Stevens’ bill would replace COLA with locality pay system

ALASKA NEWSPAPERS STAFF

July 03, 2008 at 11:47AM AKST

The Senate Committee on Homeland Security and Government Affairs on June 25 approved legislation sponsored by Sens. Ted Stevens, R-Alaska, and Daniel Akaka, D-Hawaii, to replace Alaska and Hawaii federal employee cost-of-living allowances with the locality pay system that has long been in place in the Lower 48.

The legislation was co-sponsored by Sens. Lisa Murkowski, R-Alaska, and Daniel Inouye, D-Hawaii.

“A big part of this change will be seen in federal employee retirement funds,” Stevens said. “Under the COLA system, Alaska retirees were not getting as good a deal as federal employees in the Lower 48.

“Many Alaskan federal employees nearing retirement have been relocating in order to guarantee a better retirement. With this change Alaska won’t be losing those highly skilled, seasoned employees.”

Alaska and Hawaii are the only states in which federal employees do not receive locality pay. Because COLA is not taxed, it is not considered part of an employee’s base pay for retirement purposes.

Locality pay, on the other hand, is taxable income but is part of an employee’s base pay. This means employees in Alaska are retiring at much lower pay rates than their counterparts in the Lower 48.

“Alaska’s federal employees have spoken,” Murkowski said. ”They have told Washington that they are willing to forego their tax-free cost of living allowances in favor of a salary plan that provides greater benefits after retirement.

“The new plan will provide the means for our federal employees, who came to Alaska from all corners of the nation, to remain in Alaska after retirement. This legislation is an investment in Alaska’s future and theirs.”

The U.S. Office of Personnel Management has been seeking to slowly phase out the COLA system in favor of the locality pay system, but the Stevens-Akaka legislation will speed up the process. The result will be that the new system will be fully implemented in three years rather than the seven suggested by OPM.

The legislation is intended to benefit all federal employee groups whose Lower 48 counterparts receive locality pay. Employees who will soon be forced to retire due to age and those intending to retire within three years will be able to buy in to the program to ensure that they may fully participate in the new system.

The bill also includes language to assist postal employees, who are not eligible to receive locality pay in the Lower 48, in retaining their COLA benefits in Alaska and Hawaii. While postal employees will remain under the COLA system rather than locality pay, the 25 percent cap on COLA will no longer apply, and the COLA rate will follow the locality pay rate, which is expected to be 27.65 percent or higher in Alaska.

“With Alaskans facing one of the highest costs of living in the United States, this change is necessary to make sure those who put in years of federal service are properly compensated,” Stevens said.