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Overseas troops see pay swings thanks to COLA

The paychecks of some troops stationed overseas have gotten smaller over the past 12 months — in some cases, by as much as $161 per bimonthly paycheck. Others have seen their pay grow compared with a year ago, although they’ve had significant ups and downs along the way.

Such is the effect of the fluctuations of the dollar on the overseas cost-of-living allowance paid to 260,000 service members in more than 600 locations.

For example, the end-of-September paycheck of an E-5 with six years of service and three dependents stationed in Seoul included a COLA payment of $208 — $161 less than in the first paycheck of October 2007.

E-5s in similar circumstances at Lakenheath and Mildenhall, England, saw a $346 COLA payment in that September check — a drop of $92 from 12 months earlier.

The COLA payment of a similar E-5 based in Yokota, Japan, was $277 in early October of last year and $300 in late September of this year — an overall increase of $23. But along the way, that member’s COLA payment reached as high as $394 in early March as the Japanese yen rose in value against the dollar, only to fall back in the months since then.

Troops in Germany have seen a similar pattern. An E-5’s COLA payment is the same now as it was a year ago, about $369, but the payment has gone up and down over that time as the dollar fluctuated against the euro.

While troops may find it disheartening when their paycheck’s bottom line shrinks by several hundred dollars, they’re not “losing” money on the COLA because it’s doing exactly what it’s meant to do.

The overseas COLA aims to maintain the purchasing power of troops in places where the cost of living is higher than in the U.S. As such, it’s purposely designed to fluctuate with the value of the dollar against foreign currencies.

For example, while service members in Seoul may not be getting as much COLA as they were a year ago, it’s a lot less expensive for them to shop off base these days because “the dollar is buying a lot more [South Korean] won,” said Roy Sammarco of the Pentagon’s Per Diem, Travel and Transportation Allowance Committee, which oversees the COLA.

“In terms of purchasing power, it should be a wash,” he said.

To determine the COLA, the committee looks at the dollar’s value as well as annual market-basket surveys of goods and services in the U.S. and overseas locations — including Alaska and Hawaii, and a “lifestyle survey” done every three years to gauge troops’ spending patterns.

The surveys are used to set a baseline index for measuring the relative cost of living in the U.S. and each overseas location.

If the market-basket survey shows that a $100 “basket” of goods would cost $130 in Seoul, the committee figures that the cost of living in Seoul is 30 percent higher and take that into account in its calculations.

The living pattern survey done every three years in each location determines how much money troops spend on and off base, and where they generally shop off base. Those shops are where the overseas market basket surveys are conducted.

One the indexes are set, COLA payments are adjusted as often as every biweekly paycheck, if necessary, to track with short-term currency fluctuations.

Single service members in barracks or on ships get a partial overseas COLA but aren’t included in the surveys because the allowance is mainly meant to support service members with families, and the indexes are based on family behavior.

The COLA moves in the opposite direction of the dollar; if the dollar rises in value against foreign currencies, the COLA drops, since a dollar goes further off base. If the dollar sinks, the COLA increases to compensate for troops’ diminishing off-base purchasing power.

While the U.S. economy doesn’t look so hot right now, the dollar has done well in many overseas locations recently.

From April through September, and especially over the summer, the dollar made major gains against the South Korean won, British pound, Japanese yen, and the euro — and, in the process, drove down COLA payments in those areas.

The Pentagon committee that oversees the COLA can adjust rates no more often than every two weeks, so it has to use estimated exchange rates for its adjustments. That makes adjusting the COLA more challenging when the dollar swings wildly against foreign currencies, as it has over the past couple of months.

But over time, Sammarco said, the differences between the committee’s estimates and the actual average exchange rates even out almost exactly, so troops never lose money on the COLA.