COLA to Locality Pay Conversion

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					                           www.fedmanagers.org




Locality Pay Extension Act
          of 2007

    Informational Meeting June 19, 2007
                                        www.fedmanagers.org


                         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
                             www.fedmanagers.org


BACKGROUND

 – COLA: Cost of Living Allowance
    • based on consumer goods & rent


 – Locality Pay
    • based on wage comparison of private
      sector & local government
                              www.fedmanagers.org



FEPCA (Fed Empl Pay Comprability Act)
  – designed to close the pay gap btwn
    comparable jobs in local federal &
    private sector

     » original proposal would apply to all 50 states
     » The final version excluded Hawaii & Alaska



      Why was Hawaii/Alaska excluded
                    from
    receiving LP (minimum RU.S. 12.64%)?
          Stop the Rumors
                       www.fedmanagers.org
        Know the Whole Story

    2005                          2008
                  Today
Matsuo v U.S.                    OPM’s
                                Proposal
                • FEB &
                • FMA


                • Get Engaged   • OFF-SET
                                • COLA
                • Reinforce
                Ownership       • w/Locality
                                  Pay
                                           www.fedmanagers.org



                            1st Issue

June 2005-Class Action Law Suit FILED FOR:

  – Locality Pay(1990) for fed empls in Hawaii & Alaska

  – Benefits current & future fed empls & fed retirees

     • who worked during the period locality pay was implemented
     • Status: Pending until 3 Jul
                                               www.fedmanagers.org



                                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))
                                         www.fedmanagers.org


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
                               www.fedmanagers.org


             WHAT’S NEXT STEP?
Proposal formally transmitted to Congress
for consideration:
  –   begins w/ Sen Akaka's subcommittee &
  – 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
                                                      www.fedmanagers.org



•   1948 – COLA established for Hawaii based on cost of living indices

•   1990 – Locality Pay established for Mainland based on cost of labor indices

•   1994 – Locality Pay Program implemented

•   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”

                    IF OPM’S PROPOSAL IS ACCEPTED,
           WHAT HAPPENS TO THE LAWS IN PLACE NOW FOR COLA?
                                                   www.fedmanagers.org



•   What’s Happening to My COLA?
    •   COLA for Hawaii is Maxed out at 25%
    •   Recent COLA surveys show Honolulu’s cost of living indexes falling –
        Federal Register August 2, 2006.
    •   Congressional Delegation from Hawaii is repeatedly asked to defend COLA
    •   COLA is effectively being eroded by Locality Pay Pool contributions
         • Every Year All Federal Employees Pay about 1% of Annual Pay
           increase to Locality Pay Pool
         • Every year since 1994 Hawaii & Alaska Federal Employees have not
           gotten any return on contributions.

• Your COLA is Shrinking relative to All other Federal
  Employees who receive Locality Pay even if COLA
  stays at 25%…….And that is unlikely.
                                                          www.fedmanagers.org



                                ANNUAL INCREASE LOST PAY!
          $7,000.00
                                                                        $6,400.72 Total
          $6,000.00

          $5,000.00

          $4,000.00

          $3,000.00

          $2,000.00

          $1,000.00

             $0.00
                  1992   1994    1996     1998   2000   2002   2004   2006   2008
•   GS-11 step 10 Base Pay - $61,068.00
                                                 www.fedmanagers.org



               OPM’s Locality Pay Extension Act
 • Amends Title 5 USC to extend locality pay to nonforeign areas

 • 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.
                                    www.fedmanagers.org


        OPM’s Locality Pay Extension Act
Base + adjusted Locality + adjusted COLA= Total Pay


Example:       GS11 step 10 = $61,068.00 (Base)
     1st year = 1.81% X base = $1,105.00 (Locality)
23.05% x ($61,068 + $1,105) = $14,331.00 (COLA)

                   Total Pay = $76,503.00
                                                      www.fedmanagers.org



         What does OPM’s Locality Pay Extension Act
                 of 2007 mean to you?

PROS:
•   Freeze take home COLA allowance at 25% - if enacted quickly.
•   Increase Pay, in example GS11 step 10 would make $76,335.00 vs. $76,335.00
    with COLA alone.
•   Increase 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.
                                                  www.fedmanagers.org

                              Pay After taxes – 25% Bracket
            $70,000.00


            $69,000.00


            $68,000.00
                                                                  $1,254.00/ year
            $67,000.00
                             Taxes Take a
            $66,000.00
                             Big Cut!
            $65,000.00


            $64,000.00


            $63,000.00


            $62,000.00
                                                Net Pay Current

            $61,000.00
                                                Net Pay, Rest of US
            $60,000.00
                                                LP

                         0        2         4          6               8

•   GS-11 step 10 Base Pay - $61,068.00
                                                                              www.fedmanagers.org



                            Pay Comparisons, OPM proposal May 30, 2007
                        $3,500.00




                        $3,000.00


                                                                                                  TSP matching,
                        $2,500.00                                                                 current

                                                           Additional TSP after 7 Years
                        $2,000.00                                                                 TSP matching,
              Dollars




                                                                     $501.76                      rest of US

                        $1,500.00
                                            TSP
                                            Cannot
                        $1,000.00
                                            Make up
                         $500.00
                                            the loss to
                                            Taxes
                           $0.00
                                    0   1      2   3       4         5         6          7   8
                                                          Years


•   GS-11 step 10 Base Pay - $61,068.00
                                                             www.fedmanagers.org

                                 Discussion
•   Locality Pay Extension Act of 2007 positive step

•   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 multiplied by a withholding factor
     –   Further reduce COLA in following years only as locality pay is increased

     BENEFITS -
•   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
                                               www.fedmanagers.org

                               Calculations
•   Total pay Calculated as base + locality + adjusted COLA
•   COLA = 25% - (Locality x 85%)

Example: GS11 step 10 – Base = $61,068.00
                        LP 1rst year = 12.64% X base = $7719.00
                        COLA = 14.26% x ($61,068 + $7,719) = $9809.00

                         Total Pay = $78,596.00
                                     versus COLA only - $76,503.00

                                          Additional $2,093 needed to
                                          offset taxes
                                                      www.fedmanagers.org

                               Pay After taxes – 25% Bracket
        $70,000.00


        $69,000.00


        $68,000.00


        $67,000.00


        $66,000.00
                         Good Now !
        $65,000.00


        $64,000.00

                                                  Net Pay Current
        $63,000.00


        $62,000.00
                                                  Net Pay, FMA proposal
        $61,000.00


        $60,000.00
                     0     1      2       3   4   5       6         7     8




•   GS-11 step 10 Base Pay - $61,068.00
                                                                                www.fedmanagers.org

                                    TSPComparisons, FMA proposal June 19, 2007

                $3,500.00




                $3,000.00


                                                                                         TSP
                $2,500.00                                                                matching,
                                                                                         current

                $2,000.00                                                                TSP
                                                                                         matching,
      Dollars




                                                   Additional TSP per year after 7
                                                   Years:                                FMA.
                $1,500.00

                                                                    $501.76
                $1,000.00




                 $500.00
                                         Better Later !!

                   $0.00
                            0   1    2      3       4        5         6         7   8
                                                  Years




•   GS-11 step 10 Base Pay - $61,068.00
                                              www.fedmanagers.org

                               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 Senate
    Fax: (202) 224-2126
•   Prince Kuhio Federal Building
    Fax: (808) 545-4683
•   http://akaka.senate.gov/public/index.cfm?FuseAction=Contact.Home

•   Form a local working group to propose collective views to FEB & FMA
•   Schedule regular informational meetings locally, we can help!
•   Join FMA for a stronger voice in government



                               ALOHA!

				
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