The 40 Percent Cap: OPM's Rules for FY 2026 Ratings and Awards, Now That the Appraisal Year Has Closed

Bottom line

The fiscal 2026 appraisal year closed on September 30, and that date now matters more than it used to. OPM’s caps count everyone whose appraisal period ended then, and no more than 40 percent of an agency’s career GS, Senior Professional or career SES population may receive the top two ratings ^[1]. Award guidance issued the same day pushes at least 60 percent of bonus pools toward those top ratings ^[1].

What happened

On September 21, OPM Director Scott Kupor sent agency heads two memoranda. The first sets the FY 2026 “standardized distribution” of ratings that the July performance appraisal rule allows OPM to impose ^{[1, 3]}. The new 5 CFR 430.208(c) says OPM “may establish, and refine as needed, a standardized distribution of some or all rating levels which agencies must apply when rating employees” ^[3]. That replaced a decades-old ban on forced distribution, as covered in the July 8 memo ^[5].

For FY 2026, OPM caps only the top: Level 4 and Level 5 combined may not exceed 40 percent of each covered population, and agencies must round down ^[1]. OPM wrote that the 40 percent cap “is a ceiling, not a target” ^[1]. This is the first year caps reach the career GS workforce; for FY 2025, OPM had only recommended a 30 percent limit for career SES and SP employees ^[1].

Outside the caps are agencies with five or fewer career SES or SP employees, or 10 or fewer GS employees (for that population only), Offices of Inspector General, Wage Grade employees, noncareer and limited-term SES, Schedule C and G appointees, and anyone whose rating is raised to Level 4 or 5 through a proceeding permitted by law ^[1].

The memo then turns to money. At least 60 percent of each career SES, SP and GS bonus pool “should be set aside” for Level 4 and 5 performers ^[1]. For GS employees, the table lists “Minimum – 7%” for Level 5, “Minimum – 4%” for Level 4 and “Maximum – 3%” for Level 3, all as a share of basic pay and capped at $25,000; Federal News Network reads these as floors and a ceiling ^{[1, 4]}. Career SES award ranges run from 10 to 20 percent at Level 5 down to zero, or 5 to 8 percent, at Level 3 ^[1]. Agencies may give Fully Successful employees nothing, and anyone rated below Fully Successful gets no award and an improvement plan ^[1].

The second memo delegates to agency heads OPM’s approval of individual awards between $10,000 and $25,000, effective immediately, if the agency head certifies the work is “highly exceptional and unusually outstanding” ^[2]. Awards above $25,000 still need presidential approval, and SES performance awards and Presidential Rank Awards are outside the delegation ^[2].

OPM’s position. OPM says inflated ratings “carry no meaningful signal” about top performers, and that a smaller Level 4 and 5 pool means larger awards for the people in it ^[1]. Asked about future years, an OPM spokesperson told Federal News Network: “We have nothing further to share on future years at this time” ^[4].

The unions’ position. AFGE, AFSCME, IFPTE, NFFE and four AFGE locals sued OPM on August 24 in the Northern District of California, Case No. 3:26-cv-08835 ^[5]. Their complaint says “a forced distribution judges federal employees against each other, not against “objective criteria,” as the statute requires,” citing 5 U.S.C. 4302 ^[5]. It also says the rule’s bar on rating grievances is inconsistent with 5 U.S.C. 7121 ^[5]. Federal News Network reports the plaintiffs asked for a preliminary injunction in August ^[4].

What it means for you

Career GS employees. Your rating for the year just ended is the first to be subject to a cap. The cap is agency-wide, not per office, so a team of strong performers is not automatically held to 40 percent. Supervisors still assign ratings; calibration panels, added under OPM’s July guidance, then review the proposed ratings “against a common framework,” an OPM spokesperson told Federal News Network ^[4]. An illustration of the rounding rule, by this column’s arithmetic: an agency with 1,234 covered GS employees may give no more than 493 of them a Level 4 or 5. Level 2 is still a legal rating for FY 2026; it disappears from January 1, 2027 ^{[1, 3]}.

Employees in bargaining units. If your contract prohibits forced distribution, that provision “will continue to be operative until the term of the CBA ends,” and your unit is left out of the agency’s cap calculation ^[1]. OPM’s example: a unit making up 20 percent of the workforce is excluded, and the caps apply to the other 80 percent ^[1]. The July 28 memo covered OPM’s position that a rolled-over contract counts as a new agreement, which bears on how long that protection lasts.

Schedule Policy/Career employees. Executive Order 14410 requires a separate bonus pool, and OPM recommends adding at least half a percentage point to their awards, for example 7.5 percent instead of 7 ^[1].

Senior executives and senior professionals. The same 40 percent cap applies, along with performance-based pay adjustments ranging from 1 to 5 percent at Level 3 to 5 to 15 percent at Level 5 ^[1].

Anyone not yet rated. If more than 25 employees in a population are unrated as of September 30, for reasons like too short a performance period or a pending investigation, the agency must convene a separate calibration panel to apply the caps to that group ^[1].

DHS employees. Federal News Network, citing a DHS briefing slide, reports preliminary ratings in early October, component and department calibration panels after that, and final ratings in December ^[4]. A DHS spokesperson told the outlet, “Supervisors remain responsible for evaluating employees based on their performance plans, documented work and applicable requirements” ^[4].

Contractors. None of this reaches contractor staff. The caps and award ranges apply to employees covered by 5 CFR part 430 ^[1].

Readers should note what the guidance leaves open. It does not split the 40 percent between Level 4 and Level 5 ^[1]. It recommends a Level 3 award range with “a higher floor than prior guidance suggested,” yet the GS table gives Level 3 only a maximum, and the award money depends on budgets OPM can only encourage agencies to raise ^[1]. The guidance also says it applies “subject to the availability of appropriations” ^[1].

Questions you’re probably asking

How many federal employees can get an Outstanding or Exceeds Fully Successful rating for FY 2026?

No more than 40 percent of each covered population in an agency, counting Level 4 and Level 5 together, with fractions rounded down ^[1]. There is no cap on lower levels ^{[1, 4]}.

Does the 40 percent rating cap apply if my union contract bans forced distribution?

Not while that contract is in effect. OPM says a conflicting CBA provision stays operative until its term ends, and the agency leaves that bargaining unit out of the cap calculation ^[1].

How big will FY 2026 performance awards be for GS employees?

OPM’s table lists a 7 percent minimum for Level 5, a 4 percent minimum for Level 4 and a 3 percent maximum for Level 3, with no award above $25,000 ^{[1, 4]}. Actual amounts depend on each agency’s awards budget, which OPM encourages agencies to raise ^[1].

Can I still get a Level 2 rating for FY 2026?

Yes, if your agency’s system has one. OPM’s rule removes Level 2 only from January 1, 2027, so FY 2026 appraisals can still use all five levels ^{[1, 3]}.

Can an agency go above the 40 percent cap?

Only with an OPM waiver, requested by October 30 and decided by November 20. A waiver adds at most 10 percentage points, never above 50 percent, and requires beating most published FY 2026 performance targets ^[1].

Is anyone challenging the forced distribution rule in court?

Yes. AFGE and other unions sued OPM on August 24 in federal court in San Francisco, arguing the rule conflicts with the statute’s objective-criteria requirement ^[5]. They have asked for a preliminary injunction ^[4].

What I’m watching

• October 30: agencies’ deadline to file cap waiver requests, which OPM calls “not a routine accommodation,” and to report their FY 2026 caps, award structures and calibration factors to OPM ^[1].
• November 20: OPM’s deadline to decide waivers. A denied or late waiver means the agency rates to the 40 percent cap ^[1].
• The court case: whether the Northern District of California acts on the unions’ injunction request before final ratings issue ^{[4, 5]}.