Expert's View

About this time of year, federal retires start squirming in their seats wondering what the annual cost-of-living adjustment (COLA) to their annuities will be. However, there another type of COLA, a cost-of-living allowance that goes to employees working in U.S. areas outside the contiguous United States. That means Alaska, Hawaii, Guam and the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.

Since the time of President Truman, the law has required that the cost of living in those areas be compared to the cost of living in the District of Columbia. When the cost in the non-foreign area is greater, the employees working there are entitled to an amount that represents the difference. The minimum increase is one-quarter percent, the maximum, 25 percent.

To find out what the difference is, the Bureau of Labor Statistics and OPM conduct periodic on-site studies covering a wide range of expenses, such as housing, food, transportation, clothing, etc. When the analysis is complete, the outcomes are published in the Federal Register.

Remarkably, things have remained relatively stable over the past few years. The latest COLA adjustments, which went into effect in September, are the first to show any changes since 2001. Here are the new percentages, with the old ones in parentheses: Alaska, Fairbanks and Juneau, Alaska – 25.0 (24.0); Rest of Alaska – 25.0 (25.0); Hawaii County – 16.5 (17.0); Honolulu County – 25.0 (25.0); Kauai County – 23.25 (25.0); Maui County – 23.75 (25.0); Guam and the Northern Mariana Islands – 25.0 (25.0); Puerto Rico – 11.5 (10.15); U.S. Virgin Islands 22.5 (23.0).

Because the purpose of the law is to facilitate the movement of employees from the contiguous 48 states to non-foreign areas (and encourage their retention once there), non-foreign area COLAs are not considered part of base pay for retirement and cannot be included when determining an employee’s high-3.