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The Tundra Drums - Legislation Changing Wages to Locality Pay Passes

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Retirement benefits are looking better for Alaska's federal employees after a recent Senate vote.

The Senate, on Oct. 1, unanimously approved legislation sponsored by Sens. Ted Stevens, R-Alaska, and Daniel Akaka, D-Hawaii, to replace Alaska and Hawaii federal employee cost of living allowances with the locality pay system that has long been in place in the Lower 48. The legislation was co-sponsored by Sens. Lisa Murkowski, R-Alaska, and Daniel Inouye, D-Hawaii.

"Under the old version of the COLA system, Alaska retirees simply weren't getting the same deal as those in the Lower 48," Stevens said. "Alaskan federal employees nearing retirement absolutely should not have to relocate in order to guarantee a better retirement. With these changes, Alaska won't be losing those highly skilled, seasoned employees."

"Alaska's federal employees have told us loud and clear that they want to receive locality pay which counts toward retirement, like federal employees in other high cost parts of the country, instead of their present tax-free cost of living allowance," said Sen. Murkowski. "It is important that we implement this change now."

Alaska and Hawaii are the only states in which federal employees do not receive locality pay. Because cost of living allowances is not taxed, it is not considered part of an employee's base pay for retirement purposes. Locality pay, on the other hand, is taxable income and is part of an employee's base pay. This means employees in Alaska are retiring at much lower pay rates than their counterparts in the Lower 48.

The U.S. Office of Personnel Management has been seeking to slowly phase out the cost of living allowances system in favor of the locality pay system. The Stevens-Akaka legislation will speed up the process. The result will be that the new system will be fully implemented in three years rather than the seven suggested by personnel management office.

The legislation is intended to benefit all federal employee groups whose Lower 48 counterparts currently receive locality pay. Employees who will soon be forced to retire because of age and those intending to retire within three years will be able to buy into the program to ensure that they may participate in the new system.

The bill also includes language to assist postal employees, who are not eligible to receive locality pay in the Lower 48, in retaining their cost of living allowances benefits in Alaska and Hawaii. While postal employees will remain under the cost of living allowances system rather than locality pay, the 25 percent cap on cost of living allowances will no longer apply. The cost of living allowances rate will follow the locality pay rate, which is expected to be 27.65 percent or higher in Alaska.

"No Alaskan should have to worry about their retirement, and that is even more important with the current financial crisis," Stevens said. "It is vital to guarantee Alaskan federal employees the locality pay that they deserve."

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