WASHINGTON, D.C. - Today, the Office of Personnel Management (OPM) sent a legislative proposal to Congress that would phase-out the Non-Foreign Cost of Living Adjustment (COLA) and phase-in locality pay for federal employees in Alaska, Hawaii, Territory of Guam, Commonwealth of the Northern Mariana Islands, Commonwealth of Puerto Rico, and the U.S. Virgin Islands. Click here to read the administration's proposal to replace COLA with locality pay.  The President proposed the change in compensation policy as part of his Fiscal Year 2008 budget.

Since 1948, federal employees in the non-contiguous areas of the U.S. have received Non-Foreign COLA to ensure that their pay reflects the high cost of living. Non-foreign COLA is not subject to federal or Social Security/Medicare taxes. In 1990, the Federal Employees Pay Comparability Act (FEPCA), included provisions for "locality pay," paid to federal employees in the contiguous United States.

Non-foreign COLA vs. locality pay:

• Unlike COLA, locality pay is taxed and considered part of base pay, which is used to calculate an employee's retirement annuity.
• While COLA reflects a cost-of-living adjustment, locality pay reflects a comparison of federal salaries to private sector salaries in specific geographic areas.
• U.S. Postal Service employees receive Non-Foreign COLA if employed by the Postal Service in the non-contiguous areas. However, postal employees in the contiguous United States do not receive locality pay.

"As chairman of the federal workforce subcommittee, I am carefully reviewing the impact that the Administration's legislative proposal will have on federal employees. In addition, I will continue to seek input from those affected by this proposal," Senator Akaka said. "I look forward to hearing the views of federal employees in Hawaii, Alaska and the U.S. territories. Together we can work to ensure that these federal workers are not disadvantaged when it comes to their compensation or retirement."

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