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2011 Report on Form 10-K United States Postal Service - 82 -
In 2010, the Postal Service began to use the average rate
of medical inflation experienced by its workers’
compensation claimants over the past five years as an
estimate for future medical inflation. Prior to 2010,
forecasted medical inflation rates published by an
independent source had been used. During 2010, the
Postal Service determined that its own history served as a
better indicator of future costs and revised the estimation
accordingly. The impact of this change was to increase
the liability by $50 million and was accounted for as a
change in accounting estimate.
The estimation of the liability is highly sensitive to
changes in inflation and discount rates. An increase of 1%
in the discount rate would decrease the September 30,
2011 liability and 2011 expense by approximately $1,500
million. A decrease of 1% in the discount rate would
increase the September 30, 2011 liability and 2011
expense by approximately $1,900 million.
At September 30, 2011, the present value of the liability
for future workers’ compensation payments was $15,142
million, compared to $12,589 million at September 30,
2010, an increase of $2,553 million. The current portion of
this liability was $1,255 million at September 30, 2011,
and $1,115 million at September 30, 2010. These
amounts are accrued under “Workers’ compensation” on
the Balance Sheets.
Changes in the workers’ compensation liability are
attributable to the combined impact of changes in the
discount and inflation rates, routine changes in actuarial
estimation, new compensation and medical cases and the
progression of existing cases. The impact of the changes
in discount and inflation rates accounted for $978 million
and $2,017 million of the 2011 and 2010 expense,
respectively.
In 2011, workers’ compensation expense was $3,672
million compared to $3,566 million in 2010 and $2,223
million in 2009. The components of workers’
compensation expense are as follows:
Workers' Compensation Expense
(Dollars in millions) 2011 2010 2009
$ 978 $ 2,017 $ 718
Actuarial revaluation of existing cases 1,264 483 625
Subtotal 2,242 2,500 1,343
Costs of new cases 1,367 1,009 825
Administrative fee
63
57
55
Total Workers' Compensation Expense $ 3,672 $ 3,566 $ 2,223
Years Ended September 30,
Impact of discount & inflation rate changes
NOTE 10 — FAIR VALUE
MEASUREMENT
The Postal Service assumes that the carrying value of
current assets and current liabilities approximates fair
values. The Postal Service also has noncurrent financial
instruments, such as the long-term portion of debt (see
Note 4 - Debt) and long-term receivables (see Note 11 -
Revenue Forgone), that must be measured for disclosure
purposes on a recurring basis under authoritative
accounting literature as promulgated by the Financial
Accounting Standards Board. The Postal Service also
applies these requirements to various non-recurring
measurements of financial and non-financial assets and
liabilities, such as the impairment of property and
equipment. Measurement of assets and liabilities at fair
value is performed using inputs from the following three
levels of the fair value hierarchy as defined in the
authoritative literature:
Level 1 inputs include unadjusted quoted prices
in active markets for identical assets or
liabilities as of the balance sheet date.
Level 2 inputs include quoted prices for similar
assets and liabilities in active markets, quoted
prices for identical or similar assets or liabilities
in inactive markets, observable data, other than
quoted market prices for the asset or liability
(i.e., interest rates, yield curves, etc.) and
inputs that are derived from, or corroborated
by, observable market data.
Level 3 inputs include unobservable data that
reflect current assumptions about the
judgments and estimates that market
participants would use when pricing the asset
or liability. These inputs are based on the best
information available, including internal data.
Because no active market exists for the debt with the
FFB, the fair value of the noncurrent portion of these
notes has been estimated using prices provided by the
FFB, a level 3 input.
The fair value of revenue forgone has been estimated
using the income method and discount rates on similar
assets, such as noncurrent U.S. Treasury securities that
have a similar maturity, a level 2 input.