US Postal Service 2013 Annual Report Download - page 39

2013 Report on Form 10-K United States Postal Service 37
Because we had insufficient funds to make the payments, we were forced to default on the required $11.1 billion
prefunding payments for retiree health benefits which were due by September 30, 2012 and the $5.6 billion payment due
by September 20, 2013. Prior to the defaults, we notified key stakeholders, including the Administration and the Congress,
of the imminent default. We have further advised these same stakeholders that we do not see any means by which to
satisfy the future payment of $5.7 billion due by September 30, 2014. Although we defaulted on both of the payments in
2012 and the one payment in 2013, the full $11.1 billion that was due as of September 30, 2012 was recorded as an
expense under “Retiree health benefits” in the 2012 Statements of Operations and as a current liability in “Retiree health
benefits” on the September 30, 2012 Balance Sheets. The $5.6 billion 2013 payment is included in the “Retiree health
benefits” in the 2013 Statements of Operations and the cumulative liability is now $16.7 billion as of September 30, 2013.
Current law obligates us to make additional payments of $5.7 billion in 2014 and 2015, and $5.8 billion in 2016, each due
by September 30 of each respective year. To date, no law changes have addressed the original prefunding requirements
for 2014 to 2016. However, given the low levels of our cash resources, we may be forced to prioritize payments to our
employees and our suppliers to ensure that we continue to be able to fulfill our other statutory obligations, including our
obligation to provide universal mail service to the nation (as discussed in Note 2, Liquidity Matters, in the Notes to the
Financial Statements, located in Item 15 of this Form 10-K). The statutory requirement establishing the payment schedule
(P.L. 109-435) contains no provisions addressing a payment default. As of November 15, 2013, no penalties have
resulted.
Under current law, not later than 2017, OPM will conduct an actuarial valuation and determine whether any further
payments into the PSRHBF are required. If additional payments are required, OPM will design an amortization schedule
to fully amortize the remaining liability by 2056. Beginning in 2017, the PSRHBF will begin to pay the Postal Service’s
portion of the retiree health premiums. Also beginning in 2017, we will be required to fund the actuarially determined
normal cost, plus any required amortization of the unfunded liability.
Under P.L. 109-435, OPM continues to charge us for the premiums for postal retirees participating in FEHBP, and we
continue to expense these payments as they become due. This will occur until 2017. The major drivers of retiree health
benefits premium costs are the number of retirees and survivors on the rolls, the mix of plans selected by retirees, the
premium costs of those plans, and the apportionment of premium costs to the Federal Government for retiree service prior
to 1971.
Retiree health benefit premium expense, which is exclusive of the expense for prefunding the PSRHBF, has increased
every year due to premium increases, the growing number of retirees, and the increasing percentage of post-1971 service
of our retirees. Retiree health benefits premium expense increased 8.4% in 2013, 7.7% in 2012, and 8.6% in 2011. The
number of Postal Service annuitants and survivors participating in FEHBP was approximately 491,000 in 2013, compared
to 471,000 in 2012 and 469,000 in 2011.
The following table shows the components of retiree health benefits expense for 2013, 2012, and 2011.
Retiree Health Benefits
(Dollars in millions)
2013
2012
2011
Retiree Health Benefits Premiums
$
2,850
$
2,629
$
2,441
P.L. 109-435 Payment to PSRHBF
5,600
11,100
-
Total Retiree Health Benefits
$
8,450
$
13,729
$
2,441