US Postal Service 2008 Annual Report Download - page 36

36 | 2008 Annual Report United States Postal Service
OPM estimates the contributions and benefit payments for
the next five years as follows:
Projection of CSRS and FERS Contributions and Benefit
Payments* as calculated by OPM
(Dollars in billions) CSRS FERS
Total
Contributions
Total Benefit
Payments
Total
Contributions
Total Benefit
Payments
2008 $ 0.5 $ 9.4 $ 3.1 $ 0.8
2009 0.4 10.0 3.4 0.9
2010 0.4 10.6 3.7 1.1
2011 0.4 11.2 4.1 1.3
2012 0.3 11.8 4.4 1.5
* Assumes total employee population remains constant
Health Benefits
Postal employees and retirees may participate in the Fed-
eral Employees’ Health Benefits Program (FEHBP), which
is administered by OPM. We account for our employee and
retiree health benefit costs as an expense in the period our
contribution is due and payable to FEHBP, using multiem-
ployer plan accounting rules in accordance with Financial
Accounting Standards Board Statement 106 (FAS 106),
Employers’ Accounting for Postretirement Benefits Other
Than Pensions.
The drivers of our active employee health care costs are
the number of employees electing coverage and the pre-
mium costs of the plans they select. In 2008, health benefit
expenses for active employees were $5,376 million, a de-
crease of $25 million compared to 2007. This was 6.9% of
our total operating expenses. The 2007 expense of $5,401
million was 6.7% of our total operating expenses and in-
creased by $56 million, or 1.0%, over 2006.
Premiums for each plan participating in FEHBP are deter-
mined annually by OPM. OPM announced average premi-
um increases effective in January 2008 were 2.0%, 1.8% in
January 2007 and 6.6% in January 2006. The low level of
premium increases in 2007 and 2008 are the result of lower
plan costs and the application of plan reserves to lower pre-
miums. However, in September 2008, OPM announced an
average premium increase of 7.0% for January 2009.
Retiree Health Benefits
Eligible postal employees, those with at least five consecu-
tive years participation in the FEHBP immediately preceding
retirement, are entitled to continue to participate in FEHBP
postretirement. As outlined in FAS 106, the amount we pay
into the PSRHBF, plus our portion of the current premium
expense, is recognized as an expense when due. See Note
4, Postal Accountability and Enhancement Act, Public Law
109-435 (P.L. 109-435) and Note 9, Health benefit programs,
in Notes to the Financial Statements, for further discussion
of this accounting treatment.
P.L. 109-435 made several changes to the way we fund
and report our obligations for postretirement health ben-
efits. The law established the PSRHBF and directed OPM
to determine any Postal Service surplus in the Civil Service
Retirement and Disability Fund as of September 30, 2006,
and to deposit the surplus into the PSRHBF by June 30,
2007. OPM attributed to the Postal Service a surplus of
$17.1 billion in the CSRS fund as of September 30, 2006,
and transferred the funds as required on June 29, 2007.
P.L. 109-435 also required that we begin to fund the OPM-
determined obligation for retiree health benefits by paying
into the PSRHBF the 2006 escrow resulting from P.L. 108-
18 ($2.958 billion) and by making additional annual pay-
ments averaging $5.6 billion per year through 2016. Begin-
ning in 2017, the PSRHBF will begin to pay our portion of
the premium payments. Payment to the PSRHBF was $5.6
billion in 2008 and $5.4 billion in 2007.
Under P.L. 109-435, OPM will continue to charge us for
our portion of the premiums for postal retirees currently
participating in FEHBP, and we will continue to expense
these payments as they become due until 2017. The major
drivers of our retiree health benefits premium costs are the
number of current participants on the rolls, the mix of plans
selected by retirees, the premium costs of those plans,
and the apportionment of premium costs to the federal
government for retiree service prior to 1971. Retiree health
benefit premium expense, exclusive of the expense for the
PSRHBF, has increased every year. Retiree health benefits
employee premium expense increased 4.7% in 2008 and
5.4% in 2007. The number of Postal Service annuitants
and survivors has grown to approximately 452,000 in 2008
compared to 450,000 in 2007, and 448,000 in 2006. The
average monthly apportionment, the percentage of retiree
premiums charged to the Postal Service, has increased
from 66.4% in 2006 to 69.9% in 2008. A summary of the
retiree health benefits expense for 2008, 2007, and 2006 is
included in the table below.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations