COLAs Have Unique Features

By: fedweek

OPM argues that the COLA is out of line with pay-setting practices for other federal employees, which are based on labor market conditions, not living costs–while many federal employees refer to their annual raises as COLAs, in fact raises are based on an employment cost index, not a consumer price index. In its letter, OPM said that the cost of labor is the “cornerstone of current federal compensation policy.” OPM also asserts that affected employees generally would be better off ultimately since locality pay counts toward retirement benefits but the non-foreign area COLA doesn’t. However, the COLAs are not subject to federal income tax nor retirement deductions, while locality pay is subject to both. Under the proposal, the changeover would be phased in over seven years.