US Postal Service 2015 Annual Report Download - page 24

2015 Report on Form 10-K United States Postal Service 22
Also contributing to the increase in our FERS expense for 2015 was an increase in the supplemental expense related to the
actuarial revaluation of our FERS liability. In September 30, 2015, OPM notified us that our FERS account for our retirees
was underfunded by $3.6 billion as of September 30, 2014. To fund this supplemental liability, OPM directed us to make
additional payments to FERS of $241 million per year for 30 years beginning in 2015. This revaluation caused our supplemental
expense to increase by $234 million in 2015 from 2014. Pending our review of OPM’s underlying calculation, we have not
made payment for either 2015 or 2014, and have accrued the combined unpaid obligation of $248 million as a current liability.
Retirement expense increased in 2014 primarily due to contractual wage increases and COLAs received by our bargaining
employees in accordance with their collective bargaining agreements. This increase was partially offset by lower career
complement levels throughout much of the year.
The OPM calculates our FERS liability using government-wide salary growth and demographic data, rather than Postal
Service-specific demographics and related expected pay increases. We believe that the OPM methodology unfairly increases
our present and future costs as we have reduced our workforce and instituted cost reductions unlike other U.S. government
employers. Experience over the past decade demonstrates that average salary increases of our employees are lower than the
government-wide estimates that OPM currently uses. OPM’s calculation to the FERS Plan is an unfunded balance of $3.6
billion and approximately $100 million as of September 30, 2014, and 2013, respectively.
We continue to request OPM to reconsider its use of such government-wide factors and apply Postal Service-specific
assumptions, which we believe would have resulted in a surplus of approximately $500 million and $1.4 billion as of
September 30, 2014, and 2013, respectively.
In addition to OPM’s use of government-wide statistics to calculate our liability and contribution rates to the plans, we are
subject to the following constraints and risks that would otherwise not apply with a Postal Service-specific retirement plan
structure:
• Assets contributed to the plans by a single participating U.S. government employer may be used to provide benefits
to employees of other participating employers.
• If a participating U.S. government employer ceases contributing to a plan, any unfunded obligations of the plan may
be borne by the remaining participating employers.
• Federal law mandates our participation in the plans. If a change in the law permitted us to discontinue this participation,
we may be required to contribute to the discontinued plan(s) an amount based on any underfunded status, referred
to as a withdrawal liability, if such a liability exists at that time.
Funded Status
The Civil Service Retirement and Disability Fund (“CSRDF”) provides defined benefits to retired and disabled U.S. government
employees, including our employees, covered by CSRS and FERS. Although CSRDF is a single fund that does not maintain
a separate account for each participating U.S. government employer, PAEA requires certain disclosures regarding obligations
and changes in net assets as if the funds were separate. Because CSRS and FERS are not subject to the rules and regulations
of the Pension Protection Act of 2006, typical plan measurements such as zone status and financial improvement plan status,
or rehabilitation plan status are not available for these plans.
For the years 2015, 2014 or 2013, we provided more than 5% of the total plan contributions for FERS from all employers (as
disclosed in OPM’s Civil Service Retirement and Disability Fund Annual Report). According to OPM, our portion of the FERS
liability had been overfunded from 1992 through the year ended September 30, 2012, when our estimated surplus was
approximately $900 million. Because of revisions to OPM’s government-wide economic and demographic assumptions, this
surplus reversed to a deficit of $3.6 billion and approximately $100 million for the year ended September 30, 2014, and 2013,
respectively. As a result of the deficit, OPM has calculated an amortization schedule to pay down the deficit over 30 years,
and, accordingly, billed us $241 million for 2015, which is included within Payables and accrued expenses in the accompanying
Balance Sheets. OPM currently estimates that the FERS deficit will increase to approximately $3.7 billion by September 30,
2015.
Under current law, no mechanism exists for us to address a FERS surplus when it occurs, and while we may submit a “request
for redetermination” of OPM’s valuation of our FERS liability or the statistics used to determine our required contributions,
no mechanism exists for us to formally appeal OPM’s determination. However, in the event that OPM publishes new
government-wide contribution rates, any participating U.S. government employer may request that OPM use such employer’s