[Congressional Record Volume 154, Number 78 (Tuesday, May 13, 2008)]
[Senate]
[Pages S4109-S4111]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. AKAKA (for himself, Mr. Stevens, Mr. Inouye, and Ms. 
        Murkowski):
  S. 3013. A bill to provide for retirement equity for Federal 
employees in nonforeign areas outside the 48 contiguous States and the 
District of Columbia, and for other purposes; to the Committee on 
Homeland Security and Governmental Affairs.
  Mr. AKAKA. Mr. President, today I join with my good friends Senators 
Ted Stevens, Daniel Inouye, and Lisa Murkowski to introduce legislation 
to ensure retirement equity for Federal workers in Hawaii, Alaska, and 
the U.S. territories. For years, Federal employees in my home state of 
Hawaii and in other non-foreign areas have been disadvantaged when it 
comes to their retirement due to a lack of locality pay. Federal 
workers in those areas may receive a nonforeign cost of living 
allowance, COLA, based on the differences in the cost of living between 
those areas and the District off Columbia, but this amount does not 
count for retirement purposes. Furthermore, while locality rates 
generally increase, nonforeign COLAs have been gradually declining. 
This lack of retirement equity has resulted, in several lawsuits 
against the Federal Government and hinders efforts to recruit and 
retain Federal workers in those areas.
  On August 17, 2000, the U.S. District Court of the Virgin Islands 
approved the settlement of Caraballo v. United States, which was a 
class-action lawsuit in which employees in the nonforeign areas 
contested the methodology used by the Office of Personnel Management to 
determine COLA rates. However, on January 30, 2008, Judge Phillip M. 
Pro in the U.S. District Court in Honolulu ruled against the Federal 
employees in Matsuo v. the Office of Personnel Management, which held 
that excluding Alaska and Hawaii from locality pay did not violate the 
equal protection clause and substantive due process under the Fifth 
Amendment. Judge Pro acknowledged the disparity in his ruling saying 
that Congress ``discharged its legislative responsibilities 
imperfectly'' and recommended that Congress ``correct the incongruity 
made so evident by this case.''
  While this issue has been discussed for years, a solution seemed out 
of reach given the lack of support for various proposed solutions. Last 
year, the Administration announced a legislative proposal to phase-out 
non-foreign COLA and phase-in locality pay. In May 2007 the 
Administration's draft bill was submitted. The draft bill would freeze 
nonforeign COLA rates at their current rates at their current rates and 
OPM would no longer conduct COLA surveys. Over the 7 years following 
the enactment of the proposal, locality pay would be phased in for 
General Schedule, GS, employees while nonforeign COLA is phased out. 
According to OPM, preliminary data indicates that the locality pay rate 
for Hawaii would be 20 percent. At the end of the 7 year period, if the 
locality pay rate is less than the amount of nonforeign COLA for a 
particular area, employees would continue to receive the difference in 
nonforeign COLA and locality pay until the locality rate reaches the 
COLA amount. Only at that time would employees no longer receive non-
foreign COLA. However, the proposal did not address the impact such a 
change would have on postal employees, employees who receive special 
rates, members of the Senior Executive Service, and others who are in 
agency specific personnel systems or those who do not receive locality 
pay, such as employees under the National Security Personnel System at 
the Department of Defense.
  Knowing of the growing interest in this proposal, I sent staff from 
my Federal Workforce Subcommittee to Hawaii last July to meet with 
employees and hear their questions and concerns about the 
Administration's proposal. Based on the questions and comments I have 
received, I submitted questions to OPM and other Federal agencies to 
obtain additional information. I also posted information on the 
Administration's proposal on my website, a link to a calculator created 
by OPM for Federal employees to determine exactly how their pay and 
retirement will be impacted by the proposal, and the agencies' response 
to my questions. Since then, I have received numerous letters and phone 
calls from constituents and Federal employees in the nonforeign areas 
about this issue. While there are still divergent views on this 
proposal, the vast majority of employees who I have heard from are 
supportive of a change to locality pay.
  The legislation I introduce today is a collective effort of Senators 
Stevens, Inouye, Murkowski, and myself to find an equitable solution to 
a difficult and divided issue. The Non-Foreign Area Retirement Equity 
Assurance Act is not to be seen as the last word, only the latest step 
forward toward determining the best way to ensure retirement equity for 
Federal workers in the nonforeign areas. Our bill seeks to provide 
answers to the questions raised by the administration's proposal and to 
cover all employees. Most importantly, our bill seeks to protect 
employee's take home pay. During this current economic climate, we must 
be careful to do no harm.
  Over the Memorial Day recess my subcommittee plans to hold a series 
of meetings in Hawaii on the Administration's proposal and this bill to 
hear remaining questions and concerns. I also plan to hold a hearing on 
these proposals in Honolulu on May 29, 2008. I continue to encourage 
employees in Alaska, Hawaii, and in the territories to write us with 
their questions and concerns on these proposals. My ultimate goal 
remains to ensure that Federal workers in the nonforeign areas are not 
disadvantaged when it comes to their pay and retirement.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 3013

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Non-Foreign Area Retirement 
     Equity Assurance Act of 2008 or the Non-Foreign AREA Act of 
     2008''.

     SEC. 2. EXTENSION OF LOCALITY PAY.

       (a) Locality-Based Comparability Payments.--Section 
     5304(f)(1) of title 5, United States Code, is amended by 
     striking subparagraph (A) and inserting the following:
       ``(A) each General Schedule position in the United States, 
     as defined under section

[[Page S4110]]

     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) Allowances Based on Living Costs and Conditions of 
     Environment.--Section 5941 of title 5, United States Code, is 
     amended--
       (1) in subsection (a), by adding after the last sentence 
     ``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 December 31, 2008, except as adjusted under 
     subsection (c).'';
       (2) by redesignating subsection (b) as subsection (d); and
       (3) by inserting after subsection (a) the following:
       ``(b) This section shall apply only to areas that are 
     designated as cost-of-living allowance areas as in effect on 
     December 31, 2008.
       ``(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, 2009; 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 2008.
       ``(2)(A) In this paragraph, the term `applicable locality-
     based comparability pay percentage' means, with respect to 
     calendar year 2009 and each calendar year thereafter, the 
     applicable percentage under section 4(1), (2), or (3) of Non-
     Foreign Area Retirement Equity Assurance Act of 2008.
       ``(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, 2008; 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).''.

     SEC. 3. ADJUSTMENT OF SPECIAL RATES.

       (a) In General.--Each special rate of pay established under 
     section 5305 of title 5, United States Code, and payable in 
     an area designated as a cost-of-living allowance area under 
     section 5941(a) of that title, shall be adjusted, on the 
     dates prescribed by section 4 of this Act, in accordance with 
     regulations prescribed by the Director of the Office of 
     Personnel Management under section 9 of this Act.
       (b) Department of Veterans Affairs.--Each special rate of 
     pay established under section 7455 of title 38, United States 
     Code, and payable in a location designated as a cost-of-
     living allowance area under section 5941(a)(1) of title 5, 
     United States Code, shall be adjusted in accordance with 
     regulations prescribed by the Secretary of Veterans Affairs 
     that are consistent with the regulations issued by the 
     Director of the Office of Personnel Management under 
     subsection (a).
       (c) Temporary Adjustment.--Regulations issued under 
     subsection (a) or (b) may provide that statutory limitations 
     on the amount of such special rates may be temporarily raised 
     to a higher level during the transition period described in 
     section 4 ending on the first day of the first pay period 
     beginning on or after January 1, 2011, at which time any 
     special rate of pay in excess of the applicable limitation 
     shall be converted to a retained rate under section 5363 of 
     title 5, United States Code.

     SEC. 4. TRANSITION SCHEDULE FOR LOCALITY-BASED COMPARABILITY 
                   PAYMENTS.

       Notwithstanding any other provision of this Act or section 
     5304 or 5304a of title 5, United States Code, in implementing 
     the amendments made by this Act, for each nonforeign area 
     determined under section 5941(b) of that title, the 
     applicable rate for the locality-based comparability 
     adjustment that is used in the computation required under 
     section 5941(c) of that title shall be adjusted effective on 
     the first day of the first pay period beginning on or after 
     January 1--
       (1) in calendar year 2009, by using \1/3\ of the locality 
     pay percentage for the rest of United States locality pay 
     area;
       (2) in calendar year 2010, by using \2/3\ of the otherwise 
     applicable comparability payment approved by the President 
     for each nonforeign area; and
       (3) in calendar year 2011 and each subsequent year, by 
     using the full amount of the applicable comparability payment 
     approved by the President for each nonforeign area.

     SEC. 5. SAVINGS PROVISION.

       (a) In General.--The application of this Act to any 
     employee may not result in the amount of the decrease in the 
     amount of pay attributable to special rate pay and the cost-
     of-living allowance as in effect on the date of enactment of 
     this Act exceeding the amount of the increase in the 
     locality-based comparability payments paid to that employee.
       (b) Sense of Congress.--It is the sense of Congress that 
     the application of this Act to any employee should not result 
     in a decrease in the take home pay of that employee.

     SEC. 6. APPLICATION TO OTHER ELIGIBLE EMPLOYEES.

       (a) In General.--
       (1) Definition.--In this subsection, the term ``covered 
     employee'' means--
       (A) any employee who--
       (i) on--

       (I) the day before the date of enactment of this Act--

       (aa) was eligible to be paid a cost-of-living allowance 
     under 5941 of title 5, United States Code; and
       (bb) was not eligible to be paid locality-based 
     comparability payments under 5304 or 5304a of that title; or

       (II) or after the date of enactment of this Act becomes 
     eligible to be paid a cost-of-living allowance under 5941 of 
     title 5, United States Code; and

       (ii) except as provided under paragraph (2), is not covered 
     under--

       (I) section 5941 of title 5, United States Code, (as 
     amended by section 2 of this Act); and
       (II) section 4 of this Act; or

       (B) any employee who--
       (i) on the day before the date of enactment of this Act--

       (I) was eligible to be paid an allowance under section 
     1603(b) of title 10, United States Code;
       (II) was eligible to be paid an allowance under section 
     1005(b) of title 39, United States Code; or
       (III) was employed by the Transportation Security 
     Administration of the Department of Homeland Security and was 
     eligible to be paid an allowance based on section 5941 of 
     title 5, United States Code; or

       (ii) on or after the date of enactment of this Act--

       (I) becomes eligible to be paid an allowance under section 
     1603(b) of title 10, United States Code;
       (II) becomes eligible to be paid an allowance under section 
     1005(b) of title 39, United States Code; or
       (III) is employed by the Transportation Security 
     Administration of the Department of Homeland Security and 
     becomes eligible to be paid an allowance based on section 
     5941 of title 5, United States Code.

       (2) Application to covered employees.--
       (A) In general.--Notwithstanding any provision of title 5, 
     United States Code, for purposes of this Act (including the 
     amendments made by this Act) any covered employee shall be 
     treated as an employee to whom section 5941 of title 5, 
     United States Code, (as amended by section 2 of this Act) and 
     section 4 of this Act apply.
       (B) Pay fixed by statute.--Pay to covered employees under 
     section 5304 or 5304a of title 5, United States Code, as a 
     result of the application of this Act shall be considered to 
     be fixed by statute.
       (C) Performance appraisal system.--With respect to a 
     covered employee who is subject to a performance appraisal 
     system no part of pay attributable to locality-based 
     comparability payments as a result of the application of this 
     Act including section 5941 of title 5, United States Code, 
     (as amended by section 2 of this Act) may be reduced on the 
     basis of the performance of that employee.
       (b) Postal Service Employees in Nonforeign Areas.--Section 
     1005(b) of title 39, United States Code, is amended by 
     inserting ``and the Non-Foreign Area Retirement Equity 
     Assurance Act of 2008'' after ``Section 5941 of title 5''.

     SEC. 7. ELECTION OF ADDITIONAL BASIC PAY FOR ANNUITY 
                   COMPUTATION BY EMPLOYEES.

       (a) Definition.--In this section the term ``covered 
     employee'' means any employee--
       (1) to whom section 4 applies;
       (2) who is separated from service by reason of retirement 
     under chapter 83 or 84 of title 5, United States Code, during 
     the period of January 1, 2009 through December 31, 2011; and
       (3) who files and election with the Office of Personnel 
     Management under subsection (b).
       (b) Election.--
       (1) In general.--An employee described under subsection 
     (a)(1) and (2) may file an election with the Office of 
     Personnel Management to be covered under this section.
       (2) Deadline.--An election under this subsection may be 
     filed not later than December 31, 2011.
       (c) Computation of Annuity.--For purposes of the 
     computation of an annuity of a covered employee any cost-of-
     living allowance under section 5941 of title 5, United States 
     Code, paid to that employee during the first applicable pay 
     period beginning on or after January 1, 2009 through the 
     first applicable pay period ending on or after December 31, 
     2011, shall be considered basic pay as defined under section 
     8331(3) or 8401(4) of that title.
       (d) Civil Service Retirement and Disability Retirement 
     Fund.--
       (1) Employee contributions.--A covered employee shall pay 
     into the Civil Service Retirement and Disability Retirement 
     Fund--
       (A) an amount equal to the difference between--
       (i) employee contributions that would have been deducted 
     and withheld from pay under section 8334 or 8422 of title 5, 
     United States Code, during the period described under 
     subsection (c) of this section if that subsection had been in 
     effect during that period; and
       (ii) employee contributions that were actually deducted and 
     withheld from pay under

[[Page S4111]]

     section 8334 or 8422 of title 5, United States Code, during 
     that period; and
       (B) interest as prescribed under section 8334(e) of title 
     5, United States Code, based on the amount determined under 
     subparagraph (A).
       (2) Agency contributions.--
       (A) In general.--The employing agency of a covered employee 
     shall pay into the Civil Service Retirement and Disability 
     Retirement Fund an amount for applicable agency contributions 
     based on payments made under paragraph (1).
       (B) Source.--Amounts paid under this paragraph shall be 
     contributed from the appropriation or fund used to pay the 
     employee.
       (3) Regulations.--The Office of Personnel Management may 
     prescribe regulations to carry out this section.

     SEC. 8. ELECTION OF COVERAGE BY EMPLOYEES.

       (a) In General.--Notwithstanding any other provision of 
     this Act, an employee may make an irrevocable election in 
     accordance with this section, if--
       (1) that employee is paid an allowance under section 5491 
     of title 5, United States Code, during a pay period in which 
     the date of the enactment of this Act occurs; or
       (2) that employee--
       (A) is a covered employee as defined under section 6(a)(1); 
     and
       (B) during a pay period in which the date of the enactment 
     of this Act occurs is paid an allowance--
       (i) under section 1603(b) of title 10, United States Code;
       (ii) under section 1005(b) of title 39, United States Code; 
     or
       (iii) based on section 5941 of title 5, United States Code.
       (b) Filing Election.--Not later than 60 days after the date 
     of enactment of this Act, an employee described under 
     subsection (a) may file an election with the Office of 
     Personnel Management to be treated for all purposes--
       (1) in accordance with the provisions of this Act 
     (including the amendments made by this Act); or
       (2) as if the provisions of this Act (including the 
     amendments made by this Act) had not been enacted, except 
     that the cost-of-living allowance rate paid to that employee 
     shall be the cost-of-living allowance rate in effect on 
     December 31, 2008 for that employee without any adjustment 
     after that date.
       (c) Failure to File.--Failure to make a timely election 
     under this section shall be treated in the same manner as an 
     election made under subsection (b)(1) on the last day 
     authorized under that subsection.
       (d) Notice.--To the greatest extent practicable, the Office 
     of Personnel Management shall provide timely notice of the 
     election which may be filed under this section to employees 
     described under subsection (a).

     SEC. 9. REGULATIONS.

       (a) In General.--The Director of the Office of Personnel 
     Management shall prescribe regulations to carry out this Act, 
     including--
       (1) rules for special rate employees described under 
     section 3;
       (2) rules for adjusting rates of basic pay for employees in 
     pay systems administered by the Office of Personnel 
     Management when such employees are not entitled to locality-
     based comparability payments under section 5304 of title 5, 
     United States Code, without regard to otherwise applicable 
     statutory pay limitations during the transition period 
     described in section 4 ending on the first day of the first 
     pay period beginning on or after January 1, 2011; and
       (3) rules governing establishment and adjustment of saved 
     or retained rates for any employee whose rate of pay exceeds 
     applicable pay limitations on the first day of the first pay 
     period beginning on or after January 1, 2011.
       (b) Other Pay Systems.--With the concurrence of the 
     Director of the Office of Personnel Management, the 
     administrator of a pay system not administered by the Office 
     of Personnel Management shall prescribe regulations to carry 
     out this Act with respect to employees in such pay system, 
     consistent with the regulations issued by the Office under 
     subsection (a).

     SEC. 10. EFFECTIVE DATES.

       (a) In General.--Except as provided by subsection (b), this 
     Act (including the amendments made by this Act) shall take 
     effect on the date of enactment of this Act.
       (b) Locality Pay and Schedule.--The amendments made by 
     section 2 and the provisions of section 4 shall take effect 
     on the first day of the first applicable pay period beginning 
     on or after January 1, 2009.

  Mr. STEVENS. Mr. President, I join my friend from Hawaii in 
introducing the Non-foreign Area Retirement Equity Act. I thank Senator 
Akaka for his hard work on this important legislation that finally 
brings retirement equity to the thousands of Federal employees in 
Alaska and Hawaii.
  Alaska and Hawaii are the only States in which Federal employees do 
not receive locality pay. Instead, they receive what is called a 
nonforeign cost of living allowance, or COLA. COLA was put in place in 
1949, before Alaska and Hawaii were States. It is based on the cost of 
living in an area compared to the cost of living in Washington, DC. 
COLA was not available to employees in the lower 48 States.
  When locality pay was established to benefit Federal employees in the 
lower 48, Alaska and Hawaii were not included because they were already 
under the COLA system. Locality pay brings Federal salaries closer to 
private industry salaries in an area.
  The key difference between these two systems is how it affects a 
Federal employee's retirement. As you know, a Federal employee's 
retirement is based on their ``high 3'' years of service, usually the 
final 3 years of their base pay salary.
  COLA is nontaxable income that cannot exceed 25 percent of the base 
pay. It is currently being reduced in Alaska and Hawaii by 1 percent 
each year. Because COLA is not taxed, it is not considered as part of 
an employee's base pay for retirement purposes. This means an employee 
in Alaska retires with a much lower ``high 3'' than an equivalent 
position in the lower 48.
  Locality pay is taxable income, but is also considered part of an 
employee's base pay for retirement purposes. This makes a big 
difference in the amount of retirement benefits an employee receives.
  Alaska has one of the highest costs of living in the Nation. Our 
Federal employees need to know they can continue to afford living in 
the State they call home on the money they receive in their retirement 
benefits. Many Alaskan Federal employees nearing retirement relocate to 
the lower 48 in order to receive locality pay for their ``high 3.'' 
This puts my State at a disadvantage because we are losing highly 
skilled, seasoned employees.

  This is an inequitable and outdated system. It is time to bring 
retirement equity to all States. The bill Senator Akaka and I introduce 
today with Senators Inouye and Murkowski will do just that. Simply put, 
this bill will convert Federal employees in our States from the COLA 
system to the locality pay system. This conversion will not only 
benefit the Federal employees in these States, it will also save the 
Government money.
  The COLA system requires that a survey be conducted every 3 years to 
determine an area's COLA. Our bill would eliminate these expensive and 
time consuming surveys. By changing to a locality pay system, employees 
will pay taxes on income they now receive tax free. Federal employees 
in Alaska and Hawaii have filed lawsuits to fight the inequity of the 
COLA system. With this change, the Government will not have to spend 
time and resources defending against this litigation.
  The Office of Personnel Management supports replacing COLA with 
locality pay for all of these reasons.
  This bill addresses several employee groups with unique 
circumstances, including postal employees. I am confident we can work 
closely with the U.S. Postal Service and the postal employee unions to 
ensure that postal employees in Alaska and Hawaii are protected.
  Senator Akaka and I hope that all groups affected by this change will 
contact us so that we can ensure this bill takes everyone's concerns 
into consideration. Senator Akaka will be holding a hearing on this 
issue in Hawaii this month. Feedback from that hearing will be vital to 
improving our bill.
  It is important we pass this bill before the end of this Congress to 
bring equality in retirement to all of our Federal employees. I urge 
Senators to support this bill.
                                 ______