FEDS IN HAWAII AND ALASKA DESERVE THE SAME BENEFITS AS THEIR COUNTERPARTS ON THE MAINLAND - June 26, 2008

Now is the time to transition federal employees in non-foreign areas from COLA to locality pay

Alexandria, VA – The Federal Managers Association (FMA) supports proposals which would phase-out the current non-foreign cost of living adjustment and phase-in locality pay. Today, FMA submitted testimony for the record on this issue before the U.S. House of Representatives.

Federal employees who reside in Alaska and Hawaii receive a tax-free non-foreign area cost of living adjustment (COLA) in their pay. However, the federal government fails to credit this COLA to basic pay for retirement purposes and residents outside the contiguous United States do not receive the locality pay benefit most federal employees enjoy. This practice has a devastating effect on the retirement benefits rightly earned by these hardworking civil servants. Federal employees who reside in Alaska and Hawaii are denied these payments solely because they reside in these states, despite the fact the cost of living in Alaska and Hawaii consistently ranks among the highest in the nation.

In his written testimony before the House Oversight and Government Reform Subcommittee on the Federal Workforce, the Postal Service and the District of Columbia, FMA National President Darryl Perkinson stated, “High locality pay in the continental 48 states lures managers, high-level technicians, and engineers to leave Hawaii and Alaska to seek higher pay and an increased annuity towards the end of their careers. With the Los Angeles area offering a 25.26 percent locality adjustment and the San Francisco area offering 32.53 percent, it is easy to see why employees nearing the end of their careers would be looking to complete their final three years in these cities. Specific data to document this migration is hard to come by, but the stories are endless.”

For the federal government to remain the employer of choice, we must offer a competitive salary. Locality pay takes into account the cost of labor in a given area and was originally enacted to close the gap between public and private sector wages. Today, managers and supervisors in Hawaii are facing real retention and recruitment issues and we need to expedite a COLA to locality pay conversion in order to compete with not only the private sector, but also our federal counterparts on the mainland.

Several proposals have been put forward to phase-out COLA and phase-in locality pay. The Administration issued its plan in May 2007, which would transition federal employees in non-foreign COLA areas to locality pay over seven years by adjusting their pay each year. This proposal continues the discriminatory, illogical and possibly unconstitutional denial of full locality pay for federal employees in Alaska and Hawaii for seven years. In short, the Act would needlessly stretch out the transition and not do enough to protect the take home pay of employees. The time for a seven year phase-in was seven years ago.

Recently, Senators Akaka (D-Haw.), Inouye (D-Haw.), Stevens (R-Ak.) and Murkowski (R-Ak.) introduced legislation, S. 3013, the Non-Foreign Area Retirement Equity Assurance Act, which proposes a three year phase-in of locality pay combined with an annuity buy-in aimed at stabilizing the current retirement eligible workforce. The legislation also advises a 35 percent offset to COLA to protect the pay of all federal employees as they transition to locality pay.

By increasing the offset to COLA to 65 percent, these younger workers will not be adversely impacted by a change in the pay system. Additionally, employees in the Federal Employee Retirement System will see increased eligible matching funds for their Thrift Savings Plan (TSP) because their base pay will be increased by the locality pay amount. In fact, over a career, these matching funds can amount to an estimated $31,000 for a GS-9. The resulting compensation package will make the federal government more competitive in the current tight labor market. This is essential if the highly critical missions of the federal agencies in Hawaii and Alaska are to be met.

Perkinson concluded his written statement by saying, “COLA served its purpose half a century ago. It is now outdated and acts as a barrier to federal employment. By acting now and implementing this market-oriented approach to determining local salaries, Congress can arm Hawaii and Alaska federal managers with one more tool to attract and retain today’s highly mobile and talented workforce.”

For a copy of the full written testimony, please visit FMA’s Web site at www.fedmanagers.org.