US Postal Service 2009 Annual Report Download - page 51

2009 Annual Report United States Postal Service | 49
Demographic assumptions and an interest rate assump-
tion of 6.25% are consistent with the pension valuation
assumptions, and decrements are based upon counts or
numbers rather than dollars.
The normal cost, which is on a per-participant basis, is
computed to increase annually by a constant medical in-
fl ation rate which is assumed to be 8% per annum as of
the valuation date and grade down to an ultimate value of
5.5%. Past year medical infl ation is assumed to be 7%.
Normal costs are derived from the current FEHBP on-roll
population with an accrual period from entry into FEHBP
to assumed retirement. 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 ap-
pear in the OPM fi nancial statements used in agency re-
porting 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 fi nancial
statements except the average government share of pre-
mium payments for annuitants is substituted for annuitant
medical costs less annuitant premium payments. This
amount is assumed to increase at 8% per annum as of
the valuation date and grade down to an ultimate value
of 5.5%. For current postal annuitants, this government
share of premium payments is adjusted to refl ect 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
payment. The pro-rata adjustment is made by applying
calculated 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 as-
sumed to be 93% of the total.
The following table shows the net assets of the PSRHBF.
Net Assets of Retiree Health Benefi t Fund (as calculated by OPM)
(dollars in millions)
2009 2008
Beginning Balance at October 1 $ 32,610 $ 25,745
Contributions and Transfers 1,400 5,600
Earnings @ 4.5% and 4.8%, respectively 1,472 1,265
Net increase 2,872 6,865
Fund Balance at September 30 $ 35,482 $ 32,610
The assets of the PSRHBF are comprised entirely of spe-
cial issue Treasury securities with maturities ranging up
to 15 years. The long-term securities bear interest rates
ranging from 3.25% to 5.0%, while the short-term securi-
ties have interest rates ranging from 3.13% to 5.0%. The
expected rate of return was 6.25% for both 2009 and
2008, while the actual rates of return were 4.5% for 2009
and 4.8% for 2008.
Because there are several areas of judgment involved in
calculating this obligation, estimates could vary widely
depending on the assumptions used. Utilizing the same
underlying data that was used in preparing the estimate in
the table above, the September 30, 2009, obligation could
range from $37 billion to $65 billion, solely by varying the
infl ation rate by plus or minus 1%, while the 2008 unfund-
ed obligation would range from $40 billion to $70 billion.
Projection of PSRHBF Contributions and Benefi t Payments
(dollars in millions)
Contributions Payments
2010 $ 5,500 $ —
2011 5,500 —
2012 5,600 —
2013 5,600 —
2014 5,700 —
WORKERS’ COMPENSATION
Postal employees are covered by the Federal Employees’
Compensation Act, administered by the Department of La-
bor’s Offi ce of Workers’ Compensation Programs (OWCP),
which makes all decisions regarding injured workers’ eli-
gibility for benefi ts. However, we pay the Department of
Labor (DOL) all workers’ compensation claims, as well as
an administrative fee, 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 2009, we estimate
our total liability for future workers’ compensation costs at
$10,133 million, an increase of $2,165 million, or 27.2%,
from 2008. In 2008, our liability increased $197 million,
or 2.5%, from 2007. Our workers’ compensation expense
was $2,223 million for 2009, $1,227 million for 2008 and
$880 million for 2007.
As discussed in Note 12, Workers’ Compensation, in the
Notes to the Financial Statements, $1,051 million of the
increase in the liability at September 30, 2009, results
from a change in the timing of the annual payment to DOL
for claims paid on our behalf. Beginning in 2009, we are
making the payment on the statutorily required deadline of
October 15, instead of September 15 as we had done in
previous years.
Beginning in Quarter III, 2009, we experienced a signifi -
cant change in our discount and infl ation rates used in our
liability estimate on a quarterly basis. The economic re-
cession that began in December 2007 and corresponding