[Federal Register Volume 76, Number 215 (Monday, November 7, 2011)]
[Rules and Regulations]
[Pages 68631-68634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-28742]



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  Federal Register / Vol. 76, No. 215 / Monday, November 7, 2011 / 
Rules and Regulations  

[[Page 68631]]



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: Final rule.

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

SUMMARY: The U.S. Office of Personnel Management (OPM) is issuing final 
regulations on certain pay administration rules dealing with employees 
in nonforeign areas outside the 48 contiguous States. We are revising 
provisions related to special rates, locality rates, and retained 
rates. Some of the revisions are necessary to address the effects of 
implementing the Non-Foreign Area Retirement Equity Assurance Act of 
2009, while others are to improve the administration of special rates.

DATES: Effective Date: December 7, 2011.

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

SUPPLEMENTARY INFORMATION: On August 1, 2011, the U.S. Office of 
Personnel Management (OPM) published proposed regulations (76 FR 45710) 
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 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), while others are to improve the administration of special 
rates.
    The 45-day comment period ended on September 15, 2011. During the 
comment period, we received comments from three Senators, one agency, 
and six individuals. This supplementary information addresses the 
comments we received. The agency concurred with OPM's proposed changes 
as written.

Special Rates

    In the supplementary information accompanying the proposed 
regulations, we stated that certain provisions of NAREAA required 
additional increases in special rate schedules to levels beyond what 
may be justified to prevent significant recruitment or retention 
difficulties. We stated that, accordingly, OPM may consider reducing 
special rate schedules in nonforeign areas. We proposed to provide OPM 
with discretionary authority to establish a separate special rate 
schedule that temporarily maintains the higher special rates for 
current employees covered by a given special rate schedule before the 
effective date of the schedule reduction. This means that future hires 
would be covered by a lower special rate schedule established 
consistent with labor market conditions 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 Senators and one individual were concerned about the proposal. 
Specifically, the individual does not want OPM to phase out any special 
rates. The Senators were concerned that OPM has decided to eliminate 
additional adjustments for special rate employees and by the suggestion 
that the adjusted rates may be higher than justified without supporting 
analysis. The Senators were also concerned that the proposal could lead 
to losses in take-home pay if cost-of-living allowance (COLA) 
reductions are not adequately considered and the phase-out is done too 
quickly. (As locality pay increases, payable COLA rates must be reduced 
as specified in section 1912(b) of NAREAA. As a consequence, covered 
employees may receive both locality pay and a reduced COLA for a number 
of years, until the applicable COLA rate is reduced to zero.) They 
stated that pay reductions could impair agencies' recruitment and 
retention efforts and recommended that any decreases in special rates 
be done gradually in order to protect pay.
    During the January 2010-January 2012 transition period, additional 
adjustments are being added to the original special rates to compensate 
for COLA reductions, as required by NAREAA. The original special rates 
without the NAREAA additional adjustments were set at levels necessary 
to address recruitment and/or retention difficulties. We note that most 
of the special rate schedules established in nonforeign areas were 
derived from nationwide or worldwide schedules for which the special 
rates were set without consideration of the fact that employees in the 
nonforeign areas would receive COLA on top of special rates. Thus, the 
total pay rates may have been beyond what was necessary to prevent 
significant recruitment or retention problems in the nonforeign areas. 
Accordingly, as part of the annual review of special rates, we have 
asked agencies to conduct reviews to determine whether they need the 
special rates set at a level above the original special rates, taking 
into consideration the remaining COLA that will be paid on top of the 
special rates. See CPM 2011-11, issued July 8, 2011, at http://www.chcoc.gov/Transmittals/TransmittalDetails.aspx?TransmittalID=3995. 
An agency finding that reducing a special rate schedule would cause 
significant recruitment or retention problems would merit special 
consideration by OPM and may result in no schedule reduction.
    OPM has not yet determined how it will adjust special rates for 
employees in nonforeign areas after January 1, 2012, because we are 
waiting for agencies to complete their reviews of special rates that 
apply to their employees. OPM will announce its decisions resulting 
from the annual review of special rates in a memorandum that is 
typically issued in December. Under 5 U.S.C. 1103(b)(4), the Director 
of OPM is not required to publish in the Federal Register a notice of 
the establishment or adjustment of any schedules or rates of basic pay 
or allowances under subpart D of part III of title 5.
    OPM is adopting as final the proposed change providing the 
discretionary authority to establish a separate special rate schedule 
that temporarily maintains

[[Page 68632]]

the higher special rates for employees covered by the given special 
rate schedule before the effective date of the schedule reduction. This 
is an authority OPM may or may not exercise based on agency input and 
the circumstances and factors OPM considers in evaluating the need for 
special rates in 5 CFR 530.304(b) and 530.306.
    OPM is also adopting the proposal to add locality pay and 
nonforeign COLA as circumstances and factors OPM may consider in 
evaluating the need for special rates. This means that OPM can take 
into account any COLA reductions or locality pay increases as it is 
determining how to adjust special rate schedules in nonforeign areas.

Locality Rates

    Another individual requested that OPM's regulations provide 
locality pay for employees in foreign areas. OPM does not have the 
authority to provide locality pay for employees in foreign areas 
because 5 U.S.C. 5304(f) does not cover foreign areas.

Retained Rates

    A third individual was concerned that there is no provision in 
NAREAA allowing non-appropriated fund (NAF) employees covered by NAREAA 
to receive a rate exceeding the maximum of the NAF pay band. The 
individual asked OPM to address NAF pay issues in the regulations.
    These regulations do not address NAF pay issues because OPM has the 
authority to regulate pay setting only for NAF employees who move to 
the General Schedule. We note that, under section 1918(b) of NAREAA, 
administrators of pay systems not administered by OPM must carry out 
the provisions of NAREAA consistent with OPM rules, subject to the 
concurrence of OPM. Thus, if there are nonforeign area employees in the 
NAF pay system who are covered by NAREAA and who are receiving a 
retained rate similar to a retained rate under 5 U.S.C. 5363, then the 
NAF pay system administrator should prescribe rules consistent with 
OPM's regulations on retained rates.
    On December 27, 2010, OPM issued a memorandum (CPM 2010-23) that 
provided a special (more generous) rule for adjusting retained rates 
under 5 U.S.C. 5363 for employees in nonforeign areas receiving COLAs 
during the January 2010-January 2012 transition period. Without the 
special rule, some retained rate employees may have experienced a 
reduction in gross pay during the transition period because the 
increase in pay resulting from a retained rate adjustment may have been 
less than the loss in pay resulting from the COLA reduction. OPM stated 
in the supplementary information accompanying the proposed regulations 
that OPM was not proposing to continue the special rule after the 
transition period. OPM explained that 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 rule applies only during the 
transition period, when locality pay is being increased by significant 
amounts and there are corresponding large reductions in COLA payments.
    The Senators and an individual recommended that OPM continue the 
special retained rate adjustment rule beyond the transition period. The 
Senators believed that the rule was consistent with Congressional 
intent to protect employees' pay. They cited the sense of Congress in 
section 1915(a) of NAREAA, which states: ``It is the sense of Congress 
that the application of this subtitle to any employee should not result 
in a decrease in the take home pay of that employee.'' The Senators 
further maintained that there is no basis for distinguishing between 
the transition period and the post-transition period in terms of 
providing employee pay protection.
    While a sense of Congress does not have the effect of law, OPM has 
recognized that it is an expression of the general intent of Congress. 
OPM has taken this intent into account in implementing NAREAA, while 
complying with the requirements of NAREAA and other applicable law.
    In NAREAA, Congress did provide for special treatment during the 
transition period. For example, section 1918(a)(2) gave OPM authority 
to enact special rules governing the adjustment of pay rates during the 
transition period for certain employees (including retained rate 
employees). Also, section 1915(b)(1) established special rules 
governing the adjustment of special rates during the transition period. 
The transition period is distinguishable from the post-transition 
period because locality pay is being phased in by providing large 
increases each year equal to one-third of the applicable locality rate, 
which results in correspondingly large reductions in COLA payments. 
This was the basis for Congress enacting special authorities for the 
transition period.
    Since certain NAREAA provisions are applicable only to the 
transition period, OPM understands that the law generally intended a 
return to the normal pay rules after the transition period, absent a 
specific NAREAA provision providing otherwise. For example, OPM expects 
to apply the normal provisions of its special rates authority in 5 
U.S.C. 5305 in making determinations regarding the adjustment of 
special rates after January 1, 2012, rather than rely on the formula in 
NAREAA section 1915(b). Likewise, OPM expects to follow the normal 
retained rate adjustment rules in 5 U.S.C. 5363 after the transition 
period. Any reduction in take-home pay would not be attributable to the 
application of NAREAA, but to the application of the regular pay laws.
    We note that the idea of protecting take-home pay has always been 
problematic, since take-home pay for each individual is affected by 
various deductions, some of which can be controlled by the employee and 
some of which have nothing to do with the application of NAREAA. Also, 
a focus on take-home pay fails to take into account the benefits of 
replacing COLA with basic pay. Basic pay is used to compute retirement 
annuities, Government contributions towards Thrift Savings Plan 
accounts, life insurance benefits, and other payments and benefits.
    When OPM established a more generous retained rate adjustment rule 
during the NAREAA transition period, it did so because analysis showed 
that the large reductions in COLA payments during the transition period 
could result in a significant reduction in a retained rate employee's 
gross total pay. Our analysis shows that such reductions will not occur 
when locality pay increases and corresponding COLA reductions are more 
modest. That difference does provide a basis for treating the 
transition period differently than the post-transition period.
    It is important to remember that employees receiving a retained 
rate are, by definition, being paid above the regular salary range for 
their position. That salary range, including the maximum rate of the 
range that is the eventual target salary for the retained rate 
employee, is receiving the full pay adjustments. By design, retained 
rate employees receive lesser increases so that they can fall back into 
the normal salary range over time and be paid appropriately for their 
position.
    The three Senators recommended that OPM use the authority in NAREAA 
section 1918(a)(3) to establish a more generous retained rate 
adjustment rule for the post-transition period. Section 1918(a)(3) 
provides that OPM may establish ``rules governing the 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

[[Page 68633]]

first pay period beginning on or after January 1, 2012'' (i.e., the 
last day of the transition period). However, this authority may be 
applied only to those whose rate of pay exceeds applicable pay 
limitations ``on'' the last day of the transition period. The 
regulations proposed by OPM would use this authority for two closed 
sets of ``grandfathered'' employees to (1) Waive the normal cap on 
retained rates of level IV of the Executive Schedule (EX-IV) for 
nonforeign area employees with a retained rate in excess of that cap at 
the end of the transition period and (2) allow temporary and term 
employees to have a retained rate established at the end of the 
transition period or afterwards. While we could perhaps use the section 
1918(a)(3) authority to establish a more generous retained rate 
adjustment rule for employees who have a retained rate at the end of 
the transition period, we do not believe we could use this authority to 
apply that more generous rule to nonforeign area employees whose 
retained rate is created at a later date or who move to the nonforeign 
area at a later date with a retained rate. Thus, agencies would be 
required to apply a different retained rate adjustment rule to 
different categories of nonforeign area employees, which would raise 
equity concerns and pose significant administrative problems. The more 
generous retained rate adjustment rule for a limited category of 
employees would be in place until COLA was entirely eliminated, which 
may be many years away. We do not believe that NAREAA requires OPM to 
depart from the normal statutory retained rate adjustment rule for 
years after the transition period has ended.
    As indicated by our responses above, we are not using the authority 
in NAREAA section 1918(a)(3) to adopt a more generous retained rate 
adjustment rule for certain grandfathered employees at this time; 
however, we will study and analyze this issue further. For General 
Schedule employees, OPM will use the more generous retained rate 
adjustment rule on January 1, 2012. The next possible application of 
the retained rate adjustment rule after January 2012 will be in January 
2013 under current law. That gives us some time to further consider 
this matter.
    The Senators and an individual supported OPM's proposed rule change 
to 5 CFR 536.310 to lift the EX-IV pay cap for employees who are 
receiving special rates in excess of the rate for EX-IV on January 1, 
2012, that are converted to retained rates consistent with section 1913 
of NAREAA. It has come to our attention that the exception to the level 
IV cap should apply to other employees. In the memorandum announcing 
the special retained rate adjustment rule to be used during the 
transition period, OPM stated ``the Executive Schedule level IV cap on 
retained rates under 5 CFR 536.306(a) does not apply to a retained rate 
adjusted under this special authority.'' Therefore, we are revising 5 
CFR 536.310(a) to provide that a nonforeign area employee who is 
receiving a retained rate in excess of EX-IV on January 1, 2012, 
consistent with NAREAA, may continue to receive this rate until the 
retained rate becomes equal to or falls below the rate for EX- IV, or 
the employee ceases to be entitled to pay retention under Sec.  
536.308. This includes employees who are receiving special rates in 
excess of EX-IV on January 1, 2012, that are converted to retained 
rates consistent with section 1913 of NAREAA.

Biweekly Premium Pay Cap

    Another individual was concerned about nonforeign area employees 
whose pay is limited by the biweekly cap on premium pay under 5 U.S.C. 
5547(a) and 5 CFR 550.105. Specifically, the individual states that 
such employees who are receiving law enforcement availability pay 
(LEAP) under 5 U.S.C. 5545a have experienced reductions in total pay 
because, as the employee's locality pay increases and COLA decreases 
under NAREAA, the employee's LEAP is reduced so that the sum of the 
employee's basic pay and premium pay does not exceed the biweekly cap 
on premium pay. (COLA is not subject to the biweekly premium pay cap 
while locality pay is subject to the biweekly premium pay cap.) The 
individual requests that OPM use the authority in section 1918(a)(3) of 
NAREAA to issue regulations preventing employees subject to the 
biweekly premium pay limitation in nonforeign areas from experiencing 
reductions in total pay.
    We are not adopting this recommendation. Section 1918(a)(3) 
provides OPM the authority to prescribe rules governing the 
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, 
2012. The authority is intended to apply to nonforeign area employees 
who have a rate in excess of applicable pay limitations on the last day 
of the transition period and who will have a saved or retained rate. 
That does not fit the premium pay situations cited by the commenter. 
There is no authority to prevent premium pay from being reduced as a 
result of the biweekly cap on premium pay. Any reduction is due to 
application of the longstanding premium pay cap law, not the 
application of NAREAA. We note that employees whose official worksites 
are within the continental United States may also experience reductions 
in their premium pay as a result of the biweekly premium pay cap when 
their locality pay increases.

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 amending 5 CFR parts 530, 531, and 536 as 
follows:

PART 530--PAY RATES AND SYSTEMS (GENERAL)

0
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

0
2. In Sec.  530.304--
0
a. Remove ``or'' at the end of paragraph (b)(3);
0
b. Redesignate paragraph (b)(4) as (b)(6);
0
c. Add new paragraphs (b)(4) and (b)(5);
0
d. Revise paragraph (c); and
0
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;

[[Page 68634]]

    (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.

0
3. In Sec.  530.306--
0
a. Remove ``and'' at the end of paragraph (a)(8);
0
b. Remove the period at the end of paragraph (a)(9) and add ``; and'' 
in its place; and
0
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.
* * * * *

0
4. In Sec.  530.308--
0
a. Revise paragraph (a);
0
b. Remove paragraph (b); and
0
c. Redesignate paragraphs (c) and (d) as paragraphs (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

0
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

0
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

0
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

0
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 who is receiving a retained rate in excess of Executive 
Schedule level IV on January 1, 2012, consistent with the Non-Foreign 
Retirement Equity Assurance Act of 2009 (subtitle B of title XIX of 
Pub. L. 111-84), may continue to receive a retained rate higher than 
Executive Schedule level IV until--
    (1) The retained rate becomes equal to or falls below Executive 
Schedule level IV; or
    (2) 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. 2011-28742 Filed 11-4-11; 8:45 am]
BILLING CODE 6325-39-P