‘Locality’ pay may sub for cost-of-living cash

Federal professional workers face changes in compensation for living in pricey places

A measure before Congress would gradually eliminate a cost-of-living adjustment received by thousands of federal white-collar workers in Hawaii, Alaska and U.S. territories outside the continental United States.

The legislation, proposed by the Bush administration Wednesday, would replace the cost-of-living adjustment with so-called "locality" payments, which boost salaries based on surveys of what is paid in the private sector in local markets.

Hawaii workers receive as much as an additional 25 percent adjustment to their base pay under the cost-of-living adjustment program, which is designed to enhance recruitment and retention of federal workers in high-cost areas.

Some employees have questioned whether switching to locality pay might result in higher retirement benefits, because the cost-of-living adjustment payments are not subject to federal tax and therefore are not counted toward retirement programs. That has fueled the perception that the benefits of cost-of-living adjustments are eroding compared with the mainland.

Locality pay, which ranges from 12.6 percent to 30.3 percent of base pay, is taxed but can be used in crediting workers' retirement benefits.

"These perceived disparities between the pay and retirement benefits of those two groups of employees generate actual and potential staffing problems for federal agencies," wrote Linda Springer, director for the Office of Personnel Management, in a letter to the U.S. Senate.

Sen. Daniel Akaka, D-Hawaii, chairman of the federal work force subcommittee, is seeking opinions from federal employees who would be affected by the change, which would be phased in over seven years.

"I look forward to hearing the views of federal employees in Hawaii, Alaska and the U.S. territories," Akaka said. "Together we can work to ensure that these federal workers are not disadvantaged when it comes to their compensation or retirement."

Affected territories include Guam, the Commonwealth of the Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands. Accommodations might have to be made for U.S. Postal Service workers, who now receive cost-of-living adjustments if they do not work on the mainland but are excluded from locality pay.