Cost of Living Allowances for
Employees on Pay Retention
The Office of Personnel Management is required by its own regulations to base cost-of-liv-
ing allowances for employees receiving retained pay on their higher retained rate of pay,
rather than on the maximum rate of the grade.
March 24, 1989
M emorandum O pin io n for th e G eneral C ounsel
O ffice of P ersonnel M anagem ent
This is in response to your request of April 18, 1988, for the opinion of
this office concerning cost-of-living allowance (“COLA”) computations
for certain employees who are on pay retention. For the reasons below,
we agree with the conclusion reached by your Office that employees on
pay retention are entitled to have their COLA computed on the basis of
their higher retained rate of pay, rather than on the maximum pay rate of
the grade of the position to which the employee was reduced.
We begin by observing that the provision of COLAs to certain eligible
government employees is authorized by 5 U.S.C. § 5941. That statute pro
vides, in relevant part:
(a) Appropriations or funds available to an Executive
agency ... for pay of employees stationed outside the con
tinental United States or in Alaska whose rates of basic pay
are fixed by statute, are available for allowances to these
employees.
The purpose of the allowance is to compensate employees subject to high
living costs and difficult environmental conditions. The allowance, howev
er, “may not exceed 25 percent of the rate of basic pay.” 5 U.S.C. § 5941.
Responsibility for the actual manner of its calculation and payment is left
to the President. “Except as otherwise specifically authorized by statute,
the allowance is paid only in accordance with regulations prescribed by the
President establishing the rates and defining the area, groups of positions,
and classes of employees to which each rate applies.” Id. The President has
delegated his responsibility under this statute to the Office of Personnel
Management (“OPM”). Exec. Order No. 10000, 3 C.F.R. 792 (1943-1948).
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Pursuant to its authority, OPM has promulgated regulations, codified at
5 C.F.R. pt. 591, Subpart B, which provide for the award of COLAs. The
most important provision is section 591.210, which states that “[t]he
allowance and differential authorized for each location shall be convert
ed to an hourly rate, based on the employee’s basic rate of pay, and shall
be paid only for those hours during which the employee receives basic
pay” (emphasis added). Because agency rules and regulations that imple
ment statutory discretion have the force of law, OPM must comply with
its own regulations, or amend them. See United States v. Mersky, 361 U.S.
431, 438 (1960). Thus, OPM is legally required to calculate employee
COLAs on the basis of their “basic rate of pay.” It is plain that OPM’s reg
ulation is within the ambit of discretion provided by section 5941. Indeed,
support for OPM’s determination that COLAs should be based on an
employee’s rate of basic pay can be drawn from section 5941 itself, which
sets the ceiling for COLAs in terms of basic pay.1 Given the clear obliga
tion to base COLAs on the employee’s “basic rate of pay,” we turn then to
the determination of what the “basic rate of pay” is for an employee
receiving retained pay under 5 U.S.C. § 5363.
We believe that OPM is required under its own regulations to calculate
the COLAs for such employees in this manner because of the definition
of basic rate of pay contained in OPM’s regulations, which, as we dis
cussed previously, OPM is obliged to obey. In 5 C.F.R. § 591.201(i) the
phrase “rate of basic pay” is defined to mean “the rate of pay fixed by
statute for the position held by an individual, before any deductions and
exclusive of additional pay of any kind, such as overtime pay, night dif
ferential, extra pay for work on holidays, or allowances and differen
tials.” Using this definition, we believe it is clear that the retained rate of
pay received by eligible employees pursuant to 5 U.S.C. § 5363 is indeed
the “rate of pay fixed by statute for the position held by (that employee).”
5 C.F.R. § 591.201(i). As a result, we are compelled to conclude that the
retained rate of pay received by certain eligible employees constitutes
their “basic rate of pay” for the purpose of calculating COLAs. Moreover,
retained pay is not of the same nature as the types of additional pay
excluded from the definition of “rate of basic pay.” Unlike the “addition
al pay” described in section 591.201(i), which all have to do with the tim
ing, locale or amount of work being performed in the current job,
retained pay reflects the employee’s past work experience, and does not
in any way reflect the work being done in the current position. Therefore,
we believe that OPM must, pursuant to section 591.210(a) and the defin
ition of “rate of basic pay” found in section 591.201(i), compute eligible
employees’ COLAs on their higher retained pay rate.
1 We need not address whether it would be appropriate under section 5941 to choose a base line other
than the rate of basic pay by which to calculate COLAs.
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Finally, 5 U.S.C. § 5363, the provision which defines the manner in
which pay retention is calculated, makes clear this amount is a form of
basic pay. This section provides in relevant part:
(a) Any employee — [eligible for pay retention]
is entitled to basic pay at a rate equal to (A) the employee’s
allowable former rate of basic pay, plus (B) 50 percent of
the amount of each increase in the maximum rate of basic
pay payable for the grade of the employee’s position imme
diately after such reduction in pay if such allowable former
rate exceeds such maximum rate for such grade.
(emphasis added). Thus, under this statute, the higher retained rate of
pay received by certain eligible employees does constitute “basic pay.”
In sum, we agree with the conclusion reached by the Office of General
Counsel that OPM is obligated to compute the COLAs for employees
receiving retained pay on their higher retained rate of pay, rather than on
the maximum rate of the grade.2 Whatever discretion section 5941 con
fers with respect to the awarding of COLAs, the regulations promulgated
to implement that statute require that OPM compute COLAs “based on
the employee’s basic rate of pay.” For employees receiving retained pay,
their “basic pay” is their rate of retained pay.
JOHN O. McGINNIS
Deputy Assistant Attorney General
Office of Legal Counsel
2 We have reviewed the contrary opinions of the Comptroller General on this matter and find them
unpersuasive In an unpublished opinion, B-175124, 1976 WL 10210 at *2 (C.G. June 2, 1976), which served
as the basis for at least one later opinion, the Comptroller General found that COLAs must be “computed
on basis of the rate of pay fixed by statute for the position held, rather than on basis of saved salary." The
only justification offered for this result was that 5 C.FR. § 591.202 authorized COLAs as a percent of the
“rate of basic pay.” While the regulations do provide that COLAs are to be calculated as a percent of “basic
pay," the Comptroller General’s opinion does not address the central question of whether an employees
retained rate of pay is in fact basic pay As we observed previously, however, the retained rate of pay pro
vided by section 5363 is in fact the rate of basic pay fixed by statute for certain eligible employees A more
recent opinion of the Comptroller General, which reaches the same result as the 1976 opinion, does little
more than cite the earlier opinion to justify its conclusion that COLAs authorized by section 5941 are to
be computed on the basic rate of pay for the grade, rather than on the employee’s full retained pay rate.
See B-206028, 1982 WL 27659 (C.G Dec 14, 1982) (unpublished). Because this opinion does not add to the
analysis of the 1976 opinion, we believe it should be similarly disregarded as failing to analyze the central
question: whether retained pay constitutes basic pay. Finally, we note that because the Comptroller
General is an officer of the legislative branch, Bowsher v. Synar, 478 U S 714, 727-32 (1986), the execu
tive branch is not bound by the Comptroller General’s legal opinions.
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Cost of Living Allowances for Employees on Pay Retention
Combined Opinion