Report Tile

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Report Tile
Non-Foreign Area Cost of Living Allowance (COLA)
Transformation
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
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COLA OVERVIEW

• Enacted in 1948
• Paid to about 49,800 Federal white-collar and
  U.S. Postal Service employees
• Compares living costs between Washington, DC, and
  each COLA area, not to exceed 25 percent
• Can go up or down
• Not subject to Federal income tax does not count
  for retirement
• Caraballo v. United States resulted in 234
  million back pay settlement

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LOCALITY PAY AND COLA

• Retirement benefits of white-collar civilian
  Federal employees stationed in nonforeign areas
  are lower than their counterparts benefits in
  the continental United States
• Reason Locality pay provisions of the Federal
  Employees Pay Comparability Act of 1990 (FEPCA)
  do not apply outside CONUS
• Impact Disparities cause perceived staffing
  problems and raise equity concerns in nonforeign
  areas, especially for employees near retirement
• Base pay of COLA area employees is not keeping
  pace with locality pay

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RECENT DEVELOPMENTS

• COLA rates have been reduced by one point in
  Anchorage, Juneau, Fairbanks, and Puerto Rico
• October proposed rule would further reduce Alaska
  and Puerto Rico rates one point, increase U.S.
  Virgin Islands rate to 25 percent
• Maui and Kauai reached the statutory limit of
  25 Big Island rate proposed to raise one point
  to 18
• Puerto Rico area employees are formally
  protesting their rate reduction from 11.5 to
  10.5
• A new lawsuit (Matsuo v. United States) has been
  filed concerning constitutionality of excluding
  Hawaii and Alaska from receiving locality pay
• Pacific areas surveyed in March this year

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COLA AREAS AND RATES
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COLA EMPLOYMENT
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WHY CHANGE NOW?

• Administration desires a more uniform approach
  and simplified pay structure for Federal
  employees
• Administration wants equity in pension benefits
• Current law results in minimal increases, or even
  decreases, in pay and allowances in non-foreign
  areas although labor costs increase annually
• Cost of past, present, and future litigation
• Improve recruitment and retention of employees in
  non-foreign areas

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KEY ELEMENTS OF PROPOSAL

• Discontinue COLA surveys
• For Non-US Postal Service employees
• Freeze COLA rates as of date of enactment
• Extend locality pay to nonforeign areas
• Offset COLA rates by 85 of locality pay
  percentage to reduce impact on take home pay
• Abolish COLA payments once rates reach zero
• For most US Postal Service employees
• Freeze COLA rates as of date of enactment

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Key Elements (cont.)

• Proposal provides seven year locality pay
  phase-in
• In first year, all areas will be extended
  locality pay based on RUS rate to give BLS,
  Federal Salary Council, and Presidents Pay Agent
  time to properly implement new locality pay areas
  in those nonforeign areas where labor costs are
  higher than the default RUS rate
• Locality pay will be extended to all nonforeign
  areas, including areas where a post differential
  is authorized like American Samoa

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EXPECTED IMPACT OF PROPOSAL

• Assuming Federal Salary Council, Pay Agent
  Action
• Alaska areas are likely to become a separate
  locality pay area
• All other non-foreign COLA areas are likely to be
  in the Rest of U.S. pay area, with phase-in of
  locality pay
• Current RUS rate 12.64
• How soon locality pay would overtake COLA would
  vary by COLA area but could take 10 to 30 years
  depending on area
• BLS data on Hawaii expected in the fall

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SUMMARY

• The proposal would
• Phase out COLA in favor of more market-sensitive
  compensation
• Protect employee take-home pay in all non-foreign
  COLA areas, including pay of USPS employees
• Provide greater retirement benefits for non-USPS
  employees
• Prevent further COLA rate reductions
• Result in higher pay potential for employees
• Provide equity in retirement benefits for
  employees in the nonforeign areas