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Attachment 1

January 2012 Special Rates

OPM's default plan is to not increase any special rate schedule under 5 U.S.C. 5305 in January 2012, except for special rate schedules applicable in nonforeign areas, based on the following:

• Section 147 of the Continuing Appropriations Act, 2011 (Pub. L. 111-242, September 30, 2010), as amended by section 1(a) of the Continuing Appropriations and Surface Transportation Extensions Act, 2011 (Pub. L. 111-322, December 22, 2010), freezes statutory pay adjustments for most Federal civilian employees in 2011 and 2012, including adjustments to General Schedule (GS) base pay rates under 5 U.S.C. 5303. Generally, special rate schedules are not increased in January if GS base rates are not increased.
• A Presidential memorandum to agencies issued on December 22, 2010, directed that agencies should suspend increases to pay schedules and forgo general increases in 2011 and 2012 with respect to rates that are set by administrative discretion, which would include special rates established and adjusted by the Director of OPM.

In an OPM memorandum on the pay freeze issued to agencies on December 30, 2010 (CPM 2010-24), OPM clarified that the term "general increase" would not cover special increases granted in extraordinary circumstances for an occupational category of employees. Thus, special rate schedules established under 5 U.S.C. 5305 may be increased in extraordinary circumstances. Accordingly, OPM will not exercise its discretionary authority under 5 U.S.C. 5305 to increase existing special rates or approve new special rates between January 1, 2011, and December 31, 2012, except in extraordinary circumstances. However, agencies may request that special rates be discontinued or reduced based on staffing considerations.

Special Rate Adjustments, Reductions, and Terminations

In conducting reviews for adjusting special rates, agencies must consider the circumstances and factors consistent with OPM's regulations at 5 CFR 530.304 and 530.306. Note that under 5 CFR 530.304(c), a special rate generally is computed by adding a special rate supplement (i.e., a fixed dollar amount or fixed percentage amount) to the underlying GS base rate. At the time of the annual pay adjustment, special rate employees receive the same adjustment in their underlying GS base rate (or law enforcement officer (LEO) special base rate) as other GS employees. Any additional special rate increase is accomplished by increasing the special rate supplement. In cases where agencies request a higher increase or reduction or termination of special rates, OPM must make a separate determination as to whether the requested adjustment or termination should be approved, taking into account the circumstances and factors that led to establishing the special rate schedule. Based on the adjustment of a special rate supplement, the corresponding special rate (i.e., underlying GS rate plus supplement) may be increased, reduced, or discontinued.

As stated above, because of the current pay freeze, OPM will not exercise its discretionary authority under 5 U.S.C. 5305 to increase existing special rates or approve new special rates between January 1, 2011, and December 31, 2012, except in extraordinary circumstances. OPM considers "extraordinary circumstances" to be a much higher bar than normally applied in considering special rate requests. To warrant a determination that extraordinary circumstances apply, an agency must make a compelling case that denial of a special increase would result in exceptionally severe recruitment and/or retention difficulties and would have an extremely negative impact on critical agency operations during the coming year.

Agencies wishing to discontinue or reduce special rates in January 2012 can submit a request following the instructions posted on the OPM website at http://apps.opm.gov/SpecialRates/srsrequest.aspx.

Please note that requests must come to OPM through agency headquarters, include the information required by OPM's Worksheet for Special Rate Requests, Form 1397 [566 KB], and be submitted no later than October 7, 2011, unless we approve an extension. Please send your materials to OPM's Special Rates Team by email at pay-leave-policy@opm.gov, by fax at (202) 606-4264, or by mail to the following address:

U.S. Office of Personnel Management
Employee Services
Pay and Leave
Attn: Special Rates Team
1900 E Street, NW., Room 7H31
Washington, DC 20415-8200

Special Rates in Nonforeign Areas

The title 5 special rate tables listed in Attachment 2 are applicable in nonforeign areas. Employees who are paid from these pay tables are affected by subtitle B of title XIX of the National Defense Authorization Act (NDAA) for Fiscal Year 2010 (Public Law 111-84, October 28, 2009), the Non-Foreign Area Retirement Equity Assurance Act of 2009 (NAREAA). NAREAA provides -

• A 3-year phase-in of locality pay under 5 U.S.C. 5304 in conjunction with reductions in cost-of-living allowances (COLAs) for employees in nonforeign areas identified in 5 CFR 591.205, and
• During the locality pay phase-in period, a minimum increase in special rates linked to the increase in locality pay.

Section 147(e) of the pay freeze legislation provides for continued application of NAREAA to employees in nonforeign areas. As part of implementation of NAREAA, effective with the first pay period in January 2012, GS non-special rate employees in the nonforeign areas will receive the full amount of the applicable locality pay for their locality pay area, along with a reduced COLA. (In 2011, employees in nonforeign areas are receiving two-thirds of the applicable locality pay. Thus, even though locality pay percentages are frozen, employees in nonforeign areas will receive an increase in locality pay in 2012 as the final one-third phase-in is accomplished.) The full locality pay rates to be paid in 2012 are 24.69 percent in Alaska, 16.51 percent in Hawaii, and 14.16 percent in other nonforeign areas (as identified in 5 CFR 591.205(b)(3)-(16)) that are part of the "Rest of U.S." locality pay area.

Completing the pay adjustments required during the 3-year phase-in period for special rate tables applicable in the nonforeign areas effective with the first pay period in January 2012 (January 1, 2012) constitutes Phase I of a two-phase plan. Phase II will take effect effective with the second pay period in January 2012 (January 15, 2012). OPM will issue January 2012 special rate schedules for the nonforeign areas in two sets, Phase I and Phase II. Attachment 3 contains the Phase I special rate schedules. Attachment 4 contains the planned Phase II special rate schedules.

Phase I Special Rates

Phase I special rates -

• Will be applicable only during the first pay period of 2012 (January 1-14, 2012);
• Will include an additional increase at each grade and step equal to the dollar increase in locality pay for a non-special rate employee at the same grade and step (based on the final one-third phase-in of locality pay);
• Will be limited to the rate payable for level IV of the Executive Schedule (EX-IV rate of $155,500 in 2012), the statutory pay cap for special rates under 5 U.S.C. 5305(a)(1);

During the January 2010-January 2012 transition period, special rates were temporarily allowed to exceed the normally applicable EX-IV pay cap. If an employee's Phase I special rate is limited by the EX-IV pay cap, the special rate will be converted to a retained rate under 5 U.S.C. 5363, as applicable. (See NAREAA section 1913(c).)

Phase II Special Rates

Beginning with the first day of the second pay period in 2012 (January 15, 2012), Phase II special rate schedules will be in effect in the nonforeign areas. These schedules will not include the additional adjustments included in the Phase I special rate tables, which were added to the original special rates to compensate for COLA reductions during the January 2010-January 2012 transition period, as required by NAREAA. The original special rates were set at levels necessary to address recruitment and/or retention difficulties. Generally, COLA payments were not considered in setting those special rates in COLA areas. Thus, we believe those original special rates should be sufficient going forward (e.g., for employees hired in the future), absent agency requests providing compelling justification for a higher level. Any agency request for increases in the levels of the original special rates should take into account the remaining COLA that will be paid on top of the special rates.

To the extent that the new locality rates in the nonforeign areas exceed the original special rates being reestablished under Phase II, the special rates will be eliminated, and affected employees will be covered by the applicable locality rate schedule. (See 5 U.S.C. 5305(h).) In some cases, a special rate schedule could be entirely eliminated, if locality rates are higher at all affected grades and steps. In other cases, only some of the special rates at certain grades and steps will be terminated. If a special rate is no longer shown at certain grades and steps, this means higher locality pay rates now apply.

The reduction in special rates schedules under Phase II will require the application of pay retention provisions to current employees, which will prevent any reduction in their individual pay rates. Under the pay retention rules in 5 U.S.C. 5363 and 5 CFR part 536, employees covered by Phase I special rates will be entitled to -

• The lowest applicable adjusted rate of basic pay (Phase II special rate or locality rate, whichever is higher) within their grade that equals or exceeds the employee's Phase I special rate; or
• A retained rate governed by 5 U.S.C. 5363 and 5 CFR part 536, if the employee's Phase I special rate exceeds the applicable maximum adjusted rate of basic pay for the employee's grade.

This Phase II action to reduce special rate schedules is based on OPM's permanent authority to set special rate schedules under 5 U.S.C. 5305. This action is not an implementation of NAREAA. Under the special rates law and regulations, OPM is required to set special rates at levels determined to be necessary to address significant recruitment and/or retention difficulties that would otherwise occur. At this time, while we are under a GS pay freeze and when the Federal budget is under great scrutiny, we have an obligation to ensure that we are not providing excessive compensation to Federal employees receiving special rates above the normal pay scale. When locality pay was implemented in the contiguous 48 States, special rates were eliminated as locality rates grew to exceed special rates. Even if special rates remained higher than locality rates, the pay advantage for special rate employees was reduced. Now that locality pay applies in the nonforeign areas, we expect the same kind of change in these areas. We note that almost all of the special rate schedules established in nonforeign areas were derived from nationwide or worldwide schedules that did not consider the fact that employees in the nonforeign areas would receive tax-free COLA on top of special rates. Thus, the total pay rates for these employees was likely beyond what is necessary to respond to the labor market situations in the nonforeign areas. Of course, OPM will give careful consideration to any agency request to set special rates at a higher level than the original level (before the NAREAA additional adjustments). Agencies making such a request must submit a Worksheet for Special Rate Requests, Form 1397, no later than October 7, 2011. (See the instructions posted on the OPM website at http://apps.opm.gov/SpecialRates/srsrequest.aspx.)

For more information on the 2011 annual review of special rates, contact the Special Rates Team by telephone at (202) 606-2838, by fax at (202) 606-4264, or by email at pay-leave-policy@opm.gov.