US Postal Service 2008 Annual Report Download - page 61

2008 Annual Report United States Postal Service | 61
For medical claims, we used 5.4% for returns on invest-
ments and 5.0% for medical future inflation for both 2008
and 2007.
The workers compensation liability estimation technique
used in 2006 and prior years utilized a net discount rate,
which was the estimated difference between the expect-
ed return on investments in a basket of Treasury securi-
ties offset by the estimated inflation rate for medical costs
and wages. The net discount rate in 2006 was 3.3% for
compensation claims and -0.8% for medical claims. The
estimation technique used by the independent actuarial
consulting firm in 2007 and by our new model in 2008 uses
separate calculations for returns on investment and infla-
tion factors rather than a net discount rate. The combined
reduction to our 2007 liability as a result of the changes in
actuarial valuation technique, and the underlying assump-
tions of inflation and discount rates was $685 million. This
is shown in the following table.
2007 Workers’
Compensation
Assumption Changes
Old
Assumptions
Current
Assumptions
Net
Reduction
(Dollars in millions)
Compensation Claims $ 5,565 $ 5,272 $ 293
Medical Claims 2,820 2,428 392
Total Liability $ 8,385 $ 7,700 $ 685
In 2008, the independent actuary changed their model cal-
culating our liability related to injuries occurring more than
10 years in the past by increasing the length of the period
of our past claim payment experience used as a basis to
project future claim payments. This change decreased our
liability for 2008 by approximately $154 million.
In 2008, we recorded $1,227 million in workers’ compen-
sation expense, compared to the $880 million in 2007 and
$1,279 million recorded in 2006. The effect of the 2008
and 2007 changes discussed above are accounted for as
changes in the accounting estimate, as defined by GAAP.
In addition to the cost of workers’ compensation claims,
DOL charges us an administrative fee for processing claims.
In 2008, the administrative fee, which is included in the ex-
pense above, was $52 million, compared to $49 million in
2007 and $45 million in 2006.
Note 12 — Revenue forgone
Our operating revenue includes accruals for revenue for-
gone. Revenue is forgone when Congress mandates that
we provide mail services for designated mailers at free or
reduced rates. Congress then appropriates money to reim-
burse us for the revenue that we have forgone in providing
these services.
We estimate the amount of services that will be provided
during a given year and forward a funding request to Con-
gress. At the end of the year we reconcile this request with
the actual usage. Depending upon whether actual usage is
higher or lower than our estimate, we will request additional
funding or return the excess funding via a reduction to our
next revenue forgone funding request.
In 2008, we included $103 million of revenue forgone as
operating revenue, $63 million in 2007, and $99 million in
2006. We record requested amounts as government re-
ceivables until the appropriations are received.
The Revenue Forgone Reform Act of 1993 authorized Con-
gress to make 42 annual payments of $29 million each, be-
ginning in 1994 and continuing through 2035. These pay-
ments are reimbursement for two purposes: services we
performed in 1991, 1992, and 1993 for which we have not
yet been fully paid; and for shortfalls in the reimbursement
for the costs we incurred for processing and delivering cer-
tain Nonprofit mail entitled to statutorily reduced costs from
1994 through 1998.
The future payments authorized by the Revenue Forgone
Reform Act of 1993 totaled $1,218 million for which we
calculated the present value, at 7% interest, to be approxi-
mately $390 million. We recognized the $390 million as
revenue during fiscal years 1991 through 1998. The dis-
counted present value of the remaining future payments as
of the years ended September 30 was $349 million in 2008
and $353 million in 2007.
The total receivable for revenue forgone as of the years end-
ed September 30 was $495 million in 2008 and $476 mil-
lion in 2007.