US Postal Service 2014 Annual Report Download - page 64

2014 Report on Form 10-K United States Postal Service 60
Note 9- Health Benefit Plans
Substantially all career employees are covered by the FEHBP. This plan covers both active and retired employees. Health care
benefits are available to all participants who meet certain eligibility requirements.
Current Employees
The OPM administers the program and allocates the cost of FEHBP to the various participating government agency employers,
of which the Postal Service is a participant. The Postal Service cannot direct the costs, benefits, or funding requirements of the
plan. Accordingly, multiemployer plan accounting rules are used. Contributions to the plan are recorded as an expense in the
period in which the contribution is due. The portion of the premium cost paid by the Postal Service for most of its active
employees is determined through collective bargaining agreements.
Employees paid approximately 24% of total premium costs in 2014 and 22% of total premium costs in 2013 and 2012. Postal
Service employee health care expense was $4.8 billion, $5.0 billion and $5.2 billion in 2014, 2013 and 2012, respectively, and
are included in “Compensation and benefits” in the Statements of Operations.
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 contribute a share of health insurance premiums for all retired
Postal Service employees and their survivors who participate in the FEHBP and who retired on or after July 1, 1971. The Postal
Service’s contribution rate is set by law and is not subject to negotiation with its unions, but could fluctuate significantly by the
passage of new federal law, or in some circumstances, by the OPM under its authority as administrator. Several factors could
significantly change future health benefit costs, including investment performance of the PSRHBF, changes in demographics,
higher healthcare premiums, changes in actuarial assumptions and increased or decreased benefits to participants.
In 2006, P.L. 109-435 created the PSRHBF, which is held by the U.S. Treasury and controlled by the 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 impacting 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. Since that time, no law changes have altered the payment requirements for the 2014 to 2016 scheduled
payments.
Upon enactment of P.L. 109-435, the Postal Service became required to prefund $51.8 billion for retiree health benefits into the
PSRHBF from 2007 through 2016. No other federal agency that participates in FEHBP is required to prefund retiree health
benefits for their employees. As of September 30, 2014, the Postal Service defaulted on $22.4 billion for payments due during
the years 2012 – 2014 because of insufficient funds to make the payments. Prior to the defaults, the Postal Service notified key
stakeholders, including the Administration and Congress, of the imminent default. These same stakeholders have been advised
of the Postal Service’s likely inability to satisfy future payment obligations. Although the Postal Service defaulted on its
payments due in 2014, 2013 and 2012, $5.7 billion, $5.6 billion and $11.1 billion, respectively, the expense was recorded as
“Retiree health benefits” in the respective year’s Statements of Operations. Defaulted amounts of $22.4 billion and $16.8
billion are recorded as a current liability in “Retiree health benefits” on the Balance Sheets as of September 30, 2014 and 2013,
respectively.
Current law obligates the Postal Service to make additional payments of $5.7 billion in 2015 and $5.8 billion in 2016, each due
by September 30. 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. Although
P.L. 109-435 dictates the annual prefunding requirements through 2016, these amounts and the timing of funding could change
at any time with enactment of a new law or an amendment of existing law. P.L. 109-435 contains no provisions addressing a
payment default. As of the date of this report, no penalties have been assessed.