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Washington, D.C.—The current non-foreign cost-of-living adjustment (COLA) system for tens of thousands of federal employees living in outlying states and territories is outdated and in need of reform, the leader of the nation’s largest independent union of federal employees told a key Senate subcommittee today. National Treasury Employees Union (NTEU) President Colleen M. Kelley submitted her testimony to a field hearing scheduled today in Honolulu.

In her comments to the Senate Subcommittee on Oversight of Government Management, the Federal Workforce and the District of Columbia, President Kelley expressed support for legislation (S. 3013) that would convert the non-foreign COLA system to a locality pay system over the next three years, ensuring no loss in pay and improving retirement benefits for federal employees in outlying areas.

“It has become increasingly clear that the non-foreign COLA is dated and in need of reform,” said President Kelley. “However, such an initiative must be done in a way that is fair to employees and does not make sudden, unplanned changes in their pay and compensation.”

Further, payments employees receive under the non-foreign COLA are not counted toward federal retirement.

“The exclusion of the non-foreign COLA from calculation of retirement is a great disservice to these employees. It is now time to extend locality pay and retirement credit to the outlying areas,” President Kelley said.

Introduced by Hawaii Sens. Daniel Akaka (D) and Daniel Inouye (D), with support from Alaska’s two senators, the Non-Foreign Area Retirement Equity Assurance Act of 2008 would phase out the non-foreign COLA system in favor of locality pay by 2012, a speedy transition that would favor employees who might otherwise be concerned about their retirement disadvantages under the non-foreign COLA.

The bill differs from an administration proposal that would offer fewer protections to federal employees. For instance, the Akaka bill allows for a one-time, irrevocable opt-out for federal employees who do not want to transition to locality pay and it also allows the option of a retirement credit buy-back for the period Jan. 1, 2009, to Dec. 31, 2011. There also are provisions that would protect the pay standards of employees under special rates and help guarantee they do not suffer an unfair paycheck reduction from the conversion plan.

President Kelley said that without these features, the legislation could result in pay cuts for federal employees living in outlying states and territories. “Cutting the pay of federal workers simply because of where they live is unfair,” she said. “Without proper pay and benefits, the federal government will not attract the best and brightest of the labor force.”

Established in 1948, the non-foreign COLA system covers nearly 50,000 federal employees in Alaska, Hawaii and all U.S. territories. It is distinct from locality pay as implemented by the 1990 Federal Employees Pay Comparability Act (FEPCA) and distinct from pay systems for federal employees living outside United States jurisdiction.