US Postal Service 2015 Annual Report Download - page 57

2015 Report on Form 10-K United States Postal Service 55
PSRHBF Prefunding
Since 2007, the PAEA has mandated the Postal Service prefund retiree health benefits by making fixed annual prefunding
payments into the PSRHBF through 2016, with payment amounts ranging from $1.4 billion to $5.8 billion per year totaling
$54.8 billion. The Postal Service defaulted on prefunding payments every year since its 2012 payment, because it did not have
the cash to make the payments and concurrently fulfill its other statutory obligations. The final scheduled prefunding payment
of $5.8 billion is due by September 30, 2016, however, given its liquidity concerns, the Postal Service will likely default on
this payment as well.
Prior to each default, the Postal Service has 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 the 2016
payment obligation. PAEA contains no provisions addressing a payment default, and as of the date of this report, the Postal
Service has not been assessed any penalties. The amounts and the timing of PSRHBF funding payments could change at any
time with the enactment of a new law or the amendment of existing law.
For its prefunding payments due, the Postal Service recorded expenses of $5.7 billion for the years ended September 30, 2015,
and 2014, respectively, and $5.6 billion for 2013 and these are included within Retiree health benefits under Operating Expenses
in the accompanying Statements of Operations. The total amounts of defaulted PSRHBF prefunding payments were $28.1
billion and $22.4 billion as of September 30, 2015, and 2014, respectively, and are recorded as Retiree health benefits under
Current Liabilities in the accompanying Balance Sheets. As of September 30, 2015, the PSRHBF fund balance was $50.3
billion, which represents approximately 48% of the total accumulated health benefit retirement obligation of $105.2 billion,
as calculated in accordance with U.S. GAAP, as of the same date.
Although 2016 is the final year of statutorily-fixed amounts of prefunding payments, PAEA requires that OPM perform an
actuarial valuation no later than 2017 to determine if additional payments into the PSRHBF are required. If this is the case,
OPM must design an amortization schedule under which the Postal Service will be required to fund the actuarially-determined
normal cost plus any required amortization of the unfunded liability. The amount of the unfunded liability cannot be estimated
at this time. The total amount of payments to the PSRHBF for 2016 is $33.9 billion, consisting of $28.1 billion for the defaulted
PSRHBF prefunding payments as of September 30, 2015, and the 2016 scheduled payment of $5.8 billion. No additional
payments have been included beyond 2016.
Retiree Health Benefits Expense Summary
Because the amounts to be paid into the PSRHBF are set by PAEA, retiree health benefits expense may represent more or less
than the full cost of the benefits earned by Postal Service employees during any specific period. The following table details
the components of retiree health benefits expense for the years ended September 30, 2015, 2014 and 2013:
(in millions) 2015 2014 2013
Retiree health benefits premiums $ 3,111 $ 2,985 $ 2,850
PAEA payment to PSRHBF 5,700 5,700 5,600
Total retiree health benefits $ 8,811 $ 8,685 $ 8,450
NOTE 11 - WORKERS' COMPENSATION
Postal Service employees injured on the job are covered by FECA, and the Postal Service reimburses DOL for workers’
compensation benefits paid to or on behalf of Postal Service employees, plus an administrative fee.
Workers’ Compensation Liability
The Postal Service records a liability for its workers’ compensation obligations for employees who have been injured on the
job and are eligible for benefits, or their qualified survivors. To determine the actuarial valuation of new and existing cases,
the Postal Service uses an estimation model that combines four generally-accepted actuarial valuation techniques based upon
past claim-payment experience and exposure to claims as measured by total employee hours worked. The inflation and discount
rates, used to calculate the future cost of claims and present value of the future obligation, are updated as of the Balance Sheet
date and factored into the model in accordance with U.S. GAAP. Changes in the liability are primarily attributable to the
combined impacts of routine changes in actuarial estimation, new compensation and medical cases, the progression of existing
cases and changes in discount (interest) and inflation rates.