Federal employee RIFs can still happen in a government shutdown, OPM says

The Office of Personnel Management (OPM) has issued guidance clarifying that federal agencies can continue Reductions in Force (RIF) activities, including issuing notices, during a government shutdown, classifying them as "excepted activities." Employees working on RIFs or those impacted by them would receive backpay for any shutdown period, while the standard 60-day RIF notice and 90-day competitive area definition requirements remain in effect. This guidance facilitates ongoing workforce reduction efforts, encouraged by the Trump administration, amidst a potential government shutdown, though the suggestion to use furlough status as a RIF criterion has drawn criticism.

Analysis

New guidance from the Office of Personnel Management (OPM) clarifies that federal workforce reduction-in-force (RIF) activities are considered "excepted" and may proceed during a government shutdown. This policy decision facilitates the Trump administration's objective of shrinking the federal workforce by ensuring that procedural steps, such as issuing 60-day RIF notices, are not delayed by a lapse in appropriations. While procedural safeguards like the notice period and the 90-day pre-definition of a "competitive area" remain intact, the guidance aligns with an Office of Management and Budget (OMB) suggestion to use an employee's furlough status as a criterion for RIFs. This specific tactic has drawn criticism, notably from the Partnership for Public Service, which characterized it as "ridiculous logic" that fails to account for long-term operational needs. Despite the administration's push, agency adoption of RIFs has been limited, with many favoring voluntary separations or retaining "mission-critical" staff. The immediate effect of this development, combined with the looming shutdown deadline, is an elevation of fiscal and political uncertainty, which is reflected in the moderately negative sentiment and contributes to market jitters regarding government dysfunction.

Key Decisions for Investors

• Given the heightened probability of a government shutdown and the associated political friction, investors should consider increasing defensive positions and reducing exposure to sectors highly dependent on federal spending, such as defense and government IT services.
• Monitor tickers of major government contractors for increased volatility, as the combination of a shutdown and aggressive workforce reduction policies could signal future project delays, payment disruptions, and lower long-term contract visibility.
• For long-term holdings in highly regulated industries, assess the potential second-order effects of a degraded federal workforce, as reduced agency capacity could impact enforcement, approval timelines, and regulatory stability.