gives a worked case. A bank has to cut 20% of its 200 teller positions in one area. It sends 50 tellers a letter offering six months' pay if they resign voluntarily and sign a waiver. That's an exit incentive program. If only 30 accept and the bank then lays off 10 more with severance in exchange for waivers, the second round is an other termination program.

The EEOC's general rule is that a program exists when an employer offers an incentive to leave, in exchange for a waiver, to more than one employee. A single negotiated exit is an individual agreement, with a 21-day review period instead of 45.

People often ask us whether the offer is generous. The first test is legal, before it's financial. The package has to add something. Under section 1625.22(d), a waiver counts only if you get consideration "in addition to anything of value to which the individual already is entitled." A benefit you'd receive anyway can't be the price of the release, and a benefit an employer removed in breach of law or contract doesn't count when it's offered back.

The 45-day review and 7-day revocation periods

Forty-five days can feel like a lot of time and no time at all, especially with colleagues comparing notes in the hallway. The minimums differ by whether the offer goes to one person or to a group.

Requirement	Individual separation	Group program (exit incentive or other termination program)
Time to consider the release	At least 21 days	At least 45 days
Clock starts	Employer's final offer	Employer's final offer
Revocation period after signing	At least 7 days, cannot be shortened	At least 7 days, cannot be shortened
Written advice to consult an attorney	Required	Required
Release must name the ADEA	Required	Required
Consideration beyond what you are already owed	Required	Required
Written list of job titles and ages in the decisional unit	Not required	Required, by single year of age

Note: State law can add requirements; the EEOC notes Minnesota requires a 15-day revocation period.

Exhibit 1. Source: 29 CFR 1625.22, paragraphs (b), (d), (e) and (f), Electronic Code of Federal Regulations, version current at 2026-10-01

The 45 days run from the employer's final offer. A material change to that offer restarts the clock, and a change that isn't material doesn't. You may sign before day 45, which starts the 7-day revocation period early, as long as the employer didn't push you there by threatening to withdraw or change the offer or by giving better terms to people who sign fast. Nobody can shorten the 7 days, by agreement or otherwise.

The release itself has to meet five more conditions in the regulation. It must be written so the average person eligible for the program can understand it, name the federal age discrimination law, the Age Discrimination in Employment Act (ADEA), and advise you in writing to consult an attorney. It can't waive claims that arise after you sign, and it needs the extra consideration described above. The EEOC cites a voluntary early retirement agreement that told employees to see financial and tax advisers and attend retirement seminars but said nothing about a lawyer. It failed the attorney requirement.

Signing doesn't close every door. The EEOC says a waiver can't stop you from filing a charge with the agency, and under the ADEA you don't have to return the severance before challenging the waiver in court. A court may reduce any award by the amount you received.

The mistake we see most is signing in the first week to get it over with. The law lets you sign early, but the review period is yours to use. State law can add time. The EEOC's guidance notes that Minnesota requires a release to give the employee 15 days after signing to revoke, against the federal 7.

Required disclosure of ages and job titles

Many people never look at this page of the packet, and it can be uncomfortable to read colleagues' ages laid out in a table. For a group program, the employer has to give each person asked to sign a written disclosure at the start of the 45 days. It must cover the decisional unit (the part of the company from which people were chosen), the eligibility factors, the time limits, and the job titles and ages of everyone eligible or selected, plus the ages of those in the same job classification or unit who weren't. Ages have to be listed one year at a time; the regulation says a band such as 20 to 30 doesn't satisfy the rule.

Age and job-title disclosure for a group layoff offer

3Decisional unit

The decisional unit is the Construction Division.

Eligibility

All persons in the Construction Division are eligible for the program. All persons who are being terminated in our November RIF are selected for the program.

2Time limits

Sign and return the agreement to the Personnel Office within 45 days after receiving it. Once returned, you have 7 days to revoke it.

1Mechanical Engineers, I, age 25

21 selected, 48 not selected

Mechanical Engineers, I, age 26

11 selected, 73 not selected

Mechanical Engineers, I, age 63

4 selected, 18 not selected

Mechanical Engineers, I, age 64

3 selected, 11 not selected

Mechanical Engineers, II, age 28

3 selected, 10 not selected

Mechanical Engineers, II, age 29

11 selected, 17 not selected

Structural Engineers, I, age 21

5 selected, 8 not selected

Structural Engineers, II, age 23

2 selected, 4 not selected

Purchasing Agents, age 26

10 selected, 11 not selected

1. 1Ages are listed one year at a time. Bands such as 20 to 30 do not meet the rule (29 CFR 1625.22(f)(4)(ii)).
2. 245 days to consider a group offer, then 7 days to revoke after signing; the 7 days cannot be shortened (29 CFR 1625.22(e)).
3. 3The unit the employer chose from. The list has to cover everyone in it, selected or not (29 CFR 1625.22(f)(4)(v)).

The decisional unit can be a whole facility, a department or one job family, depending on how the employer chose. If a 10% cut in an accounting department is drawn from the bottom third of performers, the regulation still requires figures for the whole department. The list is the one place in the packet that shows the ages of who was offered the program and who wasn't.

Federal government early retirement rules

Without a benchmark, it's hard to tell whether an offer is ordinary or unusual. Private employers set their own formulas. The federal government publishes its rules, so they show how one large employer structures an early-out.

Term	Rule
VERA eligibility	Only after OPM approves early retirement authority for the agency; minimums are age 50 with 20 years of federal service, or any age with 25 years
Annuity reduction under 55, FERS	None for early voluntary retirement
Annuity reduction under 55, CSRS	One-sixth of 1% for each full month under 55
VSIP form of payment	Lump sum
VSIP amount	Lesser of the severance pay formula or an agency-set amount, up to $25,000
VSIP repayment	Full amount if reemployed by the federal government within 5 years, with limited waivers

Note: VERA is the Voluntary Early Retirement Authority; VSIP is the Voluntary Separation Incentive Payment. Other conditions apply to both.

Exhibit 2. Source: US Office of Personnel Management, 'Voluntary Early Retirement Authority' and 'Voluntary Separation Incentive Payments' pages

Early retirement under the Voluntary Early Retirement Authority is available only when the Office of Personnel Management (OPM) has approved it for an agency undergoing substantial restructuring, downsizing or reorganization. When it has, the minimums are age 50 with 20 years of federal service, or any age with 25 years. Under FERS there is no annuity reduction for retiring under 55 this way; under the older CSRS system the annuity drops one-sixth of 1% for each month under 55. The separation incentive is a lump sum: the lesser of the employee's severance formula or an amount the agency sets, capped at $25,000. Anyone reemployed by the federal government within five years repays the whole incentive before the first day back, with limited waivers.

Pay, health and pension terms to compare

This is where the offer stops being abstract. When clients bring us a package, we read the health coverage terms first, then the cash. The cash is taxed as pay. IRS Publication 525 says severance is income and is subject to Social Security and Medicare taxes and income tax withholding. Publication 15 for 2026 sets federal withholding on supplemental wages such as a lump sum at a flat 22%, or 37% on supplemental pay above $1 million in a calendar year. Withholding is a prepayment; the actual tax depends on your total income for the year, which a tax adviser can estimate.

Item	Rule	Source
Severance pay	Taxable income; subject to Social Security and Medicare taxes and income tax withholding	IRS Publication 525 (2025)
Withholding on supplemental wages up to $1 million	Flat 22%	IRS Publication 15 (2026)
Withholding on supplemental wages above $1 million in a year	37% on the excess	IRS Publication 15 (2026)
Plan or IRA withdrawals before 59½	Additional 10% tax unless an exception applies	IRS, Exceptions to tax on early distributions
Separation from service in or after the year you turn 55	Exception applies to qualified plans such as a 401(k); does not apply to IRAs	IRS, Exceptions to tax on early distributions

Note: Age 50 applies instead of 55 for certain public safety employees in governmental plans.

Exhibit 3. Source: Internal Revenue Service, Publication 525 (2025), Publication 15 (2026), and 'Retirement topics: Exceptions to tax on early distributions' (last reviewed 11 December 2025)

Health coverage is the next line to compare. COBRA lets you keep the employer's plan for 18 months after a job ends, at up to 102% of the plan's cost, according to the Department of Labor. Check whether the package pays any of that premium, and for how many months. KFF, a health policy research group, found in its 2025 employer survey that 27% of large firms that offer health benefits also offered retiree health benefits, and 82% of those cover early retirees under 65. Public employers were far more likely to offer it than private for-profit firms.

Note: Firms answer yes if they provide retiree health coverage to at least some current workers or retirees. Among firms offering it, 82% offer it to early retirees under 65.

Exhibit 4. Source: KFF, 2025 Employer Health Benefits Survey, Retiree Health Benefits section, text accompanying Figures 11.1 to 11.3

Retirement plan access depends on the separation date. The IRS waives the extra 10% tax on early withdrawals from a 401(k) or other qualified plan if you leave the employer in or after the year you turn 55. The waiver doesn't extend to IRAs. If the employer has a traditional pension, the package may change when it starts or how it's figured; the Federal Reserve's 2025 Survey of Consumer Finances found that around one-fourth of families with a head aged 64 or younger hold a defined benefit plan.

Social Security doesn't change with the package. Its reductions depend on the age you start benefits, not the date you leave work; for anyone born in 1960 or later, starting at 62 pays 70% of the full amount.

Unemployment insurance is decided by your state, which treats a voluntary separation under its own rules. The state agency can say before you sign how it would classify the offer.

Working with FirstSourceTeam

When a client brings a buyout to FirstSourceTeam, we start by laying the offer next to the dates that matter: the 45-day deadline, when pay and health coverage end, and when Medicare and Social Security ages arrive. One-to-one coaching then covers both outcomes. If you might look for another job, we rebuild the resume and LinkedIn profile, make recruiter introductions where they fit, and prepare you for interviews. On the money and benefits side, we help you think through the terms and the questions to take to an employment lawyer, a planner or a tax adviser. We don't recommend whether to accept, or any product or tax move. Our free one-hour webinar, every Wednesday at 11 AM Central with John Schrup and Misty Schnuelle, is a low-pressure first step.

Sources

1. Electronic Code of Federal Regulations, 29 CFR 1625.22, Waivers of rights and claims under the Age Discrimination in Employment Act, accessed Oct 12, 2026.
2. US Equal Employment Opportunity Commission, Q&A: Understanding Waivers of Discrimination Claims in Employee Severance Agreements, accessed Oct 12, 2026.
3. US Office of Personnel Management, Voluntary Early Retirement Authority, accessed Oct 12, 2026.
4. US Office of Personnel Management, Voluntary Separation Incentive Payments, accessed Oct 12, 2026.
5. Internal Revenue Service, Publication 525 (2025), Taxable and Nontaxable Income, accessed Oct 12, 2026.
6. Internal Revenue Service, Publication 15 (2026), (Circular E), Employer's Tax Guide, accessed Oct 12, 2026.
7. Internal Revenue Service, Retirement topics: Exceptions to tax on early distributions, accessed Oct 12, 2026.
8. US Department of Labor, Employee Benefits Security Administration, A Worker's Guide to Health Benefits Under COBRA, accessed Oct 12, 2026.
9. KFF, 2025 Employer Health Benefits Survey, Retiree Health Benefits section (Figures 11.1 to 11.4), accessed Oct 12, 2026.
10. Board of Governors of the Federal Reserve System, Changes in U.S. Family Finances from 2022 to 2025: Evidence from the Survey of Consumer Finances, accessed Oct 12, 2026.
11. Social Security Administration, If you were born in 1960 or later, your full retirement age is 67, accessed Oct 12, 2026.