The U.S. Senate has approved a measure that would switch federal workers in Hawai'i and Alaska from cost-of-living allowances to "locality pay," a move that should increase workers' retirement income.

The bill, if signed by President Bush, would affect about 40,000 federal civilian employees working outside the continental United States, including U.S. territories. About 17,000 federal employees work in Hawai'i.

Hawai'i Sens. Daniel Akaka and Daniel K. Inouye backed the measure, which was in response to a Bush administration proposal to do away with COLA and phase in locality pay. Employees receive COLA payments of 13 percent to 25 percent and this income is not taxed and is not considered part of a worker's base pay for retirement purposes.

Federal employees in the rest of the country receive locality pay, which is taxed, but is factored into base pay used to calculate retirement benefits. Akaka said the bill addresses the "inequity in retirement benefits for federal employees in Hawai'i, Alaska and the territories."