[Federal Register Volume 76, Number 147 (Monday, August 1, 2011)]
[Proposed Rules]
[Pages 45710-45713]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-19361]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 76, No. 147 / Monday, August 1, 2011 / 
Proposed Rules  

[[Page 45710]]



OFFICE OF PERSONNEL MANAGEMENT

5 CFR Parts 530, 531, and 536

RIN 3206-AM43


Pay in Nonforeign Areas

AGENCY: U.S. Office of Personnel Management.

ACTION: Proposed rule with request for comments.

-----------------------------------------------------------------------

SUMMARY: The U.S. Office of Personnel Management (OPM) proposes to 
revise certain pay administration rules dealing with employees in 
nonforeign areas outside the 48 contiguous States. The proposed 
regulations would allow consideration of locality pay and nonforeign 
area cost-of-living allowances (COLAs) in evaluating the need for 
special rates, special rate supplements to be computed using an 
alternate method in nonforeign areas, locality rates to be considered 
basic pay for the purpose of computing nonforeign area COLAs and post 
differentials, a retained rate established based on a special rate 
payable in a nonforeign area that is in excess of the applicable 
limitation on special rates on January 1, 2012, to exceed the rate 
payable for level IV of the Executive Schedule, and temporary and term 
employees in nonforeign areas to be eligible for a retained rate in 
certain circumstances.

DATES: Comments must be received on or before September 15, 2011.

ADDRESSES: You may submit comments, identified by RIN number ``3206-,'' 
using either of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    Mail: Jerome D. Mikowicz, Deputy Associate Director, Pay and Leave, 
Employee Services, U.S. Office of Personnel Management, Room 7H31, 1900 
E Street, NW., Washington, DC 20415-8200.

FOR FURTHER INFORMATION CONTACT: Carey Jones by telephone at (202) 606-
2858; by fax at (202) 606-0824; or by e-mail at [email protected].

SUPPLEMENTARY INFORMATION: The U.S. Office of Personnel Management 
(OPM) is issuing proposed regulations to revise certain pay 
administration rules for employees in ``nonforeign areas,'' which 
include Alaska, Hawaii, Guam, Puerto Rico, the Virgin Islands, and 
certain other areas listed in 5 CFR 591.205. Some of the proposed 
revisions are necessary to address the effects of implementing the Non-
Foreign Area Retirement Equity Assurance Act of 2009 (NAREAA), as 
contained in subtitle B of title XIX of the National Defense 
Authorization Act for Fiscal Year 2010 (Pub. L. 111-84, October 28, 
2009).

NAREAA Provisions Affecting Locality Rates, Special Rates, and Retained 
Rates

    NAREAA provided for entitlement to locality pay in the nonforeign 
areas while phasing out nonforeign area cost-of-living allowances 
(COLAs) authorized under 5 U.S.C. 5941(a)(1). Under section 1914 of 
Public Law 111-84, locality pay is phased in during a transition period 
beginning on the first day of the first pay period in January 2010 and 
ending on the first day of the first pay period in January 2012, 
hereafter referred to as the ``transition period.'' As locality pay 
increases, payable COLA rates must be reduced as specified in section 
1912(b) of NAREAA. (See also 5 U.S.C. 5941(c), as amended by section 
1912(b).) NAREAA also amended 5 U.S.C. 5941 to provide that a 
nonforeign area COLA must be paid as a percentage of basic pay, 
including any applicable locality-based comparability payment. (See 5 
U.S.C. 5941(c)(4), as amended by NAREAA.)
    Under section 1915(b)(1) of NAREAA, when locality pay for a 
nonforeign area is increased during the transition period, the increase 
in the minimum rate (step 1) of any grade of a special rate schedule 
under 5 U.S.C. 5305 must be increased by no less than the dollar 
increase in the locality payment for a non-special rate employee at the 
same grade and step and in the same location. Corresponding increases 
must be provided for all special rates at higher steps in the pay range 
for the given grade.
    OPM determined a methodology for increasing special rates for 
General Schedule (GS) employees in nonforeign areas in conjunction with 
locality pay increases during the transition period that complies with 
the minimum requirements in section 1915(b)(1). OPM explained this 
methodology in a memorandum (CPM 2009-27) issued on December 30, 2009. 
(See http://www.opm.gov/oca/compmemo/INDEX.asp.) OPM calculates the 
dollar value of any locality pay increase for a non-special rate 
employee at each step rate and adds that dollar amount--referred to as 
an ``additional adjustment''--to the corresponding special rate that 
would apply but for this additional adjustment. This additional 
adjustment is equal to a constant percentage of the employee's GS base 
rate based on the applicable locality payment. For example, in 2010, 
when locality pay in all the nonforeign areas was set at 4.72 percent 
(one-third of the full 2010 ``Rest of U.S.'' locality rate of 14.16 
percent), the special rate ``additional adjustment'' in all nonforeign 
areas equaled 4.72 percent of the applicable GS base rate.
    As provided in section 1913(c) of NAREAA, OPM has temporarily 
raised the limitations on the amount of special rates to a higher level 
during the transition period ending on the first day of the first pay 
period beginning on or after January 1, 2012. In other words, during 
the transition period, an additional adjustment made under section 
1915(b) would not be limited by the normally applicable Executive 
Schedule level IV (EX-IV) cap on special rates ($155,500 in 2011), as 
established under 5 U.S.C. 5305(a)(1). However, NAREAA section 1913(c) 
required that any special rate in excess of the EX-IV cap at the end of 
the transition period must be converted to a retained rate under 5 
U.S.C. 5363. Such a converted retained rate would be in excess of the 
current EX-IV cap on retained rates found in 5 CFR 536.304(b)(3) and 
536.306(a).
    Some employees in nonforeign areas were entitled to retained rates 
during the transition period for reasons unrelated to NAREAA. On 
December 27, 2010, OPM issued a memorandum (CPM 2010-23) that provided 
special rules for adjusting retained rates under 5 U.S.C. 5363 for 
employees in nonforeign areas receiving COLAs during the transition 
period. These special rules were

[[Page 45711]]

authorized by NAREAA section 1918(a)(2).

Proposed Changes in Special Rate and Locality Rate Regulations

    Normally, OPM computes a special rate supplement by adding a fixed-
dollar amount or fixed percentage of the applicable GS base rate to all 
GS base rates within a rate range for a category of employees. However, 
adding an additional adjustment in nonforeign areas (as a result of 
NAREAA section 1915(b)(1)) provides a third way to compute special rate 
supplements by allowing a combination of a fixed-dollar supplement and 
a percentage-based additional adjustment. OPM proposes revising 5 CFR 
530.304(c) to recognize the possibility of an alternate method for 
computing special rate supplements in nonforeign areas for special rate 
schedules established before January 1, 2012.
    The regulations in 5 CFR 530.304(b) provide the circumstances OPM 
considers in evaluating the need for special rates. OPM proposes adding 
locality pay for the area involved and a nonforeign area COLA for the 
area involved as other circumstances for OPM to consider. OPM currently 
has the ability to consider ``any other circumstances OPM considers 
appropriate'' under 5 CFR 530.304(b)(4). However, specifically listing 
locality pay and nonforeign area COLA will make it explicit that these 
additional circumstances are appropriate for OPM to consider in 
evaluating the need for special rates. For similar reasons, we are 
proposing to amend 5 CFR 530.306(a) to add locality pay and COLA as 
factors that may be considered in evaluating a special rate proposal 
and in determining the level of special rates, as provided under 5 CFR 
530.306(b)(1).
    The regulations in 5 CFR 530.304 govern the establishment of a 
special rate schedule covering a category of employees in one or more 
areas or locations, grades or levels, occupational groups, series, 
classes, or subdivisions thereof. Certain provisions in NAREAA required 
increases in special rate schedules to levels beyond what may be 
justified to prevent significant recruitment or retention difficulties. 
Accordingly, OPM may consider reducing special rate schedules in 
nonforeign areas. Under these circumstances, and in light of the 
special regulatory authority provided in NAREAA section 1918(a)(1), we 
are proposing to add a new paragraph (e) in Sec.  530.304, which would 
authorize OPM to establish a separate special rate schedule that 
temporarily maintains the higher special rates for current employees in 
a covered category--i.e., those covered by the given special rate 
schedule before the effective date of the schedule reduction. Employees 
in that same category who become employed in a nonforeign area after 
the effective date would be covered by the reduced special rate 
schedule. In other words, future hires would be covered by a lower 
special rate schedule established consistent with labor market 
conditions and other provisions of 5 U.S.C. 5305, while current 
employees would have ``grandfather'' coverage under a higher special 
rate schedule that would provide pay protection, but would be phased 
out over time.
    The regulations in 5 CFR 530.308 list the purposes for which a 
special rate is considered a rate of basic pay. Section 530.308 
specifically states that special rates are considered basic pay for the 
purpose of computing nonforeign area COLAs and post differentials. 
Section 530.308 also states that special rates are considered basic pay 
for the same purposes that locality pay is considered basic pay, as 
provided in 5 CFR 531.610. Currently, Sec.  531.610 is silent regarding 
the treatment of locality pay as part of basic pay in computing 
nonforeign area COLAs, since, at the time the regulation was issued, 
locality pay was not payable in nonforeign areas or to any employee 
receiving a COLA. Section 531.610(g) does provide that a locality rate 
is considered a rate of basic pay for computing nonforeign area post 
differentials, but mentions only the scenario in which an employee is 
temporarily working in a nonforeign area when the employee's official 
worksite is located in a locality pay area because, at the time the 
regulation was issued, this was the only scenario in which locality pay 
was payable to an employee receiving a nonforeign area post 
differential. However, locality pay now applies to employees whose 
official worksites are located in a nonforeign area, and NAREAA 
specifically provided that nonforeign area COLA must be paid as a 
percentage of basic pay, including any applicable locality-based 
comparability payment. (See 5 U.S.C. 5941(c)(4) as amended by NAREAA.) 
Based on that law change, OPM is proposing to revise Sec.  531.610 to 
reflect the fact that a locality rate must be used in computing 
nonforeign area COLAs. In addition, based on the original intent of the 
Sec.  531.610(g) regulation and in light of the change in law to 
provide locality pay in nonforeign areas, OPM is proposing to revise 
Sec.  531.610 to clarify that a locality rate is considered a rate of 
basic pay for the purpose of computing nonforeign area post 
differentials without any qualification. OPM is also proposing to make 
conforming changes in Sec.  530.308. Using locality rates to compute 
nonforeign area post differentials is consistent with using locality 
rates to compute nonforeign area COLAs, which is required by law. It is 
also consistent with use of special rates in computing nonforeign area 
post differentials, and consistency in treatment of locality rates and 
special rates is a key objective underlying a number of OPM pay 
administration regulations.

Proposed Changes in Pay Retention Regulations

    Under current pay retention regulations--specifically, 5 CFR 
536.304(b)(3) and 536.306(a)--a retained rate is capped at EX-IV. 
However, as explained above, NAREAA allows for a special rate above EX-
IV to be converted to an equal retained rate at the end of the 
transition period. Also, under NAREAA section 1918(a)(3), the Director 
of OPM is authorized to prescribe rules governing the establishment and 
adjustment of retained rates for any employee whose rate of pay exceeds 
applicable pay limitations beginning on the first day of the first pay 
period in January 2012. Accordingly, OPM is proposing to revise its pay 
retention regulations to allow a retained rate established based on a 
special rate payable in a nonforeign area that was in excess of the 
applicable limitation on special rates on January 1, 2012, to exceed 
the EX-IV limitation until the retained rate becomes equal to or falls 
below the EX-IV limitation.
    Under current pay retention law and regulations, an employee is not 
eligible for pay retention if he or she was employed on a temporary or 
term basis immediately before the action causing a reduction in pay. 
(See 5 U.S.C. 5361(1) and 5 CFR 536.102(b)(2).) OPM is proposing to 
revise its pay retention regulations to allow an exception to this bar 
on eligibility in the case of a temporary or term employee in a 
nonforeign area who is receiving a special rate in excess of EX-IV at 
the end of the transition period. This proposal is consistent with 
NARREA section 1913(c), which requires that ``any special rate'' in 
excess of the applicable pay limitation be converted to a retained 
rate. Furthermore, NAREAA section 1918(a)(3) allows OPM to prescribe 
rules governing the establishment of retained rates for ``any 
employee'' whose rate of pay exceeds applicable pay limitations at the 
end of the transition period. In addition, OPM is authorized to extend 
pay retention

[[Page 45712]]

provisions to individuals not otherwise eligible under 5 U.S.C. 
5365(b)(2).
    OPM is also proposing to revise its pay retention regulations to 
include an additional exception allowing pay retention for a temporary 
or term employee who is receiving a special rate incorporating an 
``additional adjustment'' under NAREAA section 1915(b)(1) in the event 
the employee's special rate schedule is reduced or terminated in the 
future. NAREAA section 1918(a)(1) authorizes OPM to prescribe rules for 
special rate employees described in NAREAA section 1913. Also, as 
already noted above, OPM is authorized to extend pay retention 
provisions to individuals not otherwise eligible under 5 U.S.C. 
5365(b)(2).
    The above-described changes in the pay retention regulations will 
be made in a proposed new Sec.  536.310. That section will be removed 
once all affected employees have a retained rate at or below EX-IV or 
have lost entitlement to pay retention under 5 CFR 536.308.
    OPM is not proposing to continue special retained rate adjustment 
rules described in CPM 2010-23 after the transition period. Those 
special adjustment rules were needed while locality pay was being 
increased by significant amounts (1/3rd phase-in in January 2010, 2/3rd 
phase-in in January 2011, and full phase-in in January 2012), resulting 
in corresponding large reductions in COLA payments. OPM believes a 
continuing exception to the statutory retained rate adjustment rule 
would not be appropriate. The NAREAA section 1918(a)(2) authority under 
which OPM established the special retained rate adjustment rules 
applies only during the transition period. After the transition period, 
agencies must use the retained rate adjustment rules in 5 U.S.C. 
5363(b)(2)(B) and 5 CFR 536.305 to adjust an employee's retained rate, 
including a retained rate that is above EX-IV, when a pay schedule is 
adjusted.

Waiver of 60-Day Comment Period for Proposed Rulemaking

    Pursuant to 5 U.S.C. 553(b)(3)(B), I find that good cause exists to 
waive the 60-day comment period for general notice of proposed 
rulemaking. Limiting the comment period for the proposed regulations to 
45 days will enable OPM to issue final regulations by the time the 
transition period under NAREAA ends, which will ensure appropriate 
treatment of nonforeign area employees following the transition period 
and avoid administrative difficulties. Because of the reduced period 
for public comment, OPM will ensure that agency human resources 
officials, management groups, employee organizations representing 
Federal workers in the nonforeign areas, and congressional offices, are 
notified promptly once these regulations are published for public 
comment.
    Issuance of final regulations before the end of the NAREAA 
transition period is necessary to ensure that certain employees will 
not experience reductions in pay when the transition period ends on 
January 1, 2012. For example, employees in nonforeign areas who are 
receiving special rates above level IV of the Executive Schedule (EX-
IV) prior to January 1, 2012, must be converted to a retained rate 
under 5 U.S.C. 5363 on January 1, 2012, under NAREAA section 1913(c). 
Under current regulations implementing section 5363, retained rates are 
capped at EX-IV. However, NAREAA section 1918(a)(3) allows OPM to issue 
regulations under which normal retained rate limitations could be 
exceeded, and that is what these proposed regulations would do--thus, 
preventing a possible loss in pay. Similarly, regulation changes are 
necessary to allow certain temporary or time-limited appointees in 
nonforeign areas to receive a retained rate and avoid a reduction in 
pay.

Executive Order 13563 and Executive Order 12866

    The Office of Management and Budget has reviewed this rule in 
accordance with E.O. 13563 and E.O. 12866.

Regulatory Flexibility Act

    I certify that these regulations will not have a significant 
economic impact on a substantial number of small entities because they 
will apply only to Federal agencies and employees.

List of Subjects in 5 CFR Parts 530, 531 and 536

    Administrative practice and procedure, Freedom of information, 
Government employees, Law enforcement officers, Reporting and 
recordkeeping requirements, Wages.

U.S. Office of Personnel Management.
John Berry,
Director.

    Accordingly, OPM is proposing to amend 5 CFR parts 530, 531, and 
536 as follows:

PART 530--PAY RATES AND SYSTEMS (GENERAL)

    1. Revise the authority citation for part 530 to read as follows:

    Authority:  5 U.S.C. 5305 and 5307; subpart C also issued under 
5 U.S.C. 5338, sec. 4 of the Performance Management and Recognition 
System Termination Act of 1993 (Pub. L. 103-89), 107 Stat. 981, and 
sec. 1918 of Public Law 111-84, 123 Stat. 2619.

Subpart C--Special Rate Schedules for Recruitment and Retention

    2. In Sec.  530.304--
    a. Remove ``or'' at the end of paragraph (b)(3);
    b. Redesignate paragraph (b)(4) as (b)(6);
    c. Add new paragraphs (b)(4) and (b)(5);
    d. Revise paragraph (c); and
    e. Add a new paragraph (e).
    The revisions and additions read as follows:


Sec.  530.304  Establishing or increasing special rates.

* * * * *
    (b) * * *
    (4) Locality pay authorized under 5 U.S.C. 5304 for the area 
involved;
    (5) A nonforeign area cost-of-living allowance authorized under 5 
U.S.C. 5941(a)(1) for the area involved; or
* * * * *
    (c) In setting the level of special rates within a rate range for a 
category of employees, OPM will compute the special rate supplement by 
adding a fixed dollar amount or a fixed percentage to all GS rates 
within that range, except that an alternate method may be used--
    (1) For grades GS-1 and GS-2, where within-grade increases vary 
throughout the range; and
    (2) In the nonforeign areas listed in 5 CFR 591.205 for special 
rate schedules established before January 1, 2012.
* * * * *
    (e) Using its authority in section 1918(a)(1) of the Non-Foreign 
Area Retirement Equity Assurance Act of 2009 in combination with its 
authority under 5 U.S.C. 5305, OPM may establish a separate special 
rate schedule for a category of employees who are in GS positions 
covered by a nonforeign area special rate schedule in effect on January 
1, 2012, and who are employed in a nonforeign area before an OPM-
specified effective date. Such a separate schedule may be established 
if the existing special rate schedule is being reduced. An employee's 
coverage under the separate special rate schedule is contingent on the 
employee being continuously employed in a covered GS position in the 
nonforeign area after the OPM-specified effective date. Such a separate 
special rate schedule must be designed to provide temporary pay 
protection and be phased out over time until all affected employees are 
covered under the pay schedule that would otherwise apply to the 
category of employees in question.

[[Page 45713]]

    3. In Sec.  530.306--
    a. Remove ``and'' at the end of paragraph (a)(8);
    b. Remove the period at the end of paragraph (a)(9) and add ``; 
or'' in its place; and
    c. Add a new paragraph (a)(10) to read as follows:


Sec.  530.306  Evaluating agency requests for new or increased special 
rates.

    (a) * * *
    (10) The level of any locality pay authorized under 5 U.S.C. 5304 
and any nonforeign area cost-of-living allowance authorized under 5 
U.S.C. 5941(a)(1) for the area involved.
* * * * *
    4. In Sec.  530.308--
    a. Revise paragraph (a);
    b. Remove paragraph (b); and
    c. Redesignate paragraphs (c) and (d) as (b) and (c), respectively.
    The revision reads as follows:


Sec.  530.308  Treatment of special rate as basic pay.

* * * * *
    (a) The purposes for which a locality rate is considered to be a 
rate of basic pay in computing other payments or benefits to the extent 
provided by 5 CFR 531.610, except as otherwise provided in paragraphs 
(b) and (c) of this section;
* * * * *

PART 531--PAY UNDER THE GENERAL SCHEDULE

    5. Revise the authority citation for part 531 to read as follows:

    Authority: 5 U.S.C. 5115, 5307, and 5338; sec. 4 of Public Law 
103-89, 107 Stat. 981; and E.O. 12748, 56 FR 4521, 3 CFR, 1991 
Comp., p. 316; Subpart B also issued under 5 U.S.C. 5303(g), 5305, 
5333, 5334(a) and (b), and 7701(b)(2); Subpart D also issued under 5 
U.S.C. 5335 and 7701(b)(2); Subpart E also issued under 5 U.S.C. 
5336; Subpart F also issued under 5 U.S.C. 5304, 5305, and 5941(a); 
E.O. 12883, 58 FR 63281, 3 CFR, 1993 Comp., p. 682; and E.O. 13106, 
63 FR 68151, 3 CFR, 1998 Comp., p. 224.

Subpart F--Locality-Based Comparability Payment

    6. In Sec.  531.610, revise paragraph (g) to read as follows:


Sec.  531.610  Treatment of locality rate as basic pay.

* * * * *
    (g) Nonforeign area cost-of-living allowances and post 
differentials under 5 U.S.C. 5941 and 5 CFR part 591, subpart B;
* * * * *

PART 536--GRADE AND PAY RETENTION

    7. Revise the authority citation for part 536 to read as follows:

    Authority: 5 U.S.C. 5361-5366; sec. 4 of the Performance 
Management and Recognition System Termination Act of 1993 (Pub. L. 
103-89), 107 Stat. 981; Sec.  536.301(b) also issued under 5 U.S.C. 
5334(b); Sec.  536.308 also issued under sec. 301(d)(2) of the 
Federal Workforce Flexibility Act of 2004 (Pub. L. 108-411), 118 
Stat. 2305; Sec.  536.310 also issued under sections 1913 and 1918 
of the Non-Foreign Area Retirement Equity Assurance Act of 2009 
(subtitle B of title XIX of Pub. L. 111-84), 123 Stat. 2619; Sec.  
536.405 also issued under 5 U.S.C. 552, Freedom of Information Act, 
Public Law 92-502.

Subpart C--Pay Retention

    8. Add a new Sec.  536.310 to read as follows:


Sec.  536.310  Exceptions for certain employees in nonforeign areas.

    (a) Notwithstanding Sec. Sec.  536.304(b)(3) and 536.306(a), an 
employee may receive a retained rate higher than Executive Schedule 
level IV if such employee is receiving a special rate in excess of 
Executive Schedule level IV on January 1, 2012, that is converted to a 
retained rate, consistent with section 1913 of the Non-Foreign 
Retirement Equity Assurance Act of 2009 (subtitle B of title XIX of 
Pub. L. 111-84). This paragraph ceases to apply when the retained rate 
becomes equal to or falls below Executive Schedule level IV or when the 
employee ceases to be entitled to pay retention under Sec.  536.308.
    (b) Notwithstanding 5 U.S.C. 5361(1) and Sec.  536.102(b)(2), an 
employee who is employed on a temporary or term basis is not barred 
from receiving a retained rate if such employee--
    (1) Is receiving a special rate above Executive Schedule level IV 
on January 1, 2012, and is covered by paragraph (a) of this section; or
    (2) Is receiving a special rate incorporating an additional 
adjustment under section 1915(b)(1) of the Non-Foreign Retirement 
Equity Assurance Act (subtitle B of title XIX of Pub. L. 111-84) at the 
time the employee's special rate schedule is reduced or terminated.

[FR Doc. 2011-19361 Filed 7-29-11; 8:45 am]
BILLING CODE 6325-39-P