Understanding Buyout Offers

  • Article by: MATT KRUMRIE , Star Tribune Sales and Marketing
  • Updated: February 2, 2009 - 9:46 AM

If your company offers a buyout there are some things to consider before making a decision. Read below to find out what to look for and expect.

Dear Matt: It's rumored that my company is going to offer buyouts. What exactly is a buyout? I'm wondering how does a person go about deciding if it's a good idea to take one? Can I still collect unemployment with a buyout?

Matt: A buyout is a package of incentives offered by an employer to encourage employees to leave their employment, says Karen S. Johnston, an attorney with Minneapolis-based Henson & Efron, P.A.

By offering these incentives, the employer hopes enough people will decide to leave that it can reduce its workforce without the need for layoffs. Buyouts often offer employees one or more of the following incentives: severance pay, premium payment subsidy for health insurance continuation, outplacement assistance, or pension payments or credits as a bridge to the date when an early retirement benefit can begin under the terms of the plan. There is no standard set of incentives - employers are free to create a package of one or more items which it believes will encourage sufficient voluntary workforce reductions.

As Johnston points out, when deciding if a buyout offer is the best choice for you, you should look at your overall situation, including your savings, your prospects for obtaining replacement employment (and potential salary) and your ability to retire at this time if that is your objective.

If the company is not offering anything more than its standard severance package, you may want to think long and hard about whether to take this package if you do not have other needed employment or the means to retire, says Johnston.

"If the company is serious about voluntary workforce reductions, it should be willing to offer more than you would be paid in the event of a layoff," says Johnston. "If not, there is nothing to lose by waiting for the layoff to occur, and beginning your preparations for that transition as soon as you know there will be a workforce reduction."

If you are expected to sign a release of claims the company is obligated to offer more than you would otherwise be entitled to receive in order for the release to be valid.

As to your ability to collect unemployment, the State of Minnesota is the ultimate decision maker. In those cases where the reasons for unemployment make you eligible to collect unemployment and there is a severance payment involved, payment of unemployment benefits will be delayed. During weeks in which you are paid severance greater than or equal to your weekly benefit amount, then you will receive no unemployment benefits.


Matt Krumrie is a freelance writer from Inver Grove Heights, and has nine years of experience reporting on the employment industry. This column will answer readers' questions. E-mail questions or subject ideas to askmatt@startribune.com
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