US Postal Service 2003 Annual Report Download - page 31

2003 annual report united states postal service | 29
management discussion & analysis
operations
fers $27 billion in cost from U. S. taxpayers to
our ratepayers. Without this transfer, we over-
funded these obligations by $10 billion.
However, the Act provided an opportunity
to reconsider this transfer by requiring the
Postal Service, Department of the U.S.
Treasury and the OPM to submit proposals
“detailing whether and to what extent the
Department of the U.S. Treasury or the Postal
Service should be responsible for the funding
of benefits attributable to the military service
of current and former employees of the Postal
Service.” We recommended that the respon-
sibility for these costs should be returned to
the U.S. Treasury. The General Accounting
Office (GAO) prepared a written evaluation of
each proposal and submitted its evaluation to
the Committee on Government Reform of the
House of Representatives and the Committee
on Governmental Affairs of the Senate on
November 26, 2003.
The Act places additional requirements on
the Postal Service. Specifically, the Act identi-
fies as “savings” the difference between the
contributions we would have made if the Act
had not been enacted and the contributions
we make under the Act. In 2003 and 2004,
we must use these “savings” to reduce our
outstanding debt to the U. S. Treasury. We
estimated the 2003 “savings” at $3.5 billion,
and we reduced our debt with the U.S.
Treasury by $3.8 billion in 2003, thus exceed-
ing the requirements of the Act. We will use
the “savings” in 2005 to hold postal rates
steady until at least 2006.
Congress will consider what to do with the
post-2005 “savings,” but until Congress acts,
any “savings” after 2005 must be placed in
escrow. As required by the Act, we submitted
on September 30, 2003, our proposal to the
President, Congress and the GAO on how the
“savings” after 2005 should be used. Based
on its impact on postage rates and its effects
on the mailing industry, the general public and
the economy as a whole, we recommended
the elimination of the escrow requirement. We
believe that the “escrowed savings” require-
ment of the Act will result not only in
increased postage rates but also more
frequent postage rate increases as the over-
funding amounts escalate. From the stand-
point of the postal ratepayer, there are no
“savings” flowing to postage rates as long as
the escrow continues in effect.
We believe, and we have proposed to
Congress, that the military service responsibility
should be returned to the U.S. Treasury, with the
resulting $10 billion in over-funding remaining
in the Civil Service Retirement and Disability
Fund in a separate account designated as the
“Postal Service Retiree Health Benefit Fund.”
With this change, we would begin pre-funding
retiree health benefits for employees and
retirees. If the military service charge is not
returned to the U.S. Treasury, we believe the
“savings” or over-funding should be used to
fund current retirees’ health benefits and pre-
fund new employees’ post-retirement health
care benefits, repay debt and fund productivity
and cost saving capital investments.
Separately, we have taken issue with the
methodology OPM used to calculate our
CSRS obligations. Specifically, we believe that
OPM used an allocation methodology to
attribute CSRS pension costs of the pre-July
1, 1971 service that assigns an unreasonably
large share of the burden to us for payment.
We requested OPM to consider an alternative
allocation methodology that is consistent with
the approach OPM previously used to allocate
the increase in CSRS pension costs created
by annual cost-of-living-adjustments granted
to retirees. After OPM rejected our proposal,
we recommended a different compromise to
allocate between us and the federal govern-
ment the pre-July 1, 1971 and post-June 30,
1971 CSRS pension costs for the former Post
Office Department on a more equitable basis.
Under the Act, we may request the Board of
Actuaries of the Civil Service Retirement
System to review and make adjustments to
OPM computations. We are considering filing
such an appeal.
(See Notes 6 and 7 of the Notes to the
Financial Statements for additional informa-
tion.)