US Postal Service 2014 Annual Report Download - page 31

2014 Report on Form 10-K United States Postal Service 27
As of September 30, 2014, we have defaulted on total prefunding amounts due of $22.4 billion for the years 2012 – 2014
because we had insufficient funds to make the payments. Prior to the defaults, we notified key stakeholders, including the
Administration and Congress, of the imminent default. Although we defaulted on the payments due in each year 2012, 2013 and
2014, $11.1 billion, $5.6 billion and $5.7 billion, respectively, were recorded as an expense under “Retiree health benefits” in
the respective years’ Statements of Operations and is a current liability in “Retiree health benefits” on the respective year’s
Balance Sheets.
Current law obligates us to make additional payments of $5.7 billion in 2015 and $5.8 billion in 2016, due by September 30 of
each year. We have advised the Administration and Congress that we do not see any means by which to satisfy these future
prefunding obligations. 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. Refer to Item 7. Management’s Discussion and Analysis, Liquidity and Capital
Resources. The statutory requirement establishing the payment schedule in P.L. 109-435 contains no provisions addressing a
payment default. As of the filing date of this report, no penalties have resulted.
Under current law, not later than 2017, the OPM will conduct an actuarial valuation and determine whether any further
payments into the PSRHBF are required. If additional payments are required, the 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.
P.L. 109-435 Required Reporting - PSRHBF
P.L. 109-435 requires that the OPM provide, and that we report, certain information concerning the obligations, costs and
funded status of the PSRHBF. The following table presents information provided by the OPM and shows the funded status and
components of net periodic costs:
(in millions)
2014
2013
Beginning actuarial liability at October 1
$
95,614
$
93,575
- Actuarial gain
(1,542
)
(1,923
)
+ Normal costs
2,605
2,673
+ Interest @ 4.4% and 4.7%, respectively
4,044
4,033
Subtotal net periodic costs
5,107
4,783
- Premium payments
(2,981
)
(2,744
)
Actuarial liability at September 30
97,740
95,614
- Fund balance at September 30
(48,850
)
(47,312
)
*
Unfunded obligations at September 30
$
48,890
$
48,302
*
*Updated to reflect an additional $20M in interest earned but not received as a result of the government’s
debt issuance suspension period and not reported by the OPM with last year’s earnings and fund balance.
The OPM valuation of post-retirement health liabilities and normal costs was prepared in accordance with Federal Accounting
Standards Advisory Board 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 4.3% 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 4.2% per annum as of the valuation date, increasing to 5.6% in 2021 and then trending down to an ultimate
value of 4.2%. Past-year medical inflation was assumed to be 5.3%. Normal costs are derived from the current FEHBP on-rolls
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.