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2012 Report on Form 10-K United States Postal Service- 42 -
P.L. 109-435 REQUIRED REPORTING - PSRHBF
P.L. 109-435 requires that OPM provide, and that we report, certain information concerning the obligations, costs, and
funded status of the PSRHBF. The following table is based upon information provided by OPM and shows the funded
status and components of net periodic costs.
(Dollars in millions) 2012 2011
Beginning Actuarial Liability at October 1 $ 90,337 $ 91,059
- Actuarial Gain (1,148) (5,360)
+ Normal Costs 2,725 2,879
+ Interest @ 4.7% and 4.9%, respectively
4,192
4,200
Subtotal Net Periodic Costs 5,769 1,719
- Premium Payments
(2,531)
(2,441)
Actuarial Liability at September 30 93,575 90,337
- Fund Balance at September 30 (45,744) (44,118)
Unfunded Obligations at September 30 $ 47,831 $ 46,219
Postal Service Retiree Health Benefit Fund Funded Status and Components of Net Periodic Costs
as calculated by OPM *
* The 2012 medical inflation assumption was 3.7% as of the valuation date and increases to 6.2% in 2026 before it grades down to an
ultimate value of 4.4%. The 2011 medical inflation assumption was 5.5% as of the valuation date, rising to 6.4% in 2015 and grades down
to an ultimate value of 4.4%.
The OPM valuation of post-retirement health liabilities and normal costs was prepared in accordance with Federal
Accounting Standards Advisory Board (FASAB) Statement of Federal Financial Accounting Standards (SFFAS) No. 5 and
SFFAS No. 33, which require the use of the aggregate entry age normal actuarial cost method.
Demographic assumptions and an interest rate assumption of 4.7% 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 variable medical inflation rate
which is assumed to be 3.7% per annum as of the valuation date increasing to 6.2% in 2026 and then trending down to an
ultimate value of 4.4%. Past-year medical inflation was assumed to be 5.7% grading down to an ultimate value of 4.4%.
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 cost payments. The amounts used in these valuations
use the same methodology and assumptions as for OPM’s financial statements except that the average government
share of premium payments for annuitants is substituted for annuitant medical costs less annuitant premium payments.
This amount is assumed to increase at 3.7% per annum as of the valuation date rising to 6.2% in 2026 before trending
down to an ultimate value of 4.4%. For current postal annuitants, the government share of premium payments is adjusted
to reflect the pro-rata share of civilian service to total service for which the Postal Service is responsible. The pro-rata
adjustment is made by applying calculated factors based upon actual payments that vary by the age and Medicare status
of the enrollments. For active postal employees, the pro-rata share in retirement is assumed to be 93% of the total.