US Postal Service 2011 Annual Report Download - page 27

2011 Report on Form 10-K United States Postal Service - 25 -
employees in the FERS plan increased to 85.0% in 2011
from 83.6% in 2010.
On June 24, 2011, the Postal Service suspended its
employer’s contributions to OPM for the defined benefit
portion of its FERS funding requirement. This action was
necessary in order to help provide sufficient liquidity to
fund Postal Service operations in light of continued
weakness in mail volumes and the significant uncertainty
regarding legislative reforms. Additionally, the Postal
Service overfunded its FERS obligations by $6.9 billion at
September 30, 2009, and sought to apply that overfunded
balance to amounts currently due for employer
contributions. OPM’s most recent calculation shows that
the FERS surplus has grown to $10.9 billion as of
September 30, 2010, the latest actual data available, and
is projected to grow to $11.4 billion by September 30,
2011, assuming all employer contributions are made.
Based on advice received from the Office of Legal
Counsel at the Department of Justice, in Quarter I, 2012,
the Postal Service is expected to resume the regular
biweekly payments for its FERS employer’s contributions
as well as remit all previously withheld payments,
including the $911 million accrued at September 30, 2011.
However, we continue to seek a refund of the overfunded
balance.
Retirement expense for current employees decreased in
2010 by $108 million or 1.8% less than the 2009 expense
of $5,917 million due to the decreasing size of the work
force in 2010. Retirement expense was 8.3%, 7.7%, and
8.2% of total operating expenses in 2011, 2010, and
2009, respectively.
In January 2010, the Office of Inspector General (OIG)
issued a report in which it evaluated the funding of the
Postal Service’s CSRS responsibility, concluding that the
Postal Service had overfunded its obligation by $75
billion. At the Postal Service’s request, the PRC initiated
an independent actuarial review of this issue and issued a
report in June 2010 in which the independent actuary
determined that, although the cost allocation methodology
used in 1971 was appropriate at the time, modern
actuarial and accounting guidance suggest that an
alternative allocation methodology would be more fair and
equitable. If an updated allocation methodology were
employed, the PRC’s independent actuary estimates that
the Postal Service may have overfunded its CSRS
obligation by $50 billion to $55 billion.
On October 13, 2011, the U.S. Government Accountability
Office (GAO) released its report, Allocation of
Responsibility for Pension Benefits between the Postal
Service and the Federal Government. While the Postal
Service appreciates GAO’s observation that reallocation
of the CSRS pension surplus would not, by itself, solve
the organization’s financial problems, we are disappointed
that the report rejects the findings of two independent
actuaries. We believe the GAO report does not address
the core question about whether the current allocation of
costs is fair and equitable and we continue to contend
that, under current law, OPM is in no way precluded from
affecting a more equitable split. We also contend that a
more balanced report from GAO would be one containing
a more objective analysis and would provide more
compromise options for Congress to consider.
OPM and GAO agree that, using the long-term funding
assumption of the CSRS Board of Actuaries, the Postal
Service’s portion of the FERS program was overfunded by
$6.9 billion as of September 30, 2009 ($10.9 billion at
September 30, 2010, according to OPM); however, it is
OPM’s position that they are currently restricted by law
from authorizing the return of those funds. As a result,
various legislative initiatives have been introduced to
resolve the matter. See the ”Legislative Update” later in
this report.
As described in Note 3, Summary of Significant
Accounting Policies, in the Notes to the Financial
Statements, we account for participation in the retirement
programs of the U.S. Government under multiemployer
plan accounting rules. Although the Civil Service
Retirement and Disability Fund (CSRDF) is a single fund
and does not maintain separate accounts for individual
agencies, P.L. 109-435 requires certain disclosures
regarding obligations and changes in net assets as if the
funds were separate. The following information is
provided by OPM and represents the most recent actual
data available, which is as of September 30, 2010, with
projections to September 30, 2011.
FUNDING STATUS
As required by P.L. 109-435, the Postal Service discloses
OPM-provided information regarding the costs and
changes in obligations related to the FERS and CSRS
retirement programs. We have reported this information
based on OPM-provided actuarial valuations, the same
valuations that are used by the Board of Actuaries to
establish the normal cost and funding requirements for
these retirement programs. The OPM actuarial valuations
utilize the long-term economic assumptions established
by the Civil Service Retirement System Board of
Actuaries. This information provides valuable insight
concerning our current funding status and the outstanding
obligations of the CSRS and FERS programs.
The Postal Service believes that the most appropriate
basis for evaluating the funded status of its obligation to
CSRS and FERS is to use the actuarial valuations based
on the long-term funding assumptions established by the
Civil Service Retirement System Board of Actuaries, since
these provide the legally mandated basis for determining
the appropriate funding of both programs.
The following table provides OPM’s estimation of the
funded status of the CSRS and FERS programs for Postal
Service participants as of September 30, 2010, and 2009,