US Postal Service 2009 Annual Report Download - page 50

48 | 2009 Annual Report United States Postal Service
RETIREE HEALTH BENEFITS
Eligible postal employees, those with at least fi ve consec-
utive years participation in the FEHBP immediately pre-
ceding retirement, are entitled to continue to participate
in FEHBP after retirement. As outlined in ASC 715, the
amount that is due to the PSRHBF in any given year, plus
our portion of the current premium expense, is recognized
as an expense when due.
P.L. 109-435 made several changes to the way we fund
and report our obligations for post-retirement health ben-
efi ts. The law established the PSRHBF, directed OPM to
determine any Postal Service surplus in the CSRDF as of
September 30, 2006, and further directed that the surplus
be deposited 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 benefi ts by pay-
ing into the PSRHBF the 2006 escrow resulting from P.L.
108-18 ($2.958 billion) and by making additional annual
payments ranging from $1.4 billion to $5.8 billion per year
through 2016. On October 1, 2009, P.L. 111-68 became
law and decreased our FY 2009 payment required under
the provisions of P.L. 109-435 by $4 billion — from $5.4
billion to $1.4 billion.
Although P.L. 109-435 dictates the funding requirements
through 2016, the amounts to be funded and the timing of
funding can be changed at any time with passage of a new
law or upon an amendment of existing law as passed by
Congress and signed into law by the President. After these
annual payments are complete, OPM will conduct an actu-
arial valuation and determine whether any further payments
into the fund are required. Beginning in 2017, the PSRHBF
will begin to pay our portion of the premium payments.
The 2009 payment to the PSRHBF was $1.4 billion while
payments in 2008 and 2007 were $5.6 billion and $5.4
billion, respectively. See Note 5, Subsequent Events, and
Note 10, Health Benefi t Programs, in Notes to the Finan-
cial Statements, for further discussion of the accounting
treatment for P.L. 111-68.
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 ma-
jor drivers of retiree health benefi ts 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
benefi t premium expense, exclusive of the expense for the
PSRHBF, has increased every year. Retiree health benefi ts
premium expense increased 10.1% in 2009, 4.7% in 2008
and 5.4% in 2007. The number of Postal Service annui-
tants and survivors has grown to approximately 463,000
in 2009, compared to 452,000 in 2008 and 450,000 in
2007. The average monthly apportionment, the percent-
age of retiree premiums charged to the Postal Service,
has increased from 68.1% in 2007 to 69.9% in 2008 and
72.0% in 2009.
The following table shows the retiree health benefi ts ex-
pense for 2009, 2008 and 2007.
Retiree Health Benefi ts Expense
(dollars in millions)
2009 2008 2007
Employer Premium Expense $ 1,990 $ 1,807 $ 1,726
Transfer of 2006 Escrow to PSRHBF — — 2,958
P.L. 109-435 Scheduled Payment 1,400 5,600 5,400
Total Retiree Health Benefi t Expenses $ 3,390 $ 7,407 $ 10,084
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 Benefi t Fund Funded Status and
Components of Net Periodic Costs as calculated by OPM *
(dollars in millions)
2009 2008
Beginning Actuarial Liability at October 1 $ 86,082 $ 80,786
– Actuarial Gain (4,593) (1,136)
+ Normal Costs 2,902 3,389
+ Interest @ 6.25% 5,093 4,977
Subtotal Net Periodic Costs 3,402 7,230
– Premium Payments (2,012) (1,934)
Actuarial Liability at September 30 87,472 86,082
– Fund Balance at September 30 (35,482) (32,610)
Unfunded Obligations at September 30 $ 51,990 $ 53,472
* The 2009 medical infl ation assumption was 8% as of the valuation date and grades
down to an ultimate value of 5.5%. The 2008 medical infl ation assumption was 7%.
The OPM valuation of Post Retirement Health Liabilities
and Normal Costs was prepared in accordance with Fed-
eral Accounting Standards Advisory Board (FASAB) State-
ment of Federal Financial Accounting Standards (SFFAS)
No. 5. SFFAS 5 requires the use of the aggregate Entry
Age Normal actuarial cost method.