[Senate Report 111-88]
[From the U.S. Government Publishing Office]
111th Congress Report
SENATE
1st Session 111-88
_______________________________________________________________________
Calendar No. 179
NON-FOREIGN AREA RETIREMENT EQUITY ASSURANCE ACT OF 2009
__________
R E P O R T
of the
COMMITTEE ON HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
to accompany
S. 507
TO PROVIDE FOR RETIREMENT EQUITY FOR FEDERAL EMPLOYEES IN NON-FOREIGN
AREAS OUTSIDE THE 48 CONTIGUOUS STATES AND THE DISTRICT OF COLUMBIA,
AND FOR OTHER PURPOSES
October 14, 2009.--Ordered to be printed
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware JOHN McCAIN, Arizona
MARK L. PRYOR, Arkansas GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana JOHN ENSIGN, Nevada
CLAIRE McCASKILL, Missouri LINDSEY GRAHAM, South Carolina
JON TESTER, Montana ROBERT F. BENNETT, Utah
ROLAND W. BURRIS, Illinois
PAUL G. KIRK, Jr., Massachusetts
Michael L. Alexander, Staff Director
Kevin J. Landy, Chief Counsel
Lawrence B. Novey, Senior Counsel
Lisa M. Powell, Staff Director, Subcommittee on Oversight of Government
Management, the Federal Workforce, and the District of Columbia
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Amanda Wood, Minority Director for Governmental Affairs
Jennifer A. Hemingway, Minority Staff Director, Subcommittee on
Oversight of Government Management, the Federal Workforce, and the
District of Columbia
Trina Driessnack Tyrer, Chief Clerk
Calendar No. 179
111th Congress Report
SENATE
1st Session 111-88
======================================================================
NON-FOREIGN AREA RETIREMENT EQUITY ASSURANCE ACT OF 2009
_______
October 14, 2009.--Ordered to be printed
_______
Mr. Lieberman, from the Committee on Homeland Security and Governmental
Affairs, submitted the following
R E P O R T
[To accompany S. 507]
The Committee on Homeland Security and Governmental
Affairs, to which was referred the bill (S. 507) to provide for
retirement equity for federal employees in non-foreign areas
outside the 48 contiguous States and the District of Columbia,
reports favorably thereon with amendments and recommends that
the bill, as amended, do pass.
CONTENTS
Page
I. Purpose & Summary................................................1
II. Background.......................................................2
III. Legislative History.............................................11
IV. Section-by-Section Analysis.....................................12
V. Estimated Cost of Legislation...................................15
VI. Evaluation of Regulatory Impact.................................18
VII. Changes in Existing Law.........................................18
I. Purpose and Summary
Since 1948, federal employees stationed in Alaska, Hawaii
and areas of U.S. sovereignty outside the continental United
States--so called ``non-foreign areas''--have received non-
foreign cost of living allowance (non-foreign COLA) payments to
ensure that their pay reflects the high cost of living in those
areas compared to the cost of living in Washington, DC.\1\ Non-
foreign COLA is not subject to federal income taxes, and it
does not count as part of base pay for retirement purposes. For
federal employees in the 48 contiguous states and the District
of Columbia, Congress in 1990 sought to close the pay gap
between federal employees and higher-paid private-sector
employees by authorizing an annual comparability payment for
federal employees that varies by locality.\2\ Unlike non-
foreign COLA, locality pay is taxed and is considered part of
base pay, which is used to calculate an employee's retirement
annuity.
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\1\Non-foreign areas include the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, and U.S. territories and
possessions, including American Samoa, Guam, Johnson Atoll, Wake Atoll,
and the U.S. Virgin Islands.
\2\Federal Employees Pay Comparability Act (FEPCA), P.L. 101-509.
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Because locality pay counts towards employees' retirement
whereas non-foreign COLA does not, federal workers in the non-
foreign areas, who do not receive locality pay, are
disadvantaged in their retirement compared to federal workers
in the contiguous states. S. 507 would address this problem by
phasing in locality pay for employees in non-foreign areas and
phasing out non-foreign COLA.
II. Background
In the 1940s, military departments and federal agencies
began paying differentials to U.S. citizens recruited for
white-collar civilian positions in Alaska and areas outside the
continental U.S. in order to facilitate the recruitment of
personnel in those locations. In 1946, in response to
widespread reports of a lack of uniformity in the payment of
these differentials, President Harry S. Truman directed the
Civil Service Commission and the Bureau of the Budget to
prepare a report on pay differentials outside the U.S. Based on
that report, President Truman issued an Executive Order in
1948, under which federal employees in the non-foreign areas
became eligible to receive additional compensation under two
separate programs: the non-foreign area COLA program, based on
living costs, and the post differential program, based on
undesirable conditions of environment.\3\
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\3\E.O. 10,000, 13 Fed. Reg. 5453, 5455 (Sept. 18, 1948).
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In that same year, 1948, Congress enacted the pay
allowances for non-foreign area employees into statute,\4\ now
codified at 5 U.S.C. Sec. 5941. Employees in non-foreign areas
may receive either non-foreign COLA payments, if local living
costs are substantially higher than those in the District of
Columbia, or post differential allowances, if differences in
conditions of environment warrant a recruitment incentive, or
both, provided that the total may not exceed 25 percent of
basic pay.
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\4\Independent Officers Appropriation Act, 1949, ch. 219, sec. 207
(1948) and Supplemental Independent Offices Appropriation Act, 1949,
ch. 775, sec. 104 (1948). See also P.L. 89-554, 5 U.S.C. Sec. 5941.
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Non-foreign COLA
Non-foreign COLA is designed to compensate for
substantially higher living costs in the non-foreign areas
relative to those in the Washington, DC, area. The government
may pay non-foreign COLA to both local and non-local hires who
are under the General Schedule (GS) system or other statutory
pay systems. Like other similar allowances,\5\ non-foreign COLA
is not subject to federal income taxes and does not count
toward an employee's retirement.
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\5\Most payments received by U.S. government civilian employees for
working abroad, including pay differentials, are taxable. However,
certain foreign area allowances, cost of living allowances, and travel
allowances are tax free. See IRS guidance entitled ``Allowances,
Differentials, and Other Special Pay,'' available at http://
www.irs.gov/businesses/small/international/article/ 0,,id=97187,00.html
(accessed September 8, 2009).
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Due to an increase in the cost of living in Washington, DC,
the differential in living costs between Washington, DC and
non-foreign COLA areas has decreased in recent years. On
December 3, 2008, Office of Personnel Management (OPM)
regulations went into effect lowering non-foreign COLA rates
for Anchorage, Fairbanks, and Juneau, Alaska, from 24 percent
to 23 percent. OPM issued regulations on February 20, 2009,
providing an interim adjustment from 13 percent to 14 percent
for the non-foreign COLA rate in Puerto Rico based on a review
of the Consumer Price Index in Puerto Rico.\6\ However, OPM
expects non-foreign COLA rates to decrease by one percent in
all of the non-foreign COLA areas in late summer or fall of
2009.
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\6\5 CFR Part 591, Federal Register Vol. 74, No. 33, Page 7777,
Friday, February 20, 2009.
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The current non-foreign COLA rates are:
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COLA Area COLA Rate
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Anchorage, AK............................................. 24%
Fairbanks, AK............................................. 24%
Juneau, AK................................................ 24%
Rest of Alaska............................................ 25%
City and County of Honolulu, HI........................... 25%
Maui County, HI........................................... 25%
Kauai County, HI.......................................... 25%
Hawaii, County HI......................................... 18%
Guam/Northern Mariana Islands............................. 25%
U.S. Virgin Islands....................................... 23%
Puerto Rico............................................... 13%
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Post differentials
In addition to, or instead of, receiving a non-foreign
COLA, certain federal employees in non-federal areas other than
Hawaii and Alaska receive post differentials--recruitment
incentives designed to encourage people to go to work for the
federal government in a non-foreign area that has
extraordinarily difficult living conditions, excessive physical
hardships, or notably unhealthful conditions compared with the
continental U.S. Because post differentials are intended to
encourage potential employees to move to a non-foreign area,
they are not paid to local hires. Like non-foreign COLA, post
differentials do not count toward retirement, but, unlike non-
foreign COLA, they are subject to federal income tax.
Post differentials are currently authorized for Guam, the
Commonwealth of the Northern Mariana Islands (CNMI), American
Samoa, and Johnston, Wake, and Midway Atolls. Non-locally hired
employees in Guam are eligible for a post differential of up to
20 percent, while those in CNMI and the other areas are set at
25 percent. Guam and CNMI are the only areas in which payment
of both a post differential and a non-foreign COLA is
authorized. However, because the combined payment may not
exceed 25 percent of base pay and employees in Guam and CNMI
currently receive 25 percent non-foreign COLA, those employees
do not currently receive a post differential.
Locality pay
In the late 1980's, it became increasingly evident that a
large gap existed between federal salaries and the higher
private-sector salaries in various localities across the
country. These pay disparities caused serious difficulties for
federal agencies in recruiting and retaining highly qualified
employees. The Government Accountability Office (GAO) reported
in 1990 that 78.3 percent of federal managers and personnel
officers surveyed said that low pay was the reason employees
left the federal government.\7\ The same GAO survey showed that
72.5 percent believed that job candidates declined job offers
with the federal government because of the low pay offered.
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\7\Recruitment and Retention: Inadequate Federal Pay Cited as
Primary Problem by Agency Officials, (GAO/GGD-90-117) September 1990,
at p. 4.
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To address these disparities, Congress in 1990 passed the
Federal Employees Pay Comparability Act (FEPCA).\8\ To keep up
with annual increases in private-sector salaries, FEPCA
provides that GS employees receive annual across-the-board pay
adjustments, based on annual changes in the Employment Cost
Index (ECI), which is a measure of private-sector wages and
salaries published by the Bureau of Labor Statistics (BLS). In
addition, in localities where non-federal salaries exceed
federal salaries by more than five percent, FEPCA provides that
GS employees receive an annual locality-based comparability
adjustment. Under statute, the amount of the locality pay is
designed to reduce pay disparities by making GS employees' pay
rates nearly equal to those of non-federal workers in the same
locality.
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\8\P.L. 101-509, 5 U.S.C. Sec. Sec. 5301-5304.
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By statute, all GS federal employees in the contiguous U.S.
where a pay disparity exists are entitled to receive locality
pay. Moreover, the government has, by administrative action,
extended the right to receive locality payments to employees in
certain other pay systems, including employees in senior level,
scientific and professional positions, administrative law
judges, administrative appeals judges, and contract appeals
board members. However, FEPCA explicitly provides that federal
employees in Hawaii and Alaska and the other non-foreign areas
may not receive locality pay.\9\
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\9\5 U.S.C. Sec. Sec. 5304(f)(1)(A) and 5701(6).
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The amount of locality pay is based on empirical surveys
and is established by a multi-step process. Non-federal pay
levels are estimated by means of salary surveys conducted by
the BLS under its National Compensation Survey program. OPM
receives the BLS survey results, documents federal rates of pay
in each of the pay areas, and compares non-federal and GS
salaries by grade for each pay area. This data is then made
available to the Federal Salary Council (a nine-member advisory
body appointed by the President\10\) and to the President's Pay
Agent (comprised, by Executive Order, of the Secretary of
Labor, the Director of the Office of Management and Budget, and
the Director of OPM). The Federal Salary Council makes
recommendations to the Pay Agent on the establishment of
locality pay areas, the level of locality payments, and other
matters regarding implementation of the locality pay system.
Then the Pay Agent makes final decisions on the establishment
of locality pay areas, and it submits recommendations to the
President on the amount of locality pay needed in each pay area
to reach FEPCA's target of federal pay rates that are five
percent below non-federal rates. Finally, the amount of
locality payments is fixed by the President. In practice, most
years Congress has enacted a different pay rate, superseding
the rate fixed by the President.
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\10\By statute, the Federal Salary Council is comprised of three
experts in labor relations and pay policy and six representatives of
Federal labor unions or other employee organizations. 5 U.S.C.
Sec. 5304(e)(1).
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FEPCA has not been implemented as originally intended.
FEPCA provides that a certain percentage of the gap between
non-federal and federal salaries should be closed each year.
During 1994, which was the first year of locality pay, 20
percent of the gap was closed. An additional 10 percent of the
gap was then supposed to be closed each year until the five
percent pay disparity was reached. However, in every year since
1995, the President has exercised his authority to fix (subject
to Congress's power to set a different rate) a lower level of
locality pay, relying on the ``national emergency or serious
economic condition'' exception in 5 U.S.C. Sec. 5304a, and, in
most of those years, Congress enacted a pay adjustment that
exceeded the one that would otherwise have been fixed by the
President, but that still fell short of the adjustment called
for under FEPCA. As a result, as of 2008, only 58.3 percent of
the pay gap between federal salaries and those in the private
sector has been eliminated.\11\
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\11\See Annual Report of the President's Pay Agent on Locality-
Based Comparability Payments for the General Schedule, at 18 and 21,
December 6, 2007.
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Inequity, controversy, and litigation regarding the current system
As mentioned, locality pay is included in calculating
federal employees' retirement contributions and annuities, but
non-foreign COLA is not. As a result, federal employees in
Hawaii, Alaska, and the other non-foreign areas covered by non-
foreign COLA see a smaller amount--one that does not reflect
their actual pay--used to calculate their retirement annuities
than the amount used to calculate annuities for similarly
situated employees in the contiguous states who receive
locality pay. Likewise, employees in non-foreign areas receive
from their employing agencies lower matching contributions to
their retirement accounts under the Thrift Savings Plan than do
similarly-situated employees in the contiguous U.S.
Since FEPCA's enactment, the lack of locality pay for
employees in Hawaii and Alaska and other non-foreign areas has
influenced these employees' decisions about whether to move to
the contiguous U.S. where locality pay is available.\12\ Many
employees who are near retirement in the non-foreign COLA areas
seek employment in the contiguous U.S. where their ``high 3''
salaries--the average of their three consecutive, highest paid
years and the amount on which their annuities are based--are
boosted by locality pay.\13\ As a result of this disparity,
federal agencies in the non-foreign areas face staffing
problems, especially for employees near retirement.\14\
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\12\See Matsuo v. United States, 532 F. Supp. 2d 1238, 1243-44 (D.
Haw. 2008).
\13\See Statement of Charles Grimes, Deputy Associate Director for
Performance and Pay Systems, Office of Personnel Management, at hearing
on ``Non-Foreign COLA: Finding an Equitable Solution,'' before the
Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia of the Senate Committee on
Homeland Security and Governmental Affairs, May 29, 2008, at pp. 3-4.
\14\See Matsuo v. United States, 532 F. Supp. 2d at 1244-45.
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For over 25 years, the non-foreign COLA program has been
the subject of extensive litigation. In 1981, employees claimed
that the non-foreign COLA methodology used by OPM violates
federal law by considering only price level differences and
failing to consider differences in non-price factors affecting
the cost of living, such as remoteness, isolation, and quantity
or quality of goods and services needed or available.\15\ In
the early 1990s, the plaintiffs and the government agreed on a
procedure for resolving those controversies concerning the non-
foreign COLA program, and on June 20, 2000, they filed a joint
stipulation for settlement that was approved by the District
Court for the Virgin Islands. The settlement agreement provides
for employee involvement with OPM in developing certain
principles\16\ to form the basis for changing the non-foreign
COLA program and made a number of technical improvements to
modernize the methodology by which the amount of non-foreign
COLA is determined. Under the settlement, OPM cannot reduce
non-foreign COLA rates by more than one percentage point per
year, and the plaintiff class members received $234 million for
back pay, interest, attorneys' fees, and expenses.\17\
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\15\See Alaniz v. Office of Personnel Management, 728 F.2d. 1460
(Fed. Cir. 1984); Karamatsu v. United States, No. 224-85C (Cl. Ct.);
Arana v. United States, No. 389-86C (Cl. Ct.).
\16\These were called ``Safe Harbor Principles'' because the
settlement process was intended to provide the government a ``safe
harbor'' against future litigation.
\17\See Caraballo et al. v. United States, et al., No. 1997-0027
(D.V.I.), Stipulation for Settlement, June 20, 2000.
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Then in 2005, federal employees in Hawaii and Alaska filed
a new class action against the federal government, alleging
that FEPCA's exclusion of federal employees who work and reside
in Hawaii and Alaska violates their right to equal protection
under the Fifth and Fourteenth Amendments to the U.S.
Constitution. They also contend that federal employees have a
property interest in their salary and that exclusion from
locality pay violates their due process rights under the Fifth
Amendment.\18\ The lawsuit seeks locality pay for federal
employees who work in those jurisdictions dating back to the
implementation of FEPCA.
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\18\See Matsuo v. United States, 532 F. Supp. 2d at 1242.
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On January 30, 2008, the U.S. District Court in Hawaii
granted the government's motion for summary judgment. The Court
observed that ``Congress may have discharged its legislative
responsibilities imperfectly,'' creating ``inequities resulting
from Plaintiffs' exclusion from the locality pay system.''\19\
However, the Court held for the government, reasoning that
``[w]hen FEPCA was enacted, Congress rationally could have
concluded the two pay supplements [COLA and locality pay] were
roughly parallel, even if it has turned out, in practice, that
FEPCA's exclusion has worked to the disadvantage of Hawaii and
Alaska employees with respect to their retirement
benefits.''\20\ Being unable to provide relief, the Court urged
that ``Congress should correct the incongruity made so evident
by this case.''\21\ On February 29, 2008, the plaintiffs filed
an appeal, which is still pending.
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\19\Id. at 1253-54.
\20\Id. at 1254.
\21\Id. at 1253.
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OPM's proposal
In an effort to address the retirement inequity and to
resolve the pending litigation, President George W. Bush
announced in his fiscal year 2008 Budget a proposal to extend
locality pay to federal employees in the non-foreign areas. On
May 30, 2007, then-Director of OPM Linda Springer submitted a
legislative proposal to Congress. Under the OPM proposal, non-
foreign COLA rates in effect on December 31, 2007, would be
locked in place and OPM would no longer conduct non-foreign
COLA surveys. Beginning in January 2008, locality pay would
begin to be phased in for federal employees in the non-foreign
areas while non-foreign COLA would be phased out over seven
years. Under the proposal, the locality pay rate in the first
year for the ``Rest of the U.S.'' (i.e., the rate that applies
outside of the metropolitan areas where specific rates are
established) would be applied to all parts of the non-foreign
areas in order to provide time to determine the pay rates for
each non-foreign locality. Employees in the non-foreign areas
would continue to receive a portion of non-foreign COLA until
the applicable locality pay rate exceeds the locked-in non-
foreign COLA rate.
Under this proposal, the Federal Salary Council would have
the authority to recommend locality rates in all the non-
foreign areas, including areas authorized for post
differentials. As noted above, only in Guam and CNMI are
employees currently authorized to be paid both non-foreign COLA
and a post differential, but those employees do not actually
receive a post differential because of the 25 percent cap on
the total of the non-foreign COLA and post differential. Absent
OPM making any regulatory change, they would begin receiving
the authorized post differential when the reduction of non-
foreign COLA begins under the proposal. When non-foreign COLA
is completely phased-out in Guam and CNMI, the post
differential paid to non-local hires would be 20 percent in
Guam and 25 percent in CNMI. OPM last reviewed the amount of,
and need for, post differentials in 1995 and does not plan to
review post differential rates at this time.\22\
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\22\See Responses from OPM provided in 2007 to Senator Akaka's
Frequently Asked Questions on the Administration's Proposal to Convert
Non Foreign COLA to Locality Pay, available at: http://
akaka.senate.gov/public/index.cfm?FuseAction=Issues.Home&issue=Non-
Foreign%20COLA %20Update&content_id=33#Non-Foreign%20COLA%20Update
(accessed September 8, 2009).
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OPM proposed that non-foreign COLA be phased out at a rate
lower than the rate at which locality pay is phased in, because
employees' taxes and retirement contributions will increase
with locality pay. Under the OPM proposal, the conversion to
locality pay would be offset by an 85 percent reduction in non-
foreign COLA. Thus, for every dollar of locality pay received,
an employee's non-foreign COLA would be reduced by 85 cents.
After the initial seven-year phase in period, when 100 percent
of locality pay would be provided, some fraction of the non-
foreign COLA rate could also continue to be paid until the
locality pay rises high enough that subtraction of 85 percent
would reduce the non-foreign COLA payment to zero. According to
OPM, this formula would protect the take-home pay of federal
workers at the GS-7 step 3 level and below.\23\ Approximately
50 percent of the federal workers in Alaska and Hawaii are at
or below this level.\24\
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\23\Information provided to Committee staff at a staff briefing by
OPM, June 4, 2007.
\24\Information provided to Committee staff by OPM, April 1, 2008.
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Non-foreign COLA and locality pay are treated differently
for Postal Service employees than for GS employees. Postal
employees generally do not receive locality pay. Only Postal
Inspectors and employees of the Postal Service Office of
Inspector General receive locality pay. However, postal
employees in the non-contiguous areas are eligible to receive
non-foreign COLA, which the Postal Service calls Territorial
COLA (T-COLA). Because there is no locality pay, there is no
retirement inequity among postal employees like the inequity
suffered by other federal employees in non-foreign COLA areas.
Therefore, under OPM's proposal, postal employees who receive
T-COLA would not receive locality pay, but would instead
continue to receive T-COLA at the locked-in non-foreign COLA
rates.
Subcommittee fact-finding regarding OPM's proposal
In July 2007, this Committee's Subcommittee on Oversight of
Government Management, the Federal Workforce, and the District
of Columbia conducted fact-finding meetings on the OPM proposal
on the islands of Oahu and Maui in Hawaii. Subcommittee staff
met with nearly 1,000 federal employees from more than 20
agencies. The questions and concerns raised by the federal
workers can be broken down into several themes:
First, employees were concerned about the impact on their
take-home pay due to the conversion to locality pay. Given the
current economic climate, many federal workers stressed the
importance of not reducing their take-home pay, and they
believed that the 85 percent offset in the 2007 Administration
proposal did not go far enough. Some employees expressed a
preference for retaining the non-foreign COLA versus converting
to locality pay under OPM's proposal because of the expected
reduction in many employees' take-home pay.
Second, many employees expressed concern over the seven-
year phase-in period, noting that they would have to work an 10
additional years in order to take full advantage of locality
pay. The long proposed phase-in period was particularly
troubling because an estimated 59.3 percent of federal workers
in Hawaii and 62.1 percent in Alaska will be eligible to retire
in six years or less.\25\ Several employees proposed an
immediate conversion with no phase in period, or a two year
phase in with the first year using the ``Rest of the U.S.''
locality rate.
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\25\Information provided to Committee staff by OPM, May 1, 2008.
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Third, many employees raised concerns over the scope of the
proposal. This included questions about which employees would
be covered by the proposal and how the proposal would work in
unique personnel systems such as the National Security
Personnel System (NSPS) at the Department of Defense (DoD) and
the system at the Postal Service. Additionally, some employees
asked how the proposal would treat employees receiving special
rates (i.e., rates of basic pay higher than those ordinarily
authorized, which OPM may establish to address specific
recruitment or retention problems), since, under current law,
federal employees in the non-foreign areas may receive both
non-foreign COLA and special rates, but employees in the
contiguous U.S. receive only the higher of special rates or
locality pay.
The proposed legislation
After considering and taking account of the questions and
concerns from employees and comments from federal agencies,
Senators Akaka, Stevens, Inouye, and Murkowski introduced the
Non-Foreign Area Retirement Equity Assurance Act of 2008, or
the Non-Foreign AREA Act (S. 3013), on May 13, 2008. As
described more fully in the Legislative History section of this
report (below), this Committee held a hearing on the bill and
reported it to the full Senate, and the bill passed the Senate
on October 2, 2008, but failed to move through the House before
the 110th Congress adjourned sine die. On March 2, 2009,
Senators Akaka, Murkowski, Inouye, and Begich reintroduced the
legislation as the Non-Foreign Area Retirement Equity Assurance
Act of 2009 (S. 507).
The legislation would apply to federal employees in all of
the non-foreign areas, including Alaska, Hawaii, the Virgin
Islands, Puerto Rico, Guam, CNMI, American Samoa, and Johnston,
Wake, and Midway Atolls. For these employees, S. 507 is nearly
identical to S. 3013 as passed by the Senate and is similar in
many respects to OPM's proposal, in that it would lock in
current non-foreign COLA rates and phase in locality pay as
non-foreign COLA is phased out.
However, S. 507 differs from the OPM proposal in several
important ways. The bill would phase in locality pay over a
period of three years and would offset the locality pay by
subtracting 65 percent of that pay from the COLA, rather than
85 percent as OPM had proposed. The 65 percent offset is
designed to better protect employees' take-home pay.
S. 507 would also ensure that employees who now receive
both special rates and non-foreign COLA will not be unfairly
harmed by the transition to locality pay, because the bill
provides that their special rates will increase in the same way
as locality pay during the conversion period. In addition, the
bill includes a provision expressing the sense of Congress that
an employee's take-home pay should not decrease as a result of
the bill.
In addition to having a shorter phase-in period than the
OPM proposal, S. 507 allows an employee who retires within the
three-year phase-in period to elect to treat any amount of non-
foreign COLA received during that period as part of base pay
(as if it were locality pay) for purposes of establishing the
amount of annuity, up to the full amount of locality pay in
place for that area. The employee would be required to pay
additional retirement contributions on the additional amounts
that he or she elects to treat as part of their base pay.
The shorter phase-in period and ability of certain
employees to treat non-foreign COLA as base pay will help
address concerns, which are noted above, with the high
percentage of employees in Hawaii and Alaska nearing
retirement, and will mitigate pressure on federal employees in
the non-foreign areas to seek employment in the contiguous U.S.
late in their careers to enhance their retirement annuities.
Additionally, the three-year phase-in period will help those
who are planning to retire within the next few years or who
will retire because of mandatory retirement laws. Although OPM
testified that agencies have strategies in place to address the
impending retirement wave and the unique staffing problems
facing federal agencies in the non-foreign areas,\26\ the
Committee believes that the three-year phase-in and the ability
to treat non-foreign COLA as base pay for employees close to
retirement are preferable to OPM's proposal.
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\26\Responsive testimony of Mr. Grimes at hearing, supra note 14.
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The legislation also states that it is the sense of
Congress that BLS should conduct surveys to determine the
extent of pay disparities in the new locality-pay areas. The
Federal Salary Council and the President's Pay Agent have
recommended that the number of locality pay areas should remain
at 32 for 2009, noting, among other things, that BLS would need
more funding to expand its current National Compensation Survey
program to more areas.\27\ However, the Committee intends that
upon enactment of this Act, the number of locality pay areas
should be increased by two--one covering the entire State of
Alaska and one covering the entire State of Hawaii--and,
because of the high cost of living in those areas, BLS surveys
of these and other new locality-pay areas will therefore be
necessary.
---------------------------------------------------------------------------
\27\See Federal Salary Council Memorandum for January 2009, page 6.
---------------------------------------------------------------------------
S. 507 also provides that all current and future employees
in the non-foreign areas to whom the Government is authorized
to pay non-foreign COLA are covered by this legislation,
whether or not they are actually paid non-foreign COLA or
whether they instead receive some other kind of pay adjustment.
This includes GS employees, administrative law judges, members
of the Senior Executive Service (SES), senior level and senior
technical (SL/ST) employees, administratively determined
employees, GS employees in the non-foreign areas that do not
receive non-foreign COLA, and employees in agencies with unique
personnel systems such as the Transportation Security
Administration, DoD, the Federal Aviation Administration, the
Department of Veterans Affairs (with respect to employees under
title 38 of the U.S. Code), and those agencies covered by the
Financial Institution, Reform, Recovery and Enforcement
Act.\28\ To ensure that SES and other senior level employees do
not suffer a decrease in salary as non-foreign COLA is phased
out, the legislation provides that these employees, who are
eligible for non-foreign COLA, will become eligible for
locality pay under the bill. Moreover, with respect to
employees who are eligible for non-foreign COLA but now receive
other kinds of pay adjustments instead, the bill grants
regulatory authority to OPM (or other agencies, if appropriate)
to phase out those alternative pay adjustments as locality pay
phases in under the legislation.
---------------------------------------------------------------------------
\28\P.L. 101-73.
---------------------------------------------------------------------------
According to DoD, it already has broad flexibility with
regard to setting and changing pay rates for non-appropriated
fund (NAF) employees. Therefore, a representative of DoD
testified that, should non-foreign COLA be phased out and
locality pay phased in, DoD would increase pay rates for those
NAF employees who currently receive the non-foreign COLA in
order to offset the loss of non-foreign COLA.\29\
---------------------------------------------------------------------------
\29\Statement of Mr. Bradley Bunn, Program Executive Officer,
National Security Personnel System, Department of Defense, at hearing,
supra note 14; responsive testimony of Mr. Bunn at the hearing.
---------------------------------------------------------------------------
To any agency offering special pay rates, S. 507 provides
authority to modify those rates as appropriate to implement the
Act. The measure was modified during Committee consideration to
ensure that agencies have the regulatory authority to carry out
such actions. The bill also extends coverage of this statute to
employees under alternative hiring authorities, such as
Department of Veterans Affairs employees whose pay is
authorized under title 38 of the U.S. Code, who currently
receive a non-foreign COLA, but who might otherwise be
ineligible to receive locality pay.
Many postal employees in the non-foreign areas expressed
concern over how they would be treated under OPM's proposal,
under which they would continue to receive T-COLA payments.
Many of these employees expressed a desire to receive locality
pay like all other workers in the non-foreign areas, as they
were concerned about being the only group of employees
receiving non-foreign COLA. S. 3013 as introduced in May of
2008 would have allowed postal employees to transition from T-
COLA to Territorial Pay, which would have been similar to
locality pay, in the same manner that GS workers were
converting from non-foreign COLA to locality pay. The Postal
Service expressed opposition to these provisions because of the
cost, which was estimated to be $12.5 million per year, and
because the payment of an allowance similar to locality pay to
some postal employees could be seen as setting a precedent for
other postal workers.\30\ To reconcile these competing
concerns, S. 3013 as amended by this Committee, and S. 507 as
introduced, would allow Postal Inspectors and employees of the
Postal Service Office Inspector General in the non-foreign
areas to transition to locality pay like other federal
employees in the non-foreign areas, because these classes of
postal employees in the contiguous U.S. now receive locality
pay. Other postal employees in the non-foreign areas would
continue to receive T-COLA. However, the 25 percent cap would
be lifted for these employees, and they would receive the
greater of the locked-in T-COLA rate in effect for the area or
an amount equal to the locality pay rate in effect for the
area. Consistent with current law, the T-COLA rates would not
be subject to collective bargaining.
---------------------------------------------------------------------------
\30\Letter to Senator Akaka from Marie Therese Dominguez, Vice
President, Government Relations and Public Policy, May 16, 2008.
---------------------------------------------------------------------------
III. Legislative History
On May 13, 2008, Senators Akaka, Stevens, Inouye, and
Murkowski introduced the Non-Foreign Area Retirement Equity
Assurance Act of 2008, or the Non-Foreign AREA Act (S. 3013).
On May 29, 2008, the Subcommittee on Oversight of Government
Management, the Federal Workforce, and the District of Columbia
of the Committee on Homeland Security and Governmental Affairs
held a field hearing at the Oahu Veterans Center in Honolulu,
Hawaii, to consider S. 3013 and OPM's proposal.\31\ Witnesses
included Mr. Charles D. Grimes, Deputy Associate Director,
Strategic Human Resources Policy Division, OPM; Mr. Bradley
Bunn, Program Executive Officer, NSPS, DoD; Ms. Jo Ann
Mitchell, Manager, Accounting Services, United States Postal
Service; Ms. Joyce Matsuo, President, Oahu COLA Defense
Committee, Inc.; Ms. Sharon Warren, President, COLA Defense
Committee of Anchorage, Inc.; Mr. Manuel Q. Cruz, President,
COLA Defense Committee of Guam; Mr. Michael Fitzgerald,
President, Chapter 187, Naval Facilities Engineering Command
Hawaii, Federal Managers Association; and Ms. Terry Kaolulo,
President, Hawaii State Association of Letter Carriers. On June
25, 2008, this Committee ordered S. 3013 reported favorably
with amendments,\32\ and on October 2, 2008 the bill passed the
Senate by unanimous consent with a further amendment. However,
S. 3013 failed to move through the House before the 110th
Congress adjourned sine die.
---------------------------------------------------------------------------
\31\``Non-Foreign COLA: Finding an Equitable Solution,'' Hearing
before the Oversight of Government Management, the Federal Workforce,
and the District of Columbia Subcommittee of the Senate Committee on
Homeland Security and Governmental Affairs, S. Hrg. 110-657 (May 29,
2008).
\32\S. Rep. 110-456 (Sept. 11, 2008).
---------------------------------------------------------------------------
S. 507 was introduced by Senators Akaka, Murkowski, Inouye,
and Begich on March 2, 2009, and was referred to this Committee
and further referred to the Subcommittee. On March 31, 2009,
the Subcommittee favorably polled out S. 507, and the Committee
considered the bill on April 1, 2009. Senator Akaka offered an
amendment that made technical corrections to ensure that the
bill covers Senior Level Scientific and Technical professionals
and to provide agencies the authority to make pay adjustments
through regulations to comply with the provisions of this Act.
The amendment was accepted and the bill, as amended, was
ordered reported favorably by voice vote. Members present were
Chairman Lieberman; Senators Akaka, Carper, Pryor, Tester,
Burris, and Bennet; Ranking Minority Member Collins; and
Senators Coburn, and Voinovich.
IV. Section-by-Section Analysis
Section 1. Short title
This section states that the legislation may be cited as
the ``Non-Foreign Area Retirement Equity Assurance Act of
2009'' or the ``Non-Foreign AREA Act of 2009.''
Section. 2. Extension of locality pay
Subsection (a,) Locality-Based Comparability Payments. This
subsection amends section 5304 of title 5, United States Code,
to include the non-foreign areas in the list of areas where
locality pay is paid to federal employees, and to clarify that
members of the Senior Executive Service (SES), including those
in the Drug Enforcement Administration and Federal Bureau of
Investigation, and senior level scientific and technical
professionals in the non-foreign areas are eligible to receive
locality pay regardless of whether their agencies are
participating in an OPM-certified performance appraisal system.
Subsection (b), Allowances Based on Living Costs and
Conditions of Environment. This subsection amends section 5941
of title 5 to retain a cost-of-living allowance (COLA) that is
phased out as locality pay is phased in. Paragraph (1) freezes
the non-foreign COLA rates that are in effect on the date of
enactment. Paragraphs (2) and (3) establish a transition period
beginning January 1, 2010, and adjust non-foreign COLA rates
downward as locality pay is phased in. This downward adjustment
is governed by a formula under which, for every dollar of
locality pay that the employee receives, the employee will give
up 65 cents of the frozen non-foreign COLA, helping to mitigate
the cost burdens from federal income taxes and additional
retirement contributions due on locality pay.
Section 3. Adjustment of special rates
Subsection (a), In General; Subsection (b), Agencies with
Statutory Authority. These subsections state that employees in
the non-foreign areas who receive special rates under 5 U.S.C.
Sec. 5305 or similar authority will not receive locality pay.
Instead, their special rates will be increased by the same
amount as locality pay increases for other federal employees in
the non-foreign areas who do not receive special rates. These
increases continue until the employees' non-foreign COLA rates
have been completely phased out. (Special rates are rates of
basic pay higher than those ordinarily authorized, which OPM
may establish to address specific recruitment or retention
problems.)
Subsection (c), Temporary Adjustment. The Director of OPM
and the heads of other agencies may raise statutory limitations
otherwise applicable to special rates until the end of the
transition period, at which time any special rate pay in excess
of those limitations will be converted to a ``retained rate''
to which the affected employees would remain eligible under
section 5363 of title 5.
Section 4. Transition schedule for locality-based comparability
payments
This section states that non-foreign COLA will be phased
out and that locality pay will be phased in over a period of
three years starting the first pay period beginning on or after
January 1, 2010. During 2010, the amount of locality pay phased
in will be one-third of the locality pay percentage for the
``rest of the U.S.'' locality pay area. In 2011, the phased-in
amount will be two-thirds of the applicable comparability
payment approved by the President for each non-foreign area. In
the third year, 2012, and each subsequent year, the full amount
of the applicable comparability payment for each non-foreign
area will be used.
Section 5. Savings provision
Subsection (a), Sense of Congress. This subsection
expresses the sense of Congress that the application of the Act
should not result in a decrease in the take-home pay of any
employee and that no employee should receive less than the
``rest of U.S.'' locality pay rate after the phase-in period.
It also states that it is Congress's sense that the Bureau of
Labor Statistics should conduct surveys in all of the non-
foreign areas to determine if there are pay disparities, and
the President's Pay Agent should take necessary steps to
address any pay disparity discovered. Furthermore, it expresses
the sense of the Congress that the President's Pay Agent will
establish one new locality area for the State of Hawaii and one
new locality area for the State of Alaska.
Subsection (b), Savings Provision. This subsection states
that employees who currently receive a special rate and
continue to be stationed in a non-foreign area will receive an
increase in the special rate consistent with increases in the
special rate schedule. The minimum step rate for any grade of a
special rate will be increased at the time of an increase in
the applicable locality rate percentage for the area by not
less than the dollar increase in the locality payment for a
non-special rate employee. In addition, this section states
that if an employee currently receives non-foreign COLA, and if
the amount of locality pay under this bill plus the amount of
employee's basic pay would exceed the cap on basic pay plus
locality pay established under section 5304(g) of title 5, the
employee would continue to receive the non-foreign COLA rate in
effect for the area until the employee either leaves the
allowance area or is eligible to receive a basic pay plus
locality pay at a higher rate.
Section 6. Application to other eligible employees
Subsection (a), In General. This subsection defines who is
an employee covered by this Act. Covered employees include
current and future employees to whom the Government is
authorized to pay non-foreign COLA, whether or not they are
actually paid it. This includes employees at the Transportation
Security Administration, intelligence community employees,
Veterans' Administration, and postal employees. Employees who
receive locality pay as a result of this Act will not be
permitted to bargain over the amount of locality pay they
receive and will not have any amount of locality pay provided
under this Act withheld on the basis of employee performance.
Further, except for postal employees, covered employees will
receive locality pay whether or not they are eligible for
locality pay under current law, including Department of
Veterans Affairs employees whose pay is authorized under title
38 of the United States Code.
Subsection (b), Postal Employees in Non-Foreign Areas. This
subsection states that the provisions of this Act converting
Territorial COLA to locality pay will apply to Postal
Inspectors and employees of the Postal Service Office of
Inspector General, but not to other postal employees such as
mail handlers, letter carriers, and postal supervisors. Those
postal employees in the non-foreign areas will continue to
receive T-COLA. However, the method for calculating the T-COLA
rate will change, and the cap on the amount of T-COLA an
employee may receive will be lifted. Under the Act, current and
future postal employees will receive a T-COLA rate that is the
greater of the frozen T-COLA rate on December 31, 2009, or the
applicable locality pay percentage for the area.
Section 7. Election of additional basic pay for annuity computation by
employees
This section states that employees who retire from federal
service between January 1, 2010, and December 31, 2012, may
file an election with OPM to count a certain amount of non-
foreign COLA they receive during that time period as if it were
locality pay for purposes of computing their retirement
annuity. The limit on the amount of non-foreign COLA an
employee may count as locality pay is the amount of locality
pay that would be in effect for that area if not for the phase
in provisions in section 4 of this Act. An employee who files
an election must pay into the Civil Service Retirement and
Disability Retirement Fund additional funds to cover the amount
they would have paid if they had been in a locality-pay area
during that period, plus any interest prescribed under 5 U.S.C.
8334(e). The employing agency shall also pay an amount for
applicable agency contributions.
Section 8. Regulations
This section states that the Director of OPM will issue
regulations to carry out this Act, including rules for special
rate employees, employees who are not entitled to receive
locality pay, and for setting and adjusting retained rates. In
addition, the administrator of a pay system not administered by
OPM and not required to pay locality adjustments to its
employees will prescribe regulations consistent with OPM's
regulations and with the concurrence of the Director of OPM.
Section 9. Effective dates
This section makes the date of enactment the effective date
of this Act, except for the phase-in periods starting January
1, 2010, as specified in sections 2 and 4 of the Act.
V. Estimated Cost of Legislation
S. 507--Non-Foreign AREA Act of 2009
Summary: S. 507 would phase in the use of locality-based
comparability payments (``locality pay'') to replace cost-of-
living allowances (COLAs) for federal employees in certain
areas of the United States (Alaska, Hawaii, and the U.S.
Territories).
The bill would affect the amount of pay received by certain
federal employees and the amount of future retirement benefits
those employees receive. By increasing some salaries, S. 507
would result in additional agency payments for employees'
retirement benefits and payroll taxes. In total, CBO estimates
that discretionary spending would increase by $2.5 billion
through 2019, assuming appropriation of the necessary amounts.
The legislation also would increase the amount of pay included
in the calculation of retirement and Social Security benefits,
thereby increasing direct spending by an estimated $276 million
over the 2010-2019 period. Furthermore, including additional
pay in the calculation of retirement benefits would increase
revenues--from higher employee contributions towards those
benefits and from additional tax receipts--totaling an
estimated $979 million over the 2010-2019 period.
S. 507 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would impose no cost on state, local, or tribal
governments.
Estimated Cost to the Federal Government: The estimated
budgetary impact of S. 507 is shown in the following table. The
direct spending impacts of the bill fall within budget
functions 600 (income security) and 650 (Social Security); the
discretionary costs fall within many other budget functions.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
------------------------------------------------------------------------------------------------------
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-2014 2010-2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION (On-Budget)
Salary payments and other discretionary spending:
Estimated authorization level................ 37 119 197 197 200 202 203 207 212 217 750 1,791
Estimated outlays............................ 37 119 197 197 200 202 203 207 212 217 750 1,791
Employer contributions:\1\
Estimated authorization level................ 17 50 77 77 78 79 80 81 83 86 299 708
Estimated outlays............................ 17 50 77 77 78 79 80 81 83 86 299 708
Total changes in spending subject to
appropriation:
Estimated authorization level................ 55 169 273 274 278 281 283 289 295 303 1,049 2,500
Estimated outlays............................ 55 169 273 274 278 281 283 289 295 303 1,049 2,500
CHANGES IN DIRECT SPENDING (OUTLAYS)
Total changes in direct spending:................ 2 6 12 20 26 32 38 43 46 50 67 276
On-budget revenues........................... 2 6 12 20 26 31 37 42 45 48 66 269
Off-budget revenues.......................... 0 * * * * 1 1 1 2 2 * 7
CHANGES IN REVENUES
Total changes in revenues:....................... 26 70 105 104 107 109 110 113 116 120 412 979
On-budget revenues........................... 20 54 81 80 82 83 84 86 89 91 317 751
Off-budget revenues.......................... 5 16 24 24 25 25 26 27 27 28 95 229
Memorandum:
Total intragovernmental collection from -17 -50 -77 -77 -78 -79 -80 -81 -83 -86 -299 -708
employer contributions:\1\..................
On-budget.................................... -12 -34 -52 -52 -53 -54 -54 -55 -56 -57 -204 -480
Off-budget................................... -5 -16 -24 -24 -25 -25 -26 -27 -27 -28 -95 -229
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\Employer contributions are intragovernmental transactions that do not affect the deficit.
Sources: Congressional Budget Office and Joint Committee on Taxation.
Notes: Components may not sum to totals because of rounding. * = costs of less than $500,000.
Basis of estimate: For this estimate, CBO assumes that S.
507 will be enacted near the end of fiscal year 2009 and that
the necessary amounts will be appropriated for each year
beginning in 2010. The bill would affect over 50,000 federal
employees working in Alaska, Hawaii, Puerto Rico, the U.S.
Virgin Island, Guam, and the Northern mariana Islands.
Currently, federal employees in those areas receive a COLA
to offset higher costs of living in those areas. (In contrast,
federal employees in the contiguous 48 states receive locality
pay under the General Schedule to narrow the pay gap between
comparable federal and nonfederal positions.) S. 507 would
phase in the use of locality pay for employees in the specified
areas over three years and would phase out the COLA, in most
cases, over a longer period of time. Such changes would affect
the federal budget because, while the COLA is not subject to
federal income or payroll taxes and is not used to calculate
federal retirement benefits, locality pay is both taxable and
creditable for retirement benefits.
Spending subject to appropriations
S. 507 would increase discretionary spending by $2.5
billion over the 2010-2019 period, assuming the appropriation
of necessary amounts, primarily for increased salary payments
and agencies' payments for retirement benefits and payroll
taxes.
Salary payments and other spending. The conversion to
locality pay for eligible current and future federal employees
in the designated jurisdictions would increase salaries by $1.8
billion over the next 10 years. For those employees, a
provision in S. 507 provides for a phase-out of COLAs over
time, intended to preserve the take-home salaries of those
employees as their nontaxable COLA pay is replaced with taxable
locality pay. As a result, salaries would increase to maintain
the take-home pay of affected employees.
A small amount of savinigs--$2 million over 10 years--would
result from discontinuing the surveys currently used by Office
of Personnel Management to calculate the COLA adjustments for
nonforeign areas.
Employer contributions. Similar to the rise in employees'
contributions due to the transition to locality pay (which is
creditable towards retirement), federal agencies' costs for
payroll taxes and retirement contribution also would increase.
Assuming appropriation of the necessary amounts, CBO estimates
that spending for those contributions would increase by $708
million through 2019. Those payments are intragovernmental
transactions that are recorded as offsetting receipts elsewhere
in the budget.
Direct spending
Increased retirement benefits (a product of increases in
salaries) would accrue to approximately 13,000 federal
employees anticipated to retire between 2010 and 2019. As a
result, CBO estimates that direct spending would increase by a
total of $276 million over 10 years--$269 million for
additional retirement benefits and $7 million for higher Social
Security benefits.
Under S. 507, an estimated 8,300 employees of the U.S.
Postal Service (USPS) would not convert to locality pay and
would continue to receive COLAs, but a provision of the bill
would adjust the COLA calculation. If enacted, future
calculations of COLAs for those employees would equal the
greater of either the COLA in effect upon enactment of S. 507,
or the locality pay applicable to other federal employees (that
is, those who converted to locality pay under this bill) for
that year and jurisdiction. CBO estimates that the provision
could increase gross spending of about $50 million (off-budget)
over the 2010-2019 period. However, CBO assumes that any
increase would be offset by additional receipts from postage
rates charged by the USPS over the same period, and would have
no net effect on the budget.
Revenues
S. 507 would increase the portion of salary on which
employees must pay taxes and would increase the amount of pay
used to calculate employees' contributions for federal
retirement benefits. Accordingly, the legislation would
increase revenues by a total of $979 million over the next 10
years from additional income and payroll tax collections and
from additional retirement contributions from employees, CBO
and the Joint Committee on Taxation estimate. That total
revenue change represents both on- and off-budget activity.
Additional on-budget revenues would total $751 million,
including $708 million from Medicare payroll taxes and income
tax collections and $43 million from higher contributions from
employees toward retirement benefits. The increase in off-
budget revenues would total $229 million from additional Social
Security tax receipts.
Intergovernmental and private-sector impact: S. 507
contains no intergovernmental or private-sector mandates as
defined in UMRA and would impose no cost on state, local, or
tribal governments.
Estimate prepared by: Federal Spending: Retirement--Amber
G. Marcelino, Social Security--Sheila M. Dacey; Impact on
Federal Revenues: Zachary Epstein; Impact on State, Local, and
Tribal Governments: Elizabeth Cove Delisle; Impact on the
Private Sector: Paige Piper/Bach.
Estimate approved by: Theresa Gullo, Deputy Assistant
Director for Budget Analysis.
VI. Evaluation of Regulatory Impact
Pursuant to the requirements of paragraph 11(b) of rule
XXVI of the Standing Rules of the Senate, the Committee has
considered the regulatory impact of this bill. CBO states that
there are no intergovernmental or private-sector mandates as
defined in the Unfunded Mandates Reform Act and no costs on
state, local, or tribal governments. The legislation contains
no other regulatory impact.
VII. Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic and existing law, in which no
change is proposed, is shown in roman):
TITLE 5, UNITED STATES CODE: GOVERNMENT ORGANIZATION AND EMPLOYEES
PART III--EMPLOYEES
CHAPTER 53--PAY RATES AND SYSTEMS
Subchapter I--Pay Comparability System
SEC. 5304. LOCALITY-BASED COMPARABILITY PAYMENTS.
* * * * * * *
(f)(1) The pay agent may provide for such pay localities as
the pay agent considers appropriate, except that--
[(A) each General Schedule position (excluding any
outside the continental United States, as defined in
section 5701(6)) shall be included with a pay
locality;]
(A) each General Schedule position in the United
States, as defined under section 5921(4), and its
territories and possessions, including the Commonwealth
of Puerto Rico and the Commonwealth of the Northern
Mariana Islands, shall be included within a pay
locality; and
(B) the boundaries of pay localities shall be
determined based on appropriate factors which may
include local labor market patterns, commuting
patterns, and practices of other employers.
(2)(A) The establishment or modification of any such
boundaries shall be effected by regulations which,
notwithstanding subsection (a)(2) of section 553, shall be
promulgated in accordance with the notice and comment
requirements of such section.
(B) Judicial review of any regulation under this subsection
shall be limited to whether or not it was promulgated in
accordance with the requirements referred to in subparagraph
(A).
(g)(1) Except as provided in paragraph (2), comparability
payments may not be paid at a rate which, when added to the
rate of basic pay otherwise payable to the employee involved,
would cause the total to exceed the rate of basic pay payable
for level IV of the Executive Schedule.
(2) The applicable maximum under this subsection shall be
level III of the Executive Schedule for--
(A) positions under subparagraphs (A)-(C) of
subsection (h)(1); [and]
(B) any positions under subsection (h)(1)(D) which
the President may determine; and
(C) positions under subsection (h)(1)(C) not covered
by appraisal systems certified under section 5382; and
(3) The applicable maximum under this subsection shall be
level II of the Executive Schedule for positions under
subsection (h)(1)(C) covered by appraisal systems certified
under section 5307(d).
(h)(1) For the purpose of this subsection, the term
``position'' means--
(A) a position to which section 5376 applies
(relating to certain senior-level positions);
(B) a position to which section 5372 applies
(relating to administrative law judges appointed under
section 3105); [and]
(C) a Senior Executive Service position under section
3132 or 3151 or a senior level position under section
5376 stationed within the United States, but outside
the 48 contiguous States and the District of Columbia
in which the incumbent the day before the date of
enactment of the Non-Foreign Area Retirement Equity
Assurance Act of 2008 was eligible to receive a cost-
of-living allowance under section 5941; and
(D) a position within an Executive agency not covered
under the General Schedule or any of the preceding
subparagraphs, the rate of basic pay for which is (or,
but for this section, would be) no more than the rate
payable for level IV of the Executive Schedule;
but does not include--
(i) a position to which subchapter IV applies
(relating to prevailing rate systems);
(ii) a position as to which a rate of pay is
authorized under section 5377 (relating to
critical positions);
(iii) a position to which subchapter II
applies (relating to the Executive Schedule);
(iv) a Senior Executive Service position
under section 3132, except for members covered
by subparagraph C;
(v) a position in the Federal Bureau of
Investigation and Drug Enforcement
Administration Senior Executive Service under
section 3151, except for members covered by
subparagraph C; or
(vi) a position in a system equivalent to the
system in clause (iv), as determined by the
President's Pay Agent designated under
subsection (d).
(2)(A) Notwithstanding subsection (c)(4) or any other
provision of this section, but subject to subparagraph (B) and
paragraph (3), upon the request of the head of an Executive
agency with respect to 1 or more categories of positions, the
President may provide that each employee of such agency who
holds a position within such category, and within the
particular locality involved, shall be entitled to receive
comparability payments.
(B) A request by an agency head or exercise of authority by
the President under subparagraph (A) shall cover--
(i) with respect to the positions under subparagraphs
(A) through (C) of paragraph (1), all positions
described in the subparagraph or subparagraphs involved
(excluding any under clause (i), (ii), (iii), (iv),
(v), or (vi) of such paragraph); and
(ii) with respect to positions under paragraph
(1)(D), such positions as may be considered appropriate
(excluding any under clause (i), (ii), (iii), (iv),
(v), or (vi) of paragraph (1)).
(C) Notwithstanding subsection (c)(4) or any other
provision of law, but subject to paragraph (3), in the case of
a category with positions that are in more than 1 Executive
agency, the President may, on his own initiative, provide that
each employee who holds a position within such category, and in
the locality involved, shall be entitled to receive
comparability payments. No later than 30 days before an
employee receives comparability payments under this
subparagraph, the President or the President's designee shall
submit a detailed report to the Congress justifying the reasons
for the extension, including consideration of recruitment and
retention rates and the expense of extending locality pay.
(3) Comparability payments under this subsection--
(A) may be paid only in any calendar year in which
comparability payments under the preceding provisions
of this section are payable with respect to General
Schedule positions within the same locality;
(B) shall take effect, within the locality involved,
on the first day of the first applicable pay period
commencing on or after such date as the President
designates (except that no date may be designated which
would require any retroactive payments), and shall
remain in effect through the last day of the last
applicable pay period commencing during that calendar
year;
(C) shall be computed using the same percentage as is
applicable, for the calendar year involved, with
respect to General Schedule positions within the same
locality; and
(D) shall be subject to the applicable limitation
under subsection (g).
CHAPTER 59--ALLOWANCES
Subchapter IV--Miscellaneous Allowances
SEC. 5941. ALLOWANCES BASED ON LIVING COSTS AND CONDITIONS OF
ENVIRONMENT; EMPLOYEES STATIONED OUTSIDE
CONTINENTAL UNITED STATES OR ALASKA
(a) Appropriations or funds available to an Executive
agency, except a Government controlled corporation, for pay of
employees stationed outside the continental United States or in
Alaska whose rates of basic pay are fixed by statute, are
available for allowances to these employees. The allowance is
based on--
(1) living costs substantially higher than in the
District of Columbia;
(2) conditions of environment which differ
substantially from conditions of environment in the
continental United States and warrant an allowance as a
recruitment incentive; or
(3) both of these factors.
The allowance may not exceed 25 percent of the rate of basic
pay. Except as otherwise specifically authorized by statute,
the allowance is paid only in accordance with regulations
prescribed by the President establishing the rates and defining
the area, groups of positions, and classes of employees to
which each rate applies. Notwithstanding any preceding
provision of this subsection, the cost-of-living allowance rate
based on paragraph (1) of this subsection shall be the cost-of-
living allowance rate in effect on the date of enactment of the
Non-Foreign Area Retirement Equity Assurance Act of 2009,
except as adjusted under subsection (c).
(b) This section shall apply only to areas that are
designated as cost-of-living allowance areas as in effect on
December 31, 2009.
(c)(1) The cost-of-living allowance rate payable under this
section shall be adjusted on the first day of the first
applicable pay period beginning on or after--
(A) January 1, 2010; and
(B) on January 1 of each calendar year in which a
locality-based comparability adjustment takes effect
under section 4(2) and (3) of the Non-Foreign Area
Retirement Equity Assurance Act of 2009.
(2)(A) In this paragraph, the term ``applicable locality-
based comparability pay percentage'' means, with respect to
calendar year 2010 and each calendar year thereafter, the
applicable percentage under section 4(1), (2), or (3) of the
Non-Foreign Area Retirement Equity Assurance Act of 2009.
(B) Each adjusted cost-of-living allowance rate under
paragraph (1) shall be computed by--
(i) subtracting 65 percent of the applicable
locality-based comparability pay percentage from the
cost-of-living allowance percentage rate in effect on
December 31, 2009; and
(ii) dividing the resulting percentage determined
under clause (i) by the sum of--
(I) one; and
(II) the applicable locality-based comparability
payment percentage expressed as a numeral.
(3) No allowance rate computed under paragraph (2) may be
less than zero.
(4) Each allowance rate computed under paragraph (2) shall
be paid as a percentage of basic pay (including any applicable
locality-based comparability payment under section 5304 or
similar provision of law and any applicable special rate of pay
under section 5305 or similar provision of law).
[(b)] (d) An employee entitled to a cost-of-living
allowance under section 5924 of this title may not be paid an
allowance under subsection (a) of this section based on living
costs substantially higher than in the District of Columbia.
TITLE 39, UNITED STATES CODE: POSTAL SERVICE
PART III--PERSONNEL
CHAPTER 10--EMPLOYMENT WITHIN THE POSTAL SERVICE
Subchapter I--Pay Comparability System
SEC. 1005. APPLICABILITY OF LAWS RELATING TO FEDERAL EMPLOYEES.
* * * * * * *
(b)(1) [Section 5941] Except as provided under paragraph
(2), section 5941 of title 5 shall apply to the Postal Service.
[For purposes of such section,] Except as provided under
paragraph (2), for purposes of section 5941 of that title, the
pay of officers and employees of the Postal Service shall be
considered to be fixed by statute, and the basic pay of an
employee shall be the pay (but not any allowance or benefit) of
that officer or employee established in accordance with the
provisions of this title.
(2) On and after the date of enactment of the Non-Foreign
Area Retirement Equity Assurance Act of 2009--
(A) the provisions of that Act and section 5941 of
title 5 shall apply to officers and employees covered
by section 1003(b) and (c) whose duty station is in a
nonforeign area; and
(B) with respect to officers and employees of the
Postal Service (other than those officers and employees
described under subparagraph (A)) section 6(b)(2) of
that Act shall apply.