Click here to skip navigation
An official website of the United States Government.

Latest News News

You have reached a collection of archived material.

The content available is no longer being updated and as a result you may encounter hyperlinks which no longer function. You should also bear in mind that this content may contain text and references which are no longer applicable as a result of changes in law, regulation and/or administration.

News Release

Thursday, June 26, 2008
Contact: Peter Graves
Tel: 202-606-2402

OPM Testifies In Support of Administration Proposal On Locality Pay

Washington, D.C. - An official from the U.S. Office of Personnel Management (OPM) testified this afternoon in support of a Bush Administration proposal to phase out existing Cost-of-Living Adjustment (COLA) payments and extend locality pay to Federal employees in "non-foreign" areas not part of the continental United States. Charles D. Grimes, III, deputy associate director for Performance and Pay Systems, testified before the House Subcommittee on the Federal Workforce, Postal Service, and the District of Columbia.

Currently, Grimes said, Federal employees in Hawaii, Alaska, Guam, Puerto Rico, the U.S. Virgin Islands, and other U.S. territories and possessions receive COLA payments, whereas workers in the continental United States receive locality pay based on their work location.

The COLA program currently used by these "non-foreign" areas was enacted in 1948 to address recruitment and retention issues resulting from higher costs of living in these regions. Unlike locality pay, which is based on calculations denoting the cost of labor in a given geographic area, COLA is based on cost-of-living.

Grimes said that while employees benefit in the short term because COLA payments are not subject to Federal income tax, they affect retirement in the long term because they are not considered base pay for retirement purposes, thereby affecting annuities.

Grimes said the Administration proposal, in contrast to other proposals by the Senate and the Federal Managers Association (FMA), would phase in locality pay in these areas over a seven-year period. During the phase-in period, decreases to COLA payments would be limited to 85 percent of the increase in locality pay in order to reduce the impact tax liability and retirement contributions may have on the take-home pay of Federal employees in these areas.

OPM favors a seven-year phase-in period to reduce the potential for creating a retirement incentive, and to reduce the financial impact on agency budgets caused by higher employer retirement contributions.

While the Administration, Senate, and FMA proposals differ slightly, Grimes said all three agree the current system will gradually erode equity in pay and retirement benefits for Federal employees who live and work in non-foreign areas compared to similarly-situated Federal employees in the continental U.S.

- end -

OPM leads and serves the Federal Government in enterprise human resources management by delivering policies and services to achieve a trusted, effective civilian workforce. By Empowering Excellence in Government through Great People, we provide leadership and support to U.S. agencies on issues including human resources policy and oversight, background investigations, federal employee benefits, retirement services, guidance on labor-management relations, and programs to improve workforce performance. For more information, visit or follow OPM on Twitter, Facebook, or LinkedIn.

Control Panel