US Postal Service 2007 Annual Report Download - page 46

46 | 2007 Annual Report United States Postal Service
Notes to the Financial Statements
Appropriations that have not been recognized as revenue during the years
ended September 30 were $611 million in 2007, $687 million in 2006
and $772 million in 2005. The current portion is included in prepaid box
rent and other deferred revenue, and the long-term portion is in deferred
appropriations and other revenue on our balance sheets.
Note 3 – Recent pronouncements
In September 2006, the FASB issued SFAS 157, which defines fair value,
establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. The provisions of SFAS 157 are effective
as of the beginning of our 2009 fiscal year. We are currently evaluating the
impact of adopting SFAS 157 on our financial statements.
Note 4 – Postal Accountability and
Enhancement Act, Public Law 109-435
(P.L.109-435)
P.L.109-435, enacted December 20, 2006, made significant reforms in
the governance of the Postal Service and significantly altered some of our
financial responsibilities, particularly in respect to the funding of CSRS
benefits and retiree health benefits. The legislation does not change our
parent-subsidiary type relationship as an “independent establishment of the
executive branch of the Government of the United States.” Our employees
and retirees continue to participate in all federally-sponsored retirement and
health benefit plans. Therefore we continue to account for our participa-
tion in U.S. government sponsored health benefit and retirement plans
using multiemployer plan accounting rules in accordance with FAS 106,
Employers’ Accounting for Postretirement Benefits Other Than Pensions and
FAS 87, Employers’ Accounting for Pensions.
A number of major provisions of P.L.109-435 directly impact our financial
statements and are discussed below. For a complete understanding of the
new law, one must consult the full text, which can be found at
www.thomas.gov.
P.L.109-435 returned to the U.S. Treasury the obligation to fund the
portion of the CSRS retirement benefit earned while serving in the military
by participants who retire as postal employees. This funding obligation,
originally estimated by the OPM in 2003 at $27 billion, was transferred
from the U.S. Treasury to us in 2003 with the enactment of Public Law
108-18 (P.L.108-18). With the return of this funding requirement to the
U.S. Treasury, it has been estimated by OPM that we have fully funded
our CSRS pension obligation as of September 30, 2006. Recognizing this,
the law suspends our employer contribution to CSRS that would otherwise
be required under Title 5, Section 8334(a) (1), of the United States Code
until 2017. At that time, OPM will determine whether additional funding is
required to pay the benefits of postal retirees. This provision was effective
October 14, 2006. See Note 10, Retirement programs, in the Notes to the
Financial Statements for more information on our retirement obligations.
Under P.L.109-435, OPM was required by June 15, 2007 to determine the
CSRS surplus or “supplemental liability” attributable to Postal employees as
of September 30, 2006. OPM determined that this CSRS surplus was $17.1
billion as of September 30, 2006. The surplus amount was transferred
to the newly created PSRHBF, which is held by the U.S. Treasury and
controlled by OPM, on June 29, 2007.
The PSRHBF will be used, commencing in 2017, to pay our share of the
health insurance premiums for our current and future Postal Service retir-
ees. Beginning in 2007, P.L.109-435 requires us to make annual payments
into the PSRHBF. The payment schedule in the law requires us to pay, on
average, $5.6 billion per year into the fund for ten years, which began in
2007. This is in addition to our regularly allocated cost of premiums for
current retirees, which will continue to be payable through 2016. After
these annual payments are complete, OPM will make an actuarial valuation
and determine whether any further payments into the PSRHBF are required.
In 2007 we paid into the PSRHBF and expensed $5.4 billion.
P.L.109-435 repealed the escrow provisions of P.L.108-18, which required us
to place into an escrow account by September 2006, any “savings” from the
change in the retirement provisions created by P.L.108-18. OPM calculated
the savings at $2,958 million as of September 30, 2006. These escrowed
funds were shown as restricted cash on our September 30, 2006 balance
sheet. P.L.109-435 required that we pay the 2006 escrowed “savings” to the
PSRHBF. In 2007 we expensed the entire amount payable to the PSRHBF. On
April 6, 2007, these “savings” were transferred to the PSRHBF.
The following table summarizes the impacts of the new legislation on our
statement of operations for 2007.
P.L.109-435 Comparison
Prior to
Public Law
109-435
P.L.109-435
Impact
After
Public Law
109-435
(Dollars in millions)
Line on Statement of Operations:
Compensation and benefits $ 55,537 $ (1,351) $ 54,186
Retiree health benefits 1,726 8,358 10,084
Total 57,263 7,007 64,270
Deferred Interest on CSRS
Supplemental Liability 231 (231) -
Net Income (Loss) $ 1,634 $ (6,776) $ (5,142)
Impact on Compensation and Benefits and Retiree Health Benefits
Expense
Discontinuance of CSRS employer contributions $ (1,325)
Repeal of 2007 “Supplemental Liability”
principal (26)
Impact on compensation and benefits
expense $(1,351)
PSRHBF annual expense $ 5,400
PSRHBF expense (escrow transfer) 2,958
Impact on retiree health benefits expense $ 8,358