"LOCALITY PAY BILL PROPOSED FOR RETIREES IN ALASKA, HAWAII, AND THE TERRITORIES"

Prior to locality pay, annual pay raises applied across the board to every federal worker in the 50 states, in the US territories and to those working in foreign countries.   These across-the-board pay raises embodied the “Equal Pay for Equal Work” concept which Congress and unions and employees’ associations fought hard for over the years of civil service reforms.  Employees in Hawaii, Alaska and the U.S. territories received the same pay raises as everyone else in the contiguous 48 states, regardless of receiving a COLA. 

Locality Pay only for Contiguous 48 States (1994 – 2009)

But from 1994, the annual pay raises were no longer across-the-board.   Every year, thereafter, about 1% of the annual pay raise was withheld and re-distributed as locality pay only among the 48 states leaving out all federal employees in Hawaii, Alaska, and the US territories – the COLA areas – and also those working in foreign countries.  For example, if the annual pay raise was to be 3.5%, we received 2.5% and the 1% was re-distributed among the 48 states as locality pay and even included in those areas with no pay gaps.  From 1994 to 2009, federal employees in Hawaii, Alaska and the U.S. territories received ZERO locality pay.  Thus, their base pay has lagged behind for 16 years.  For those who retired in Hawaii, Alaska and the U.S. territories during this period, their retirement benefits are less as compared to federal employees in the 48 states because locality pay counts towards retirement.

During this same period, federal employees in the COLA areas brought this concern before OPM through the Federal Register notices on the COLA survey results and through the collaborative studies under the COLA program but were told time and again that the remedy can only come about through legislation.

Lawsuit sought remedy to locality pay inequity

In 2005, federal employees in Hawaii and Alaska joined in filing a class action lawsuit to be included in locality pay. They argued that they should have received a locality pay because the Federal Employees’ Pay Comparability Act (FEPCA) only changed the distribution of a portion of the overall annual pay raise.  The US Supreme Court denied their petition in June 2010.  ] The lower courts recognized that excluding employees from our 49^th and 50^th states from locality pay was poor legislation and recommended that Congress fix the retirement inequity that resulted from this exclusion.

OPM’s failure to make recommendation to Congress in 1991

As early as 1991, before locality pay was implemented, OPM recognized the inherent retirement inequity problem when excluding Hawaii and Alaska from locality pay but failed to recommend a remedy for the COLA areas.  At that time, OPM looked at possibly converting COLA to locality pay.  Had OPM made its recommendation back in 1991, today’s retirees would be receiving their comparable increased retirement benefits due to locality pay.

Partial fix: Non-Foreign Area Retirement Equity Assurance Act of 2009

Since NARFE’s 2006 convention, when NARFE passed Resolutions 06-72 and 06-73, NARFE has worked to fix the retirement inequity for federal employees in Hawaii and in Alaska.  In October 2009, with the great support and efforts of Senator Akaka, as well as Senators Inuoye, Murkowski, and Begich, and Representatives Hirono, Young, and Abercrombie, President Obama signed the Non-Foreign Area Retirement Equity Assurance Act (which was included in  P.L. 111-84, National Defense Authorization Act) authorizing locality pay but only for active employees in Hawaii, Alaska and the US territories, to begin in January 2010.   As a result current employees are now receiving locality pay in lieu of COLA in order to receive retirement benefits comparable to those in the 48 states.

The importance of passing the Non-Foreign Area Retirement Equity Assurance Act is that the great majority of affected employees, that is, the current employees numbering over 40,000 in the COLA areas are now covered by locality pay for retirement purposes.   

It has taken 20 years to fix the retirement inequity for current employees.

Additional Notes:

1. The federal employees living in the highest cost of living areas were never given the choice or opportunity to participate in the locality pay program.  

2.  In 1998, the Defense Department looked at three possible ways to provide locality pay to its employees working outside the continental United States: (i) give the minimum “Rest of the

United States” rates; (ii) change the calculation of retirement pay (and other pay-related benefits) by including a locality pay rate (though without the employee receiving actual locality pay in his or her salary); and (iii) put off a decision until 2001.

     The Defense Department took no action in 2001. 

3.  In or around 2002, the State Department implemented their own temporary retirement fix for their Foreign Service employees working overseas by providing a “virtuality locality pay” which provided for increased retirement benefits based on DC locality pay rates.  Employees were required to pay a slightly higher retirement contribution for this increased retirement benefit. 

4. The Central Intelligence Agency also provided their own retirement fix for their employees working overseas by converting an allowance amount to a DC locality pay- equivalent amount.

5.  In the Foreign Relations Authorization Act for FY 2002 and 2003, the State Department implemented a permanent fix by providing a pay supplement equivalent to DC locality pay to its employees working overseas to count towards retirement.   

6.  Around 2005, the Department of Defense began paying a DC locality pay equivalent- supplement to its employees working for its intelligence agencies in Hawaii and Alaska, in addition to COLA.  It is not known if DC locality pay equivalent-supplement has been extended to other DOD agencies in Hawaii and Alaska. 

NARFE proposes comprehensive remedy

The retirees in the COLA areas, through NARFE, now seek a comprehensive legislative remedy for those who retired during the period 1994 through 2009 without consideration of locality pay.  We ask that locality pay amounts be established and included in our high-3 years’ pay and that retirement benefits be recalculated / increased accordingly.   

Attachment A - Draft Legislation.   The main points of this proposed legislation are:

1.  Retirees who worked in a COLA area during the period 1994 through 2009 be allowed to add in locality pay amounts towards their high-3 years’ pay for recalculating their retirement benefits. 

2.  Retirees will pay in their retirement contributions due on the high three year earning period locality pay: 7% for CSRS, 7.5% for LEO, and 1% for FERS retirees, plus interest[jh4] .

3. Retirees will forgo retroactive increases to their retirement benefits, that is, retirees will not seek back pay.

4.   This is a voluntary program.  The retiree must elect this option of re-calculating their retirement benefits.   

Number of Affected Retirees.

This proposal for retirees affects a small group of general schedule employees who worked in a COLA area and received their high-3 years in the COLA area.   

NARFE members working on this issue were unable to get a good estimate of the number of affected retirees from OPM’s published statistical sources as some data are not published each year.  Our rough estimate of affected retirees is about 5,000 for Hawaii and Alaska.  (An OPM employee recently stated that this number should be lower because it includes USPS retirees who are not to be covered by this legislation because the USPS is not covered by FEPCA.) 

From OPM’s Central Personnel Data File and agencies’ own data files, yearly new retirees in a COLA area can be easily identified.   The number of retirees is expected to be small for agencies that do not report to OPM. 

Locality Pay Rates.

In 1996, at the request of our Hawaii senators, locality pay surveys were conducted in Alaska, Hawaii and Puerto Rico.  At that time, Alaska’s locality pay rate would have been 15.48% which would have been the highest in the nation.   For Hawaii and Puerto Rico, the Rest of the US (RUS) rate would be applicable.   In 2008, OPM calculated rough estimates of the locality pay rates for Alaska and Hawaii for the Akaka Senate Hearing Committee.  At that time, the locality pay rate for Alaska was estimated at over 27% and over 19% for Hawaii.  Should Congress authorize a 2011 locality pay raise, OPM estimates that the locality pay rates for Alaska and Hawaii will be lower at 25% and 17%, respectively.

NARFE recommends the locality pay rates found in Attachment C.  These rates attempt to transition into the locality pay rates determined by OPM for 2011.  Because the locality pay rates for Alaska for the later years would exceed their COLA rates, their locality pay rates would be capped by their actual COLA rates in effect during this period.  For Alaska, NARFE considered the locality pay rates paid to the 4 highest locality pay areas - San Francisco, Los Angeles, New York, and Houston.  NARFE recommends Houston’s rates as being more conducive to the transition to 2011 rates.

CONTACT PERSONS:

For NARFE Hawaii State Federation of Chapters 

John Priolo  (808) 455-7331

Joyce Matsuo  (808) 841-0232

For NARFE Alaska Federation of Chapters

Ed Doherty  (907) 696 3991

Paul McIntosh  (907) 344-0034