Last Updated: September 28, 2026

FINAL RULE (July 7, 2026): OPM finalized this rule in the Federal Register on July 7, 2026 (document 2026-13715). Effective August 6, 2026; Level 2 and nonconforming old patterns end, and compliance with the new permitted patterns is required beginning January 1, 2027; OPM's September 21 memo caps Levels 4 and 5 at 40% for FY2026. In response to the 626 public comments, OPM delayed the pattern deadline. Full breakdown of the two dates in our companion post: OPM's Forced Distribution Rule Is Final.

2026 Update: TIG Elimination Changes the Stakes. OPM has now proposed eliminating time-in-grade (TIG) requirements entirely, which directly raises the value of performance ratings. Without TIG, managers have more discretion to promote employees who earn top ratings and to bypass those who don't, making the forced-distribution rule below more consequential for your career trajectory. For how TIG elimination interacts with GS promotions, see OPM Time-in-Grade Elimination 2026.

On February 24, 2026, OPM published a proposed rule that overhauls how federal performance ratings work. It became final on July 7, 2026. The biggest change: agencies can now cap how many employees receive top ratings, a practice called forced distribution. Right now 65% of federal employees earn a Level 4 or 5 rating. Under the 40% cap OPM set for FY2026, an unchanged cohort would see about 25 fewer top ratings per 100 covered employees (an illustration, not a forecast of individual downgrades).

Here's what that means for your GS pay, step increases, bonuses, and job security.

FY26 OPM performance appraisal changes: what applies to this rating cycle

For the FY2026 cycle ending September 30, 2026, the final rule (effective August 6, 2026) lets agencies close ratings on their existing five-level scale, and Level 2 ratings of record stay allowed until January 1, 2027. The distribution cap, though, now binds this cycle: OPM Director Scott Kupor's September 21, 2026 memo sets a governmentwide ceiling of 40% for Level 4 and Level 5 ratings combined, applied to career GS employees for the first time alongside career SES and Senior Professionals, counted against everyone whose appraisal period ends September 30, 2026 (correction added September 27, 2026; the earlier text said the caps bind from January 1, 2027). The six changes below are the final rule's; the cap applies now, and the end of Level 2 applies from January 1, 2027.

What the Final Rule Changes: Six Major Changes

The final rule (RIN 3206-AP06) overhauls 5 CFR Part 430, the regulations governing performance management for GS and prevailing rate employees. OPM hasn't touched these rules since the 1990s.

1. Forced Distribution of Top Ratings

The previous rules expressly prohibited agencies from predetermining what percentage of employees receive each rating level. The final rule removes that prohibition.

Agencies are now required to apply the distribution OPM sets. The template was the SES system, where OPM recommended a 30% ceiling on the top two rating levels for FY2025; for FY2026 the September 21, 2026 memo raises that to a mandatory 40% ceiling and extends it to GS employees.

OPM has stated there would be "no requirement for rating a certain percentage of employees below Level 3." In other words, forced distribution caps the top, not the bottom.

2. Elimination of Level 2 ("Minimally Successful")

The current five-level rating system shrinks to four from January 1, 2027:

Current System (5 levels) Final Rule, from Jan 1, 2027 (4 levels)
Level 5: Outstanding Level 5: Outstanding
Level 4: Exceeds Fully Successful Level 4: Exceeds Fully Successful
Level 3: Fully Successful Level 3: Fully Successful
Level 2: Minimally Successful Eliminated
Level 1: Unacceptable Level 1: Unacceptable

OPM's justification: Level 2 was used for only 0.3% of employees. But this elimination has a counterintuitive consequence we'll cover below.

3. Removal of Grievance Rights

Under the previous rules, union-represented employees could challenge performance ratings through negotiated grievance and arbitration. The final rule eliminates this right, except under an agreement in effect before the rule was prescribed, until that agreement expires. Otherwise only "informal reconsideration" within agencies remains.

OPM calls grievances "unnecessarily burdensome and expensive." AFGE calls the removal illegal.

4. Removal of Higher-Level Review for Level 1 Ratings

The previous OPM rules required a higher-level official to review and approve any "Unacceptable" rating before it became final. The final rule removes OPM's mandate for that review; your agency may keep its own approval step.

5. Biennial OPM Certification

Agencies must get OPM approval of their appraisal systems every two years. If they don't comply, OPM can recommend OMB limit performance award spending.

6. Mandatory Supervisory Critical Element

All supervisors must be evaluated on how they manage performance, including "timely and efficiently addressing poor and mediocre performance." Supervisors who don't enforce stricter ratings may see their own evaluations suffer.

How This Affects Your GS Pay and Career

Not every change hits equally. Here's where the real risk is.

Within-Grade Step Increases: Low Direct Risk

Good news first. Within-grade increases require only a "Fully Successful" (Level 3) rating. Since OPM says forced distribution won't require agencies to rate people below Level 3, most employees' step increases are not directly threatened.

WGI denials are rare: MSPB reported about 6,000 denials among 4.1 million WGI decisions in FY2012 to 2018. That said, the culture shift toward stricter ratings could nudge that number up, particularly with grievance rights removed.

Use the GS Pay Calculator to see how much your next step increase is worth. For a GS-12 in DC, a single step increase adds roughly $3,414 per year to your salary (the $2,549 base step multiplied by 1.3394 to include Washington locality pay, OPM's 2026 DCB table).

Quality Step Increases: High Risk

This is where forced distribution bites hardest. Quality Step Increases require the highest rating your appraisal program can award and its outstanding-performance criteria, which in a five-level program means Level 5. This post's July baseline put about 43% of rated employees at Level 5. Under the 40% combined cap OPM set on September 21, 2026 for Levels 4 and 5 together, the memo sets no separate Level 5 figure, and the combined ceiling alone does not establish how far the Level 5 share will fall (an approved agency waiver can exceed the caps); as an illustration only, an agency that split the 40% ceiling the way the SES data did would land Level 5 near 15 to 20%.

That means far fewer employees qualify for a QSI. One step for a GS-13 in the D.C. locality is worth $4,060 per year in the 2026 table (step 5 to step 6; the amount varies by grade, step and locality), and it compounds over your entire career.

Performance Awards and Bonuses: High Risk

OPM explicitly states that "cash bonuses can be more fairly doled out under a forced distribution system." Fewer top ratings means fewer and smaller bonuses.

RIF Retention Standing: Critical Risk

Corrected September 28, 2026. Until September 2, 2026, performance ratings added years of service credit for RIF retention purposes (+20 years for Level 5, +16 for Level 4, +12 for Level 3). OPM's final RIF rule (FR 2026-15665, effective September 2, 2026) replaced that model with performance credit points. Under 5 CFR 351.503(c), an agency uses "the employee's three most recent summary level ratings of record received during the 4-year period prior to the date of issuance of reduction in force notices," and assigns 7 points for Level 5, 5 for Level 4, 3 for Level 3, and 0 for Level 1 or 2. Veterans' preference then adds 5 points (30%-or-more compensable disability) or 3 points (other preference eligibles) under 351.504. Within a tenure group, employees are ranked by that augmented total; tenure subgroup and then length of service break ties (351.501). Points by rating:

Rating Level Retention Credit Added
Level 5 (Outstanding) 7 points per rating
Level 4 (Exceeds) 5 points per rating
Level 3 (Fully Successful) 3 points per rating
Level 2 or Level 1 0 points per rating

With three actual eligible ratings and everything else unchanged, a downgrade from Level 5 to Level 3 on one rating costs you 4 points out of the ordinary 21-point three-rating total, before veterans' preference or any authorized additional performance points (5 CFR 351.503(d)); with only one actual rating, the rule multiplies its value by three, so the same downgrade is worth 12 points. During active workforce reductions, that could determine whether you keep your job or get RIF'd.

Dollar Impact Summary

Scenario Grade Annual Impact
WGI denied (Level 1 instead of Level 3) GS-12 DC -$3,414/yr
QSI lost (Level 3 instead of Level 5) GS-13 DC -$4,060/yr
Performance bonus lost GS-14 -$2,000 to -$5,000/yr
RIF'd due to lower retention standing Any Total salary loss

The Level 2 Elimination Paradox

Most coverage of this rule focuses on forced distribution. But the Level 2 elimination may matter just as much, and almost nobody is talking about why.

MSPB research shows that agencies with a Level 2 rating were 4 times more likely to deny within-grade increases. Level 2 gave supervisors a middle ground: "You're not meeting expectations, but you're not failing."

Without Level 2, the choice becomes binary. Either you're "Fully Successful" (Level 3, gets WGI) or "Unacceptable" (Level 1, gets a Performance Improvement Plan and potential removal).

This could go two ways:

  1. Fewer WGI denials, because supervisors no longer have the "needs improvement" option that triggered denials
  2. More Level 1 ratings, because supervisors pressured to differentiate performance have no intermediate option

If forced distribution creates pressure to rate more people below Level 3, but Level 2 no longer exists, the only path is Level 1. That doesn't just threaten a step increase. It triggers removal proceedings.

What Agencies Are Saying

At least seven major departments formally objected to the draft rule:

Department of Defense: "This practice is fundamentally at odds with the Merit Systems Principles" and "decades of management research confirm that forced ranking systems degrade organizational effectiveness."

EEOC: Warned forced distribution risks "turning colleagues into competitors" and discourages "mentoring and collaborative problem-solving."

Treasury, HUD, Energy, Labor, HHS, NASA, and GSA all submitted negative feedback.

Only SSA expressed partial support.

Since September 21, every covered agency is under the 40% cap, apart from the exclusions and approved waivers the memo describes.

The Research OPM Is Citing (And What It Actually Says)

OPM references a 2010 Management Science study to support forced distribution. What the study actually found: forced distribution leads to a short-term performance increase followed by a sharp drop in performance.

Major private-sector companies that tried forced ranking, including Microsoft, Yahoo, and GE, have abandoned the practice after finding it destroyed collaboration and innovation.

Timeline: What Happens Next

Date Event
February 24, 2026 Proposed rule published in Federal Register
March 26, 2026 Comment period closes
July 7, 2026 Final rule published (Federal Register 2026-13715)
August 6, 2026 Final rule effective
September 21, 2026 OPM memo sets 40% cap
September 30, 2026 End of FY2026 rating cycle
October 30, 2026 Agency waiver requests due
November 20, 2026 OPM waiver decisions
January 1, 2027 Level 2 and nonconforming old patterns end; compliance with the new permitted patterns begins (5 CFR 430.208(e)(1)–(2))

OPM's September 21 memo applies the 40% cap to the FY2026 cycle that closed September 30, so it governs the rating you receive this fall.

What You Should Do Now

1. Find out how your agency is applying the rule to FY2026

The comment period closed March 26, 2026 and the rule is final (RIN 3206-AP06, published July 7). What is still open is how your agency applies it: agencies may still assign Level 2 for FY2026, but the 40% cap is mandatory. Ask whether your agency requested a waiver (due October 30) and whether your bargaining unit is outside the cap under its contract.

2. Document Everything

Keep records of your performance throughout the rating period: supervisor feedback, project completions, measurable results, and emails acknowledging your contributions. With negotiated grievances over ratings barred except under grandfathered agreements, documentation is your best protection.

3. Understand Your Current GS Pay Progression

Know exactly what your next step increase is worth and when it's due. Use the GS Pay Calculator to see your full step timeline, from Step 1 through Step 10. If your within-grade increase is denied, you'll want to know the dollar amount at stake.

4. Check Your RIF Retention Standing

If your agency is undergoing workforce reductions, your performance rating directly affects your retention standing. With three actual eligible ratings, a downgrade from Level 5 to Level 3 on one rating costs you 4 points of performance credit under the September 2, 2026 rules (12 points if it is your only rating, since a single rating is multiplied by three). Review the RIF Survival Guide for details.

5. Talk to Your Union Representative

If you're in a bargaining unit, contact your union representative about whether your agreement predates the rule and keeps a grievance right. AFGE has called the rules illegal.

Calculate Your GS Pay Impact

Use our free GS Pay Calculator to see your exact salary at every step, including locality pay. Understand what a denied step increase or lost QSI would cost you over your career. Check your pay now →

Frequently Asked Questions

Will OPM's new performance rating rules affect my within-grade increase?

Not directly for most employees. Within-grade increases require only a "Fully Successful" (Level 3) rating, and OPM has stated there is no forced requirement to rate employees below Level 3. However, the removal of grievance rights and the broader culture shift toward stricter ratings could make WGI denials slightly more common. MSPB reported about 6,000 denials among 4.1 million WGI decisions in FY2012 to 2018.

How many federal employees could lose their top performance rating?

Currently about 65% of non-SES federal employees receive Level 4 or 5 ratings. OPM set the FY2026 cap at 40%, not the 30% SES model. For an unchanged cohort, reducing a 65% share to a 40% ceiling means 25 fewer top ratings per 100 employees. This is an illustration, not a forecast of individual downgrades, because exclusions and approved waivers change who is covered.

When does the new performance rating rule take effect?

The final rule takes effect August 6, 2026, The January 1, 2027 compliance date covers the new rating patterns (the end of Level 2), not the cap. FY2026 appraisals may be completed on the existing 5-level scale. OPM's September 21 memo applies the 40% cap to the FY2026 cycle that closed September 30, 2026.

Are political appointees subject to forced distribution?

No. Political appointees under Schedules C and G are explicitly exempted from the forced distribution requirements.

How does my performance rating affect RIF retention standing?

Since September 2, 2026, performance ratings are scored as points for RIF retention, not years: 7 for Level 5, 5 for Level 4, 3 for Level 3, 0 for Level 1 or 2, summed over your three most recent eligible ratings from the four-year window before the RIF notice (or the agency's cutoff), with proxies when fewer than three exist, plus 5 or 3 veterans' preference points. With three actual ratings, a downgrade from Level 5 to Level 3 on one rating costs 4 points. During active workforce reductions, this could be the difference between keeping your job and being separated.

Sources: Federal Register Doc 2026-03619, GovExec, FedWeek, AFGE, MSPB, OPM.gov