Locality Pay Extension Act of 2007

1. Locality Pay Extension Act of 2007 Informational Meeting June 14, 2007

2. AGENDA Background June 2005 Class Action Suit About • Claimed: Hawaii was being denied Locality Pay • End Result Sought: Receive Locality Pay & 25% COLA OPM’s Locality Pay Proposal • Who is affected? Locality Pay • Effect on take home pay, retirement annuity • Tax Implications

3. BACKGROUND • COLA: Cost of Living Allowance • based on consumer goods & rent • Locality Pay • based on wage comparison of private sector & local government • FEPCA • developed to offer fair & competitive pay to private & local govt (by locality) • original proposal would apply to all 50 states • The final version excluded Hawaii and Alaska • as a result of pay reform, entitled to the (minimum) RU.S. 12%

4. 1st Issue June 2005-Class Action Law Suit FILED FOR: • Locality Pay for fed empls in Hawaii & Alaska • Covers current & future fed empls & fed retirees • who worked during the period locality pay was implemented • current status

5. 2nd Issue FY2008 Budget Proposal • Pres budget request to Congress includes funding for a legislative proposal to: • Transition from non-foreign COLA to Locality Pay ( for HI & Alaska) • Enactment results in an increased retirement pay for affected empls (locality pay is creditable for retirement (not cola))

6. 23 February 2007 • Senior OPM staff discussed proposal • w/Senate subcommittee staff for Sen Akaka: • Chairman of the Subcommittee on the Oversight of Government Management, the Federal Workforce, & District of Columbia • OPM finalized the details of the Administration’s proposal including: • best way to phase in the transition from • COLA to Locality Pay • try to ensure employees are not adversely affected • to their bottom-line, take-home pay .

7. Proposal formally transmitted to Congress for consideration: • begins w/ Sen Akaka's subcommittee • and its counterpart subcommittee in the House of Representatives Reason Why We’re here today • Receive proposals from many interested groups • Gather proposals for Congressional alliance • Timing critical---Senatorial representatives

8. 1948 – COLA established for Hawaii based on cost of living indices • 1990 – Locality Pay established for Mainland based on cost of labor indices • 2003 – Legislative Concept on COLA to LP worked on by OPM & others. Shelved as concept, however-- similar to 2007 proposal • 2005 – Lawsuit filed to address the unconstitutionality of the 1990 LP Act • January 2007 – President makes COLA to LP conversion part of his budget proposal • May 30, 2007 – OPM releases “Locality Pay Extension Act of 2007”

9. OPM’s Locality Pay Extension Act • Amends Title 5 USC to extend locality pay to nonforeign areas. • Does not affect special rates of pay already in effect. • Freezes COLA for Postal employees. • Seven year sliding scale that applies 1/7 of the Rest of US LP and a reduced COLA using the calculation: COLA rate – (85% x 1/7 applicable locality rate) 1 + 1/7 applicable locality rate Example: 25% - (85% x 1.80%) = 23.05% 1 + 1.80% Note: Year 2 change 1/7 to 2/7, etc.

10. OPM’s Locality Pay Extension Act • Total pay Calculated as base + adjusted locality + adjusted COLA Example: GS11 step 10 – Base = $61,068.00 LP 1rst year = 1.81% X base = $1,105.00 COLA = 23.05% x ($61,068 + $1,105) = $14,331.00 Total Pay = $76,503.00

11. GS-11 step 10 Base Pay - $61,068.00

12. GS-11 step 10 Base Pay - $61,068.00

13. What does OPM’s Locality Pay Extension Act of 2007 mean to you? PROS: • Freeze take home allowance at 25% - if enacted quickly! • Increased Pay, in example GS11 step 10 would make $76,335.00 in current COLA only vs. $76,503.00. • Increased retirement benefits. • TSP • Annuity CONS: • Does not allow you to retire on your schedule – Must wait at least ten years to see “high 3”. • Does not remove incentive for employees to relocate to LP areas. • Does not address NSPS issues.

14. Discussion • Locality Pay Extension Act of 2007 positive step, but misses the mark • FMA working with other groups has come up with a counter proposal to “front load” the conversion • Enact full locality pay rate in the 1rst Year • Reduce COLA by locality pay rate • Further reduce COLA in following years only as locality pay is increased • Allow you to retire on your schedule • Addresses the recruitment & retention issues immediately • Increases TSP faster, better for younger FERS employees • Does not disadvantage employee • Simple to figure out and explain

15. FMA Working Calculations • Total pay Calculated as base + locality + adjusted COLA Example: GS11 step 10 – Base = $61,068.00 LP 1rst year = 12.64% X base = $7719.00 COLA = 12.36% x ($61,068 + $7,719) = $8502.00 Total Pay = $77,289.00

16. GS-11 step 10 Base Pay - $61,068.00 Good Now !

17. GS-11 step 10 Base Pay - $61,068.00 Better Later !!

18. NEXT STEPS • Get the word out that OPM is NOT taking away COLA • Contact Senator Akaka in writing & Tell him you support the FMA proposal: • United States SenateFax: (202) 224-2126 • Prince Kuhio Federal BuildingFax: (808) 545-4683 • http://akaka.senate.gov/public/index.cfm?FuseAction=Contact.Home • Form a Locality Pay working group to firm up front loaded proposal COLA compensation. One for one % point trade may be too low? • Schedule regular informational meetings • Join FMA for a stronger voice in government ALOHA!