US Postal Service 2014 Annual Report Download - page 33

2014 Report on Form 10-K United States Postal Service 29
retirement and these more lucrative payments will, in some cases, be for the rest of the lives of the claimants. This, compounded
by the COLA granted by Federal Law to those claims, and no mandatory retirement age, results in substantially higher costs to
the Postal Service than would likely be the case if claims management decisions were made by the Postal Service. In addition to
the constraints imposed due to the legally-mandated FECA program, actuarial estimations, new compensation and medical
cases, the progression of existing cases and projected cash payments that will be paid well into the future also have substantial
impact on our reported liability. Future cash payments must be converted to present-day dollars, or discounted, by applying the
current rates at which the liability could theoretically be settled. Discount rates can fluctuate significantly from period to period
with changes in the economic and interest rate environment.
The following table presents the components of workers’ compensation expense for the years ended September 30, 2014, 2013
and 2012:
(in millions)
2014
2013
2012
Impact of discount rate changes
$
485
$
(1,745
)
$
346
Actuarial revaluation of existing cases
45
949
1,602
Costs of new cases
1,956
1,789
1,714
Administrative fee
68
68
67
Total workers’ compensation expense
$
2,554
$
1,061
$
3,729
Less cash payments made on behalf of workers’ compensation obligations
1,372
1,372
1,388
Total non-cash workers’ compensation expense
$
1,182
$
(311
)
$
2,341
For the year ended September 30, 2014, workers’ compensation expense increased $1.5 billion, or 140.7%, compared to 2013.
The increase was primarily due to the impact of lower interest rate changes from the prior period, which accounted for $2.2
billion of the increase and by the costs of new cases, which increased by $167 million. These increases were offset by a
reduction of $904 million for the actuarial revaluation of existing cases. During 2014, the Postal Service experienced a $23
million, or 2.8% decrease in compensation claim payments and a $26 million, or 5.5% increase in medical claims payments
compared to the year ended September 30, 2013.
For the year ended September 30, 2013, workers’ compensation expense decreased $2.7 billion, or 71.5%, compared to 2012.
The decrease was primarily due to higher interest rates in 2013 and a lower actuarial revaluation of existing claims, compared to
2012. During 2013, the Postal Service experienced a $40 million, or 4.7%, decrease in compensation claim payments and a $28
million, or 6.2%, increase in medical claims payments compared to the year ended September 30, 2012. The bulk of
compensation payments are due to claims on the periodic roll, with benefit payments being made every 28 days. In 2012, there
were 14 such payments, while a typical year has 13. For this reason, compensation payments in 2012 were higher than they
were in 2013.
In 2012, workers’ compensation increased $361 million due to a change in the estimate of the workers’ compensation liability.
This change was considered a change in accounting estimate under U.S. GAAP, and accordingly, the impact of the change was
reflected in the results of operation for 2012.
Transportation - Transportation expenses are primarily comprised of contracted highway, air and international transportation
costs. Variations in the volume and weight of mail being transported and the mode of transportation used have significant
impact on transportation expenses.
The decline in air transportation expenses in 2014 is primarily attributable to two factors: a new air cargo contract with a major
supplier at lower rates effective October 2013 and the shift of some mail to less expensive ground transportation. This shift from
air to ground transportation was the primary contributing factor to the increase in ground transportation expense in 2014.
Changes in the prices of jet and diesel fuel also contribute to changes in our transportation costs. In 2014, the reduction in jet
fuel prices which are passed through to us under the terms of our air cargo contract accounted for approximately $150 million of
the air transportation expense decrease from 2013.