US Postal Service 2003 Annual Report Download - page 54

52 | 2003 annual report united states postal service
notes to the
financial statements
rate of funding, we would pay substantially more than
would be needed to cover the future benefits expected
to be paid to our employees and retirees participating in
CSRS. The projected over-funding was mostly due to
the excess interest earned by the fund; that is, interest
earnings in excess of the 5% that was assumed under
the statutory funding method. A subsequent GAO report
stated that were it not for the transfer of the cost of mili-
tary service to us, the plan was already overfunded by
approximately $6 billion. Adding the present value of
participant future contributions increases the overfund-
ing to $10 billion.
Because of OPM’s projection of significant over-
funding, the Administration proposed PL108-18.
As part of PL108-18, in May 2003 we began to
dynamically fund the plan at 17.4% of our current
CSRS employees’ wages. The Act further requires that
the Postal Service pay an additional annual amount, if
necessary, each September beginning 2004 as deter-
mined by OPM. The additional amount is based on a
calculation of any potential “supplemental liability”, if
one exists. It would represent the excess of the actuar-
ial present value of future benefits over the actuarial
present value of future contributions, earnings, and
other actuarial factors related to postal participants in
the CSRS plan. Such additional obligations may result
due to the deviation of actual results from valuation
assumptions used by OPM to determine the CSRS
base contributions. Pursuant to PL 108-18, commenc-
ing September 30, 2004, we will pay each September
30th a portion of the calculated supplemental liability,
if any, sufficient to fully fund the amount in forty years
after the enactment of the law. Under multi-employer
plan accounting, such amounts will be recognized by
us when payable.
OPM’s original estimate of the “supplemental liability” of
$4.8 billion as of September 30, 2002, assumed the
dynamic funding of the plan starting October 1, 2002.
Since the law went into effect April 23, 2003, and the
first payment of our supplemental deferred liability, if
necessary, will not be due until September 30, 2004,
we estimated, and OPM confirmed, that the present
value of the liability increased to $5.8 billion as of
September 2003. The increase adds interest to the
prior balance at 6.75% and calculates an additional
liability due to the delayed start in dynamic funding.
Under the law OPM is not required to furnish the final
actuarial calculation of the September 30, 2003 liability
until June 30, 2004. OPM will recalculate the supple-
mental liability, if any, on an annual basis. Each
September 30th, we will make any required payment
resulting from this calculation.
OPM’s 2002 assumptions of 3.75% annual CPI,
4.25% annual salary increases and 6.75% annual
interest used in calculating the supplemental liability
are not postal specific and do not reflect the most
current experience. OPM advised that the actual infla-
tion adjustments were 1.4% for 2003 and 2.1% for
2004.We anticipate these adjustments will be included
in OPM’s new calculation of the September 30, 2003,
supplemental liability estimate if any exists. On
September 30, 2004, we will be required to make any
necessary payment to the CSRDF. We estimated the
September 30, 2004 amount payable based upon the
OPM estimate of the supplemental liability and began
accruing that payable over the period from the enact-
ment of the law to September 30, 2004. The related
expense in 2003 amounted to $125 million. Our previ-
ously recorded deferred retirement cost liability and
equal asset offset were removed from our balance
sheet effective on the date the law was enacted. Under
prior law, the liability represented the total amount of
fixed payments to CSRDF as determined by OPM. The
potential liability under the new law is variable in
nature. Therefore we are disclosing information on any
potential supplemental liability in these notes.
8revenue forgone
Our operating revenue includes accruals for revenue
forgone. Revenue is forgone when Congress mandates
that we provide free mail for certain mailers. Congress
appropriated money to reimburse us for the revenue
that we have forgone in providing these services. In our
operating revenue, we have included as revenue the
amounts appropriated by Congress for revenue forgone
of $31 million for 2003, $48 million for 2002 and $67
million for 2001. Legislation enacted in 2002 and 2001
delayed payment of the amount authorized for 2003
and 2002 until the first day of the subsequent fiscal
year, respectively. Accordingly, the Postal Service has
recorded these amounts as a receivable at year end.
Under the Revenue Forgone Reform Act of 1993,
Congress is required to reimburse us $29 million
annually through 2035 (42 years). This reimbursement
is for two purposes: services we performed in 1991,
1992 and 1993 for which we have not yet been paid;
and for shortfalls in the reimbursement for the costs
we incurred for processing and delivering certain
nonprofit mail from 1994 through 1998.
The Revenue Forgone Reform Act of 1993 authorized
a total of $1.218 billion in payments. We calculated
the present value of these future reimbursements to
be approximately $390 million at 7% interest. We
recognized the $390 million as revenue during fiscal