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2012 Report on Form 10-K United States Postal Service- 44 -
The estimation of the liability is highly sensitive to changes in discount rates. An increase of 1% in the discount rate would
decrease the September 30, 2012, liability and 2012 expense by approximately $1.8 billion. A decrease of 1% in the
discount rate would increase the September 30, 2012, liability and 2012 expense by approximately $2.3 billion.
At September 30, 2012, the present value of the liability for future workers’ compensation payments was $17,567 million,
compared to $15,142 million at September 30, 2011, an increase of $2,425 million, or 16%. The current portion of the
liability was $1,337 million at September 30, 2012. At September 30, 2011, the current portion of the liability was $1,255
million. At September 30, 2011, our liability increased $2,553 million, or 20.3%, from September 30, 2010.
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 changes in discount rates accounted for $346 million, $978 million, and $2,017 million of the
2012, 2011, and 2010 expense, respectively.
Beginning in Quarter III, 2009, we experienced a significant change in the discount rates used to estimate the workers’
compensation liability. The economic recession that began in December 2007 and corresponding response by the Federal
Reserve resulted in interest rates declining significantly. GAAP requires us to use discount rates based on the best
available information at the measurement date. The discount rates used in estimating the present value of the workers’
compensation liability have decreased every year since 2008. Since 2008, over $4 billion of the growth in the workers’
compensation liability is attributable solely to the impact of discount rate changes.
The inflation and discount rates used to estimate our liability at September 30, 2012, 2011, and 2010, are shown in the
following table.
Workers' Compensation Liability
Inflation and Discount Rates
2012
2011
2010
Compensation Claims Liability
Discount Rate
2.1%
2.3%
2.9%
Wage Inflation
2.9%
2.9%
2.9%
Medical Claims Liability
Discount Rate
2.2%
2.4%
3.0%
Medical Inflation
8.9%
8.6%
7.4%
September 30,
In Quarter IV, 2012, the Postal Service enhanced the estimation process by refining the variables employed to estimate its
workers’ compensation liability. As a result of this enhancement, the liability for workers’ compensation was increased by
$361 million. This change was considered a change in accounting estimate under GAAP and, accordingly, the impact of
the change was reflected in Quarter IV, 2012.
The components of workers’ compensation expense are as follows:
Workers' Compensation Expense
(Dollars in millions) 2012 2011 2010
$
346
$
978
$
2,017
Actuarial Revaluation of Existing Cases
1,602
1,264
483
Subtotal
1,948
2,242
2,500
Costs of New Cases
1,714
1,367
1,009
Administrative Fee
67
63
57
Total Workers' Compensation Expense
$
3,729
$
3,672
$
3,566
Years Ended September 30,
Impact of Discount Rate Changes
In 2012, workers’ compensation expense was $3,729 million, an increase of $57 million, or 1.6%, compared to 2011. For
the year ended September 30, 2012, the Postal Service experienced a $93 million, or 12.2%, increase in compensation