To provide for retirement equity for Federal employees in nonforeign areas outside the 48 contiguous States and the District of Columbia, and for other purposes.

Summary: Non-Foreign Area Retirement Equity Assurance Act of 2008 or the Non-Foreign AREA Act of 2008 - Revises federal employee locality-based comparability payments provisions to include U.S. territories and possessions, including the Commonwealth of Puerto Rico and the Commonwealth of the Northern Mariana Islands, within a pay locality. Revises the calculation of allowances based on living costs and conditions of environment for pay of employees stationed outside the continental United States or in Alaska to apply it only to areas designated as of December 31, 2008. Provides a formula for adjustment of such rate using a transition schedule for calendar years 2009-2011.

 Requires adjustment of special rates of pay in such areas in accordance with regulations prescribed by the Director of the Office of Personnel Management (OPM) or by the Department of Veterans Affairs (VA) for VA personnel. Allows a temporarily raised limitation on the amount of special rates during the transition period.

Expresses the sense of Congress that application of this Act to an employee should not result in a decrease in take home pay.

Defines as covered employees for purposes of this Act those who are or will be eligible for a cost-of-living allowance (COLA).

Allows an employee subject to this Act's transition schedule and who retires from service during the period from January 1, 2009, through December 31, 2011, to elect to have the COLA paid during that period considered as basic pay for purposes of annuity computation.

Provides procedures for employees to make an irrevocable election to be covered by this Act.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Non-Foreign Area Retirement Equity 
Assurance Act of 2008'' or the ``Non-Foreign AREA Act of 2008''.

SEC. 2. EXTENSION OF LOCALITY PAY.

    (a) Locality-Based Comparability Payments.--Section 5304(f)(1) of 
title 5, United States Code, is amended by striking subparagraph (A) 
and inserting the following:
                    ``(A) each General Schedule position in the United 
                States, as defined under section 5921(4), and its 
                territories and possessions, including the Commonwealth 
                of Puerto Rico and the Commonwealth of the Northern 
                Mariana Islands shall be included within a pay 
                locality; and''.
    (b) Allowances Based on Living Costs and Conditions of 
Environment.--Section 5941 of title 5, United States Code, is amended--
            (1) in subsection (a), by adding after the last sentence 
        ``Notwithstanding any preceding provision of this subsection, 
        the cost-of-living allowance rate based on paragraph (1) of 
        this subsection shall be the cost-of-living allowance rate in 
        effect on December 31, 2008, except as adjusted under 
        subsection (c).'';
            (2) by redesignating subsection (b) as subsection (d); and
            (3) by inserting after subsection (a) the following:
    ``(b) This section shall apply only to areas that are designated as 
cost-of-living allowance areas as in effect on December 31, 2008.
    ``(c)(1) The cost-of-living allowance rate payable under this 
section shall be adjusted on the first day of the first applicable pay 
period beginning on or after--
            ``(A) January 1, 2009; and
            ``(B) on January 1 of each calendar year in which a 
        locality-based comparability adjustment takes effect under 
        section 4 (2) and (3) of the Non-Foreign Area Retirement Equity 
        Assurance Act of 2008.
    ``(2)(A) In this paragraph, the term `applicable locality-based 
comparability pay percentage' means, with respect to calendar year 2009 
and each calendar year thereafter, the applicable percentage under 
section 4 (1), (2), or (3) of Non-Foreign Area Retirement Equity 
Assurance Act of 2008.
    ``(B) Each adjusted cost-of-living allowance rate under paragraph 
(1) shall be computed by--
            ``(i) subtracting 65 percent of the applicable locality-
        based comparability pay percentage from the cost-of-living 
        allowance percentage rate in effect on December 31, 2008; and
            ``(ii) dividing the resulting percentage determined under 
        clause (i) by the sum of--
                    ``(I) one; and
                    ``(II) the applicable locality-based comparability 
                payment percentage expressed as a numeral.
    ``(3) No allowance rate computed under paragraph (2) may be less 
than zero.
    ``(4) Each allowance rate computed under paragraph (2) shall be 
paid as a percentage of basic pay (including any applicable locality-
based comparability payment under section 5304 or similar provision of 
law and any applicable special rate of pay under section 5305 or 
similar provision of law).''.

SEC. 3. ADJUSTMENT OF SPECIAL RATES.

    (a) In General.--Each special rate of pay established under section 
5305 of title 5, United States Code, and payable in an area designated 
as a cost-of-living allowance area under section 5941(a) of that title, 
shall be adjusted, on the dates prescribed by section 4 of this Act, in 
accordance with regulations prescribed by the Director of the Office of 
Personnel Management under section 9 of this Act.
    (b) Department of Veterans Affairs.--Each special rate of pay 
established under section 7455 of title 38, United States Code, and 
payable in a location designated as a cost-of-living allowance area 
under section 5941(a)(1) of title 5, United States Code, shall be 
adjusted in accordance with regulations prescribed by the Secretary of 
Veterans Affairs that are consistent with the regulations issued by the 
Director of the Office of Personnel Management under subsection (a).
    (c) Temporary Adjustment.--Regulations issued under subsection (a) 
or (b) may provide that statutory limitations on the amount of such 
special rates may be temporarily raised to a higher level during the 
transition period described in section 4 ending on the first day of the 
first pay period beginning on or after January 1, 2011, at which time 
any special rate of pay in excess of the applicable limitation shall be 
converted to a retained rate under section 5363 of title 5, United 
States Code.

SEC. 4. TRANSITION SCHEDULE FOR LOCALITY-BASED COMPARABILITY PAYMENTS.

    Notwithstanding any other provision of this Act or section 5304 or 
5304a of title 5, United States Code, in implementing the amendments 
made by this Act, for each non-foreign area determined under section 
5941(b) of that title, the applicable rate for the locality-based 
comparability adjustment that is used in the computation required under 
section 5941(c) of that title shall be adjusted effective on the first 
day of the first pay period beginning on or after January 1--
            (1) in calendar year 2009, by using \1/3\ of the locality 
        pay percentage for the rest of United States locality pay area;
            (2) in calendar year 2010, by using \2/3\ of the otherwise 
        applicable comparability payment approved by the President for 
        each non-foreign area; and
            (3) in calendar year 2011 and each subsequent year, by 
        using the full amount of the applicable comparability payment 
        approved by the President for each non-foreign area.

SEC. 5. SAVINGS PROVISION.

    (a) In General.--The application of this Act to any employee may 
not result in the amount of the decrease in the amount of pay 
attributable to special rate pay and the cost-of-living allowance as in 
effect on the date of enactment of this Act exceeding the amount of the 
increase in the locality-based comparability payments paid to that 
employee.
    (b) Sense of Congress.--It is the sense of Congress that the 
application of this Act to any employee should not result in a decrease 
in the take home pay of that employee.

SEC. 6. APPLICATION TO OTHER ELIGIBLE EMPLOYEES.

    (a) In General.--
            (1) Definition.--In this subsection, the term ``covered 
        employee'' means--
                    (A) any employee who--
                            (i) on--
                                    (I) the day before the date of 
                                enactment of this Act--
                                            (aa) was eligible to be 
                                        paid a cost-of-living allowance 
                                        under 5941 of title 5, United 
                                        States Code; and
                                            (bb) was not eligible to be 
                                        paid locality-based 
                                        comparability payments under 
                                        5304 or 5304a of that title; or
                                    (II) or after the date of enactment 
                                of this Act becomes eligible to be paid 
                                a cost-of-living allowance under 5941 
                                of title 5, United States Code; and
                            (ii) except as provided under paragraph 
                        (2), is not covered under--
                                    (I) section 5941 of title 5, United 
                                States Code (as amended by section 2 of 
                                this Act); and
                                    (II) section 4 of this Act; or
                    (B) any employee who--
                            (i) on the day before the date of enactment 
                        of this Act--
                                    (I) was eligible to be paid an 
                                allowance under section 1603(b) of 
                                title 10, United States Code;
                                    (II) was eligible to be paid an 
                                allowance under section 1005(b) of 
                                title 39, United States Code; or
                                    (III) was employed by the 
                                Transportation Security Administration 
                                of the Department of Homeland Security 
                                and was eligible to be paid an 
                                allowance based on section 5941 of 
                                title 5, United States Code; or
                            (ii) on or after the date of enactment of 
                        this Act--
                                    (I) becomes eligible to be paid an 
                                allowance under section 1603(b) of 
                                title 10, United States Code;
                                    (II) becomes eligible to be paid an 
                                allowance under section 1005(b) of 
                                title 39, United States Code; or
                                    (III) is employed by the 
                                Transportation Security Administration 
                                of the Department of Homeland Security 
                                and becomes eligible to be paid an 
                                allowance based on section 5941 of 
                                title 5, United States Code.
            (2) Application to covered employees.--
                    (A) In general.--Notwithstanding any provision of 
                title 5, United States Code, for purposes of this Act 
                (including the amendments made by this Act) any covered 
                employee shall be treated as an employee to whom 
                section 5941 of title 5, United States Code (as amended 
                by section 2 of this Act), and section 4 of this Act 
                apply.
                    (B) Pay fixed by statute.--Pay to covered employees 
                under section 5304 or 5304a of title 5, United States 
                Code, as a result of the application of this Act shall 
                be considered to be fixed by statute.
                    (C) Performance appraisal system.--With respect to 
                a covered employee who is subject to a performance 
                appraisal system no part of pay attributable to 
                locality-based comparability payments as a result of 
                the application of this Act including section 5941 of 
                title 5, United States Code (as amended by section 2 of 
                this Act), may be reduced on the basis of the 
                performance of that employee.
    (b) Postal Service Employees in Nonforeign Areas.--Section 1005(b) 
of title 39, United States Code, is amended by inserting ``and the Non-
Foreign Area Retirement Equity Assurance Act of 2008'' after ``Section 
5941 of title 5''.

SEC. 7. ELECTION OF ADDITIONAL BASIC PAY FOR ANNUITY COMPUTATION BY 
              EMPLOYEES.

    (a) Definition.--In this section the term ``covered employee'' 
means any employee--
            (1) to whom section 4 applies;
            (2) who is separated from service by reason of retirement 
        under chapter 83 or 84 of title 5, United States Code, during 
        the period of January 1, 2009, through December 31, 2011; and
            (3) who files and election with the Office of Personnel 
        Management under subsection (b).
    (b) Election.--
            (1) In general.--An employee described under subsection (a) 
        (1) and (2) may file an election with the Office of Personnel 
        Management to be covered under this section.
            (2) Deadline.--An election under this subsection may be 
        filed not later than December 31, 2011.
    (c) Computation of Annuity.--For purposes of the computation of an 
annuity of a covered employee any cost-of-living allowance under 
section 5941 of title 5, United States Code, paid to that employee 
during the first applicable pay period beginning on or after January 1, 
2009 through the first applicable pay period ending on or after 
December 31, 2011, shall be considered basic pay as defined under 
section 8331(3) or 8401(4) of that title.
    (d) Civil Service Retirement and Disability Retirement Fund.--
            (1) Employee contributions.--A covered employee shall pay 
        into the Civil Service Retirement and Disability Retirement 
        Fund--
                    (A) an amount equal to the difference between--
                            (i) employee contributions that would have 
                        been deducted and withheld from pay under 
                        section 8334 or 8422 of title 5, United States 
                        Code, during the period described under 
                        subsection (c) of this section if that 
                        subsection had been in effect during that 
                        period; and
                            (ii) employee contributions that were 
                        actually deducted and withheld from pay under 
                        section 8334 or 8422 of title 5, United States 
                        Code, during that period; and
                    (B) interest as prescribed under section 8334(e) of 
                title 5, United States Code, based on the amount 
                determined under subparagraph (A).
            (2) Agency contributions.--
                    (A) In general.--The employing agency of a covered 
                employee shall pay into the Civil Service Retirement 
                and Disability Retirement Fund an amount for applicable 
                agency contributions based on payments made under 
                paragraph (1).
                    (B) Source.--Amounts paid under this paragraph 
                shall be contributed from the appropriation or fund 
                used to pay the employee.
            (3) Regulations.--The Office of Personnel Management may 
        prescribe regulations to carry out this section.

SEC. 8. ELECTION OF COVERAGE BY EMPLOYEES.

    (a) In General.--Notwithstanding any other provision of this Act, 
an employee may make an irrevocable election in accordance with this 
section, if--
            (1) that employee is paid an allowance under section 5491 
        of title 5, United States Code, during a pay period in which 
        the date of the enactment of this Act occurs; or
            (2) that employee--
                    (A) is a covered employee as defined under section 
                6(a)(1); and
                    (B) during a pay period in which the date of the 
                enactment of this Act occurs is paid an allowance--
                            (i) under section 1603(b) of title 10, 
                        United States Code;
                            (ii) under section 1005(b) of title 39, 
                        United States Code; or
                            (iii) based on section 5941 of title 5, 
                        United States Code.
    (b) Filing Election.--Not later than 60 days after the date of 
enactment of this Act, an employee described under subsection (a) may 
file an election with the Office of Personnel Management to be treated 
for all purposes--
            (1) in accordance with the provisions of this Act 
        (including the amendments made by this Act); or
            (2) as if the provisions of this Act (including the 
        amendments made by this Act) had not been enacted, except that 
        the cost-of-living allowance rate paid to that employee shall 
        be the cost-of-living allowance rate in effect on December 31, 
        2008, for that employee without any adjustment after that date.
    (c) Failure To File.--Failure to make a timely election under this 
section shall be treated in the same manner as an election made under 
subsection (b)(1) on the last day authorized under that subsection.
    (d) Notice.--To the greatest extent practicable, the Office of 
Personnel Management shall provide timely notice of the election which 
may be filed under this section to employees described under subsection 
(a).

SEC. 9. REGULATIONS.

    (a) In General.--The Director of the Office of Personnel Management 
shall prescribe regulations to carry out this Act, including--
            (1) rules for special rate employees described under 
        section 3;
            (2) rules for adjusting rates of basic pay for employees in 
        pay systems administered by the Office of Personnel Management 
        when such employees are not entitled to locality-based 
        comparability payments under section 5304 of title 5, United 
        States Code, without regard to otherwise applicable statutory 
        pay limitations during the transition period described in 
        section 4 ending on the first day of the first pay period 
        beginning on or after January 1, 2011; and
            (3) rules governing establishment and adjustment of saved 
        or retained rates for any employee whose rate of pay exceeds 
        applicable pay limitations on the first day of the first pay 
        period beginning on or after January 1, 2011.
    (b) Other Pay Systems.--With the concurrence of the Director of the 
Office of Personnel Management, the administrator of a pay system not 
administered by the Office of Personnel Management shall prescribe 
regulations to carry out this Act with respect to employees in such pay 
system, consistent with the regulations issued by the Office under 
subsection (a).

SEC. 10. EFFECTIVE DATES.

    (a) In General.--Except as provided by subsection (b), this Act 
(including the amendments made by this Act) shall take effect on the 
date of enactment of this Act.
    (b) Locality Pay and Schedule.--The amendments made by section 2 
and the provisions of section 4 shall take effect on the first day of 
the first applicable pay period beginning on or after January 1, 2009.