US Postal Service 2008 Annual Report Download - page 38

38 | 2008 Annual Report United States Postal Service
The assets of the PSRHBF are composed entirely of spe-
cial issue Treasury securities with maturities ranging up to
15 years. The long-term securities bear interest rates rang-
ing from 4% to 5%, while the short-term securities have
an interest rate of 3.75%. The expected rate of return was
6.25% for both 2008 and 2007, while the actual rates of
return were 4.8% for 2008 and 5.0% for 2007.
Because there are several areas of judgment involved in
calculating this obligation, estimates could vary widely de-
pending on the assumptions used. Utilizing the same un-
derlying data that was used in preparing the estimate in the
Postal Service Retiree Health Benefit Fund Funded Status
and Components of Net Periodic Costs chart, the Sep-
tember 30, 2008 obligation could range from $40 billion
to $70 billion, solely by varying the inflation rate by plus or
minus 1% while the 2007 unfunded obligation would range
from $49 billion to $69 billion using the same assumption.
Projection of PSRHBF
Contributions and
Benefit Payments Contributions Payments
(Dollars in millions)
2009 $ 5,400 $ —
2010 5,500 —
2011 5,500 —
2012 5,600 —
2013 5,600 —
Workers’ Compensation
Our employees are covered by the Federal Employees’
Compensation Act, administered by the Department of La-
bor’s Office of Workers’ Compensation Programs (OWCP),
which makes all decisions regarding injured workers’ eligi-
bility for benefits. However, we pay all workers’ compensa-
tion claims from postal funds.
We record as a liability the present value of all future pay-
ments we expect to make for those employees receiving
workers’ compensation. At the end of 2008, we estimate
our total liability for future workers’ compensation costs at
$7,968 million, an increase of $197 million, or 2.5%, from
2007. In 2007, our liability decreased $92 million, or 1.2%,
from 2006. Our workers’ compensation expense was
$1,227 million for 2008, $880 million for 2007, and $1,279
million for 2006.
As discussed in Note 11, Workers’ compensation, in the
Notes to the Financial Statements, we implemented an im-
proved model for estimating our liability for workers com-
pensation in 2008, with the assistance of an independent
actuary. The revised model is similar to that used in the inde-
pendent actuarial valuation, which formed the basis for the
recorded liability in 2007. The revised model combines four
generally accepted actuarial valuation techniques to project
our future claim payments based upon our currently open
claims and our past claim payment experience. In addition,
we refined our estimation in 2008 by taking a longer period
of claim payment experience into consideration in the pro-
jection. The cumulative impact of the changes in estimate
reduced our 2007 liability and expense by $685 million and
our 2008 liability and expense by $154 million.
In 2008, we experienced a 1.5% increase in the number of
medical claims receiving payments and a 3.8% increase in
the number of compensation claims receiving payments.
The actual claim payments increased $56 million, or 6.2%,
over 2007. A factor in this increase was COLAs of 2.4%
granted to all compensation claimants in March 2007 and
4.3% granted in March 2008, which raised the payments
to all compensation claimants on the rolls. Medical claims
payments during the year grew by 8.9%.
In 2007, we experienced a 4.6% decrease in the number
of medical claims receiving payments and a 0.2% decrease
in the number of compensation claims receiving payments.
Although the number of claims receiving payments de-
creased, the actual cost of claims increased $41 million,
or 4.7%, over 2006. A factor in this increase was the 2.4%
March 2007 COLA, which raised the payments to all com-
pensation claimants on the rolls.
Transportation Expenses
Transportation expenses for 2008 were $6,961 million, an
increase of $459 million, or 7.1%, compared to 2007. Com-
pared to 2006, 2007 transportation expenses increased
$457 million or 7.6%. Transportation costs are largely made
up of air and highway transportation.
Transportation Expense 2008 2007 2006
(Dollars in millions)
Highway Transportation $ 3,499 $ 3,150 $ 2,977
Air Transportation 3,047 2,990 2,771
Other Transportation 415 362 297
Total Transportation Expense $ 6,961 $ 6,502 $ 6,045
Management’s Discussion and Analysis of
Financial Condition and Results of Operations