US Postal Service 2013 Annual Report Download - page 99

2013 Report on Form 10-K United States Postal Service 97
RETIREES
Employees who participate in the FEHBP for the five years immediately preceding their retirement may
participate in the FEHBP during their retirement. The Postal Service is required to pay the employer’s share
of health insurance premiums for all retired postal employees and their survivors who participate in the
FEHBP and who retire on or after July 1, 1971. The employer’s share of premium costs for retirees (and
their survivors) is set by law and is not subject to negotiation with our unions, but could fluctuate
significantly by the passage of new federal law, or in some circumstances, by OPM under its authority as
administrator. The Postal Service cannot direct the costs, benefits, or funding requirements of the plans.
Accordingly, the Postal Service’s participation in FEHBP is accounted for as participation in a multiemployer
benefit plan. Several factors could significantly increase or decrease future health benefits costs, including
favorable or unfavorable investment performance of the PSRHBF, changes in demographics, higher
healthcare premiums, changes in actuarial assumptions, and increased or decreased benefits to
participants. Costs attributable to federal civil service before July 1, 1971 are not paid by the Postal
Service. As discussed below, the Postal Service was required to prefund retiree health benefits to be
provided beginning in 2007 by depositing funds into the PSRHBF each year through 2016. At this time, it is
not possible to determine the amount of additional future contributions that may be required by OPM, if any,
or whether any material adverse effect on the Postal Service’s financial condition, results of operations, or
liquidity would result from participation in these plans.
No other agency that participates in FEHBP prefunds retiree health benefits for their employees.
In 2006, P.L. 109-435 created the PSRHBF, which is held by the U.S. Treasury and controlled by OPM, but
funded by the Postal Service. P.L. 109-435 established a ten-year schedule of Postal Service prefunding
payments that ranged between $5.4 billion and $5.8 billion per year. However, the 2009 scheduled
prefunding payment was decreased from $5.4 billion to $1.4 billion due to the enactment of P.L. 111-68. On
September 30, 2011, P.L. 112-33, Continuing Appropriations Act, 2012, rescheduled the required PSRHBF
payment of $5.5 billion previously scheduled to be due by September 30, 2011, to be due by October 4,
2011. This date was then rescheduled by a number of laws subsequently passed. The most recent law
affecting the PSRHBF payment, P.L. 112-74, Consolidated Appropriations Act, 2012, rescheduled the due
date to August 1, 2012. As a result, the total required PSRHBF payments in 2012 were $11.1 billion: $5.5
billion due by August 1, 2012, and $5.6 billion due by September 30, 2012. To date, no law changes have
altered the payment requirements for the 2014 to 2016 scheduled payments.
On August 1, 2012, when the $5.5 billion PSRHBF prefunding payment became due, the Postal Service
had insufficient funds to make the payment and was forced to default. On September 30, 2012, when the
$5.6 billion prefunding payment became due, the Postal Service again had insufficient funds to make this
payment and was forced to default again. Prior to the defaults, the Postal Service notified its stakeholders,
including the Administration and Congress, of the imminent default. The Postal Service has also defaulted
on the $5.6 billion payment due by September 30, 2013. Although the Postal Service defaulted on its
payments, the full $16.7 billion owed is recorded as a current liability in “Retiree Health Benefits” on the
September 30, 2013 Balance Sheets. The $5.6 billion that was due by September 30, 2013 was recognized
as an expense and included in “Retiree health benefits” on the Statements of Operations.
Current law obligates the Postal Service to make additional payments of $5.7 billion in 2014 and 2015, and
$5.8 billion in 2016, each due by September 30 of the respective year. To date, no law changes have
addressed these required payments and it remains unlikely that the Postal Service will have sufficient
liquidity to make any of these scheduled future payments if it is to fulfill its other statutory obligations,
including the obligation to provide universal mail service to the nation (as discussed in Note 2, Liquidity
Matters). The statutory requirement establishing the payment schedule (P.L. 109-435) contains no
provisions addressing a payment default.