Will COLA, locality pay be used to compute annuity?


Q: I work in Alaska as an Army civilian police officer. Where I am stationed, we receive specialty pay. For example, I am a GS 08 about to move up to GS 09. My current GS 08 step 4 pay is $54,633. On top of this, we still get cost-of-living allowance here, which for me turns out to be $11,440.15. A normal GS-scale employee as an GS 08 step 4 receives $41,393. Does my specialty pay count toward my Federal Employees Retirement System annuity? In other words, is my retirement based on the $54,633, or is it based on $41,393? If I transfer to a different location in the U.S., does my gaining employer have to base my pay off of the specialty pay base of $54,633 or off the $41,393? My leave and earnings statement shows my base pay in block 7 as: Basic pay $41,393 + $13,240; Locality Adjustment = Adjusted Basic pay of $54,633. My SF50 shows this, as well. As I stated earlier, we also receive COLA (transitioning to locality pay) and my COLA is $11,440.15. With this, my real earnings are a base of $66,073.15 but I know that COLA does not count toward retirement. Can you explain this? And finally, when we do get transitioned to full locality pay, will it count toward retirement? I have heard it will, and it that will be taxed as income unlike COLA, but our base pay will then read as $66,073.15.

A: If you are referring to special salary rates, like locality pay they are considered to be a part of base pay and will be used in the computation of your high-3 when you retire. Non-foreign area cost-of-living allowances until recently weren’t considered to be a part of base pay and couldn’t be included. However, P.L. 111-84 changed all that. These COLAs are being phased out, with a guarantee that employees won’t lose ground financially during the transition from non-taxable COLAs to taxable locality pay. However, to get credit for that, employees will have to make additional contributions to the retirement system. Your own payroll office can give you the details. Note: If you transfer to a different area of the country, your salary would be based on your grade and pay at that location, not what you previously received somewhere else.


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Reg Jones was head of retirement and insurance policy at the Office of Personnel Management. Email your retirement-related questions to fedexperts@federaltimes.com.

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