US Postal Service 2005 Annual Report Download - page 35

2005 Annual Report United States Postal Service | 25
Public Law 108-18 (P.L.108-18)
The Postal Civil Service Retirement System Funding
Reform Act of 2003, Public Law (P.L.108-18), changed the
way we fund our Civil Service Retirement System obliga-
tions and altered the related schedules for our payments to
the Civil Service Retirement and Disability Fund (CSRDF).
P.L.108-18 was enacted in response to a November 2002
review of estimates and the Postal Service’s payments into
and returns earned by the CSRDF. OPM determined that
at the end of 2002, we had funded more than would be
needed to cover the future benefits expected to be paid to
our employees and retirees participating in CSRS under
then current law.
P.L.108-18 required us, in May 2003, to begin to fund our
obligations to the CSRDF based on dynamic assumptions.
P.L.108-18 requires that the dynamic funding assumptions
include the full value of future benefits related to military
or volunteer service when calculating the actuarial present
value of future benefits by OPM. Under the previous exist-
ing law, military and voluntary service costs were funded
by the United States Treasury Department. The recognition
of military service credit effectively transferred $27 billion
in obligations from U.S. taxpayers to our ratepayers. This
change in funding responsibility changed our CSRS fund-
ing status at the end of 2002 from being over funded to
being under funded. Use of dynamic assumptions for the
valuation also increased our biweekly payroll contribution
for CSRS employees’ retirement from 7.0% of basic pay
to 17.4%.
In addition to the 17.4% employer contribution, we make
annual payments on the excess of the actuarial present
value of future benefits over the actuarial present value
of plan assets, future plan contributions, earnings, and
other factors. This amount is referred to as the “supple-
mental liability” and is calculated by OPM each year. In
September 2004, OPM informed us that our first supple-
mental payment, based on the September 30, 2003 valu-
ation, would be $240 million. We included $125 million
of this payment in our 2003 expenses
and $115 million in 2004. In 2005
the “supplemental liability” payment
increased to $290 million based on
OPM’s valuation of the “supplemental
liability” at $4.2 billion as of September
30, 2004. See note 7 of the Notes to
the Financial Statements for further
explanation.
Use of P.L.108-18 “Savings”
P.L.108-18 identifies as “savings” the
difference between the contributions we would have made
to the CSRDF had the legislation not been enacted, and
the contributions we now make under the law. In 2003
and 2004 we were required to use these “savings” to
reduce our debt. In 2003, OPM calculated our “savings”
to be $3.5 billion, and we reduced our debt with the U.S.
Treasury by $3.8 billion, thus exceeding the requirements
of the law. In 2004, we used “savings” of $2.7 billion to re-
duce our outstanding debt to the U.S. Treasury. In addition
to the required debt reduction we also reduced our debt
by an additional $2.8 billion, for a total debt reduction of
$5.5 billion in 2004. In 2005 we paid our remaining debt
of $1.8 billion, and used the remainder of the “savings” to
offset operational expenses and hold postage rates steady.
As required by P.L.108-18, on September 30, 2003, we
submitted two proposals to the President, Congress,
and the Government Accountability Office. The first
presented our position as to how the “savings” realized
after 2005 should be used; the second presented our
position that the obligation to pay CSRS liabilities arising
from military service be returned to the U.S. Treasury.
In both proposals, we recommended eliminating the
escrow requirement and proposed using a portion of
the “savings” after 2005 to help finance federal retiree
health benefit obligations. As discussed in the “Pending
Legislation” section, two pieces of legislation address-
ing, among other issues, the funding of CSRS credit for
military service and the escrow provisions of P.L.108-18
are currently pending before Congress.
Congress will consider what to do with the post-2005
“savings” but until Congress acts, any “savings” after
2005 must be placed in escrow. To fund the 2006 escrow
requirement, in April 2005, the Board of Governors ap-
proved a request to the PRC for a recommended decision
for an across-the-board increase in postage rates and fees
of 5.4%. On November 14, 2005 the Governors voted to
accept the Postal Rate Commission’s recommendations to
(Dollars in billions)
Program
Present Value
Of Benefits
Present Value
Of Expected
Future
Employer &
Employee
Contributions
Current Postal
Fund
Surplus
(Deficit)
CSRS $ 195.0 B $ 14.1 B $ 176.7 B $ (4.2) B
FERS 71.3 B 33.1 B 47.7 B 9.5 B
Total $ 266.3 B $ 47.2 B $ 224.4 B $ 5.3 B