The Associated Press
HONOLULU

The U.S. Senate has approved a bill that addresses the retirement inequity of federal workers in Hawaii, Alaska and U.S. territories.

The measure would phase out non-foreign cost of living allowances, called COLA, and phase in locality pay over a period of three years.

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

On the other hand, locality pay is taxable income. But it's part of an employee's base pay factored into retirement.

This means employees in Hawaii, Alaska and the territories have been retiring with much lower pay rates than their counterparts in the continental U.S.

October 02, 2008   11:41 PM EDT