US Postal Service 2008 Annual Report Download - page 37

2008 Annual Report United States Postal Service | 37
Retiree Health Benefits
Expense 2008 2007 2006
(Dollars in millions)
Employer Premium Expense $ 1,807 $ 1,726 $ 1,637
Transfer of 2006 Escrow
to PSRHBF — 2,958 —
P.L. 109-435
Scheduled Payment 5,600 5,400 —
Total $ 7,407 $ 10,084 $ 1,637
PSRHBF
P.L. 109-435 requires that OPM provide, and that we report,
certain information concerning the obligations, costs, and
funding status of the PSRHBF. The following table shows
the funded status and components of net periodic costs.
Postal Service Retiree Health Benefit
Fund Funded Status and Components
of Net Periodic Costs as calculated
by OPM* 2008 2007
(Dollars in millions)
Beginning Actuarial Liability at
October 1 $ 80,786 $ 74,815
- Actuarial Gain (1,136) —
+ Normal Costs 3,389 3,175
+ Interest @ 6.25% 4,977 4,676
Subtotal Net Periodic Costs 7,230 7,851
- Premium Payments (1,934) (1,880)
Actuarial Liability at September 30 86,082 80,786
- Fund Balance at September 30 (32,610) (25,745)
Unfunded Obligations at
September 30 $53,472 $55,041
*Medical Inflation Assumption = 7%
The OPM valuation of Post Retirement Health Liabilities and
Normal Costs were prepared in accordance with Federal
Accounting Standards Advisory Board (FASAB) Statement
of Federal Financial Accounting Standards (SFFAS) No. 5.
SFFAS 5 requires the use of the aggregate Entry Age Nor-
mal actuarial cost method.
Demographic assumptions and an interest rate assumption
of 6.25% are consistent with the pension valuation assump-
tions, and decrements are based upon counts or numbers
rather than dollars.
The normal cost, which is on a per-participant basis, is com-
puted to increase annually by a constant medical inflation
rate which is assumed to be 7% per annum. Normal costs
are derived from the current FEHBP on-roll population with
an accrual period from entry into FEHBP to assumed retire-
ment. Entry into the FEHBP is generally later than entry into
the retirement systems.
The accrued liability is equal to the total liability less future
normal payments. The liabilities and normal costs that
appear in the OPM financial statements and are used in
agency reporting are based upon annuitant medical costs
(including administration costs) less annuitant premium
payments. The values used in these valuations are based
upon the same methodology and assumptions as for the
financial statements except the average government share
of premium payments for annuitants is substituted for an-
nuitant medical costs less annuitant premium payments.
The government share of premium payments has been ad-
justed to reflect premium payment levels that correspond
to actual costs. This amount is assumed to increase at 7%
per annum. For current Postal annuitants, this government
share of premium payments is adjusted to reflect the pro-
rata share of civilian service to total service for which the
Postal Service is responsible. Postal annuitant counts in-
clude contracts for which the Postal Service makes no pay-
ment. The pro-rata adjustment is made by applying calcu-
lated factors based upon actual payments that vary by age
and Medicare status of the enrollments. For active postal
employees, the pro-rata share in retirement is assumed to
be 93% of the total.
The following table shows the net assets of the PSHRBF.
Net Assets of Retiree Health
Benefit Fund as calculated
by OPM 2008 2007
(Dollars in millions)
Beginning Balance at October 1 $ 25,745 $ —
Contributions and Transfers 5,600 25,458
Earnings @ 4.8% and 5.0%,
respectively 1,265 287
Net increase 6,865 25,745
Fund Balance at September 30 $ 32,610 $ 25,745