US Postal Service 2015 Annual Report Download - page 28

2015 Report on Form 10-K United States Postal Service 26
Our share of healthcare premiums represented approximately 75%, 76% and 78% of premiums for 2015, 2014 and 2013,
respectively. Employee health benefits expense was 10.0%, 10.4% and 10.6% of total compensation and benefits expense for
the years ended September 30, 2015, 2014 and 2013, respectively.
Our employer contribution rates for the majority of our employees are subject to collective bargaining agreements. In April
2015, OPM announced average premium increases of 3.8% for 2016. Previous increases were 3.2% in 2015, 3.7% in 2014
and 3.4% in 2013. In 2016, we expect to benefit from offering a “Self Plus One” option under FEHB, which will replace
“Family Coverage” for many employees and yield significant savings.
Retiree Health Benefits
Our retired employees who participated in FEHB for the five years immediately preceding their retirement may continue to
participate in the plan during retirement. Qualifying survivors of our retirees are also eligible to receive these benefits.
Our total cost for retiree health benefits consists of two components: 1) our portion of the current premium expense for
beneficiaries, and 2) the PSRHBF prefunding payments which are set by law. These amounts are recognized as an expense
when due. See Item 8. Financial Statements and Supplementary Data, Notes to Financial Statements, Note 10 - Health Benefits
Plans, Retiree Health Benefits for additional information.
Retiree Health Benefits Premiums
Retiree health benefits premium expense, which does not include PSRHBF prefunding, increased 4.2%, 4.8% and 8.4% for
the years ended September 30, 2015, 2014 and 2013, respectively. This expense continues to grow each year primarily due
to premium increases. In addition, several other factors could significantly change the Postal Service’s future retiree health
benefits expenses, including investment performance of the PSRHBF, changes in demographics, changes in actuarial
assumptions and increased or decreased benefits to participants. The number of retiree health beneficiaries was approximately
490,000 for the years ended September 30, 2015, 2014 and 2013.
PSRHBF Funded Status
The following information, provided by OPM, details the PSRHBF funded status and components of net periodic costs:
(in millions) 2015 2014
Beginning actuarial liability at October 1 $ 97,740 $ 95,614
- Actuarial loss (gain) 3,525 (1,542)
+ Normal costs 2,852 2,605
+ Interest @ 4.1% and 4.3%, respectively 4,152 4,044
Subtotal net periodic costs 10,529 5,107
- Premium payments (3,107)(2,981)
Actuarial liability at September 30 105,162 97,740
- Fund balance at September 30 (50,345)(48,850)
Unfunded obligations at September 30 $ 54,817 $ 48,890
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 are consistent with the
pension valuation assumptions but decrements are based upon counts or number rather than dollars.
The determination of the liability assumes a single discount rate of 4.1% equivalent to the most recent ten year historical
average yield curve. 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 6.0% per annum as of the valuation date, grading down to an ultimate value of
3.9% in 2075. Past-year medical inflation was assumed to be 5.4%. Normal costs are derived from the current FEHB on-rolls
population with an accrual period from entry into FEHB to assumed retirement. The amounts and variables used to determine
the liability are the same the assumptions used under OPM’s methodology, except that the average government share of
premium payments for annuitants is substituted for annuitant medical costs less annuitant premium payments.