US Postal Service 2013 Annual Report Download - page 40

2013 Report on Form 10-K United States Postal Service 38
P.L. 109-435 REQUIRED REPORTING - PSRHBF
P.L. 109-435 requires that OPM provide, and that we report, certain information concerning the obligations, costs, and
funded status of the PSRHBF. The following table presents information provided by OPM and shows the funded status
and components of net periodic costs.
(Dollars in millions) 2013 2012
Beginning Actuarial Liability at October 1 $ 93,575 $ 90,337
- Actuarial Gain (1,923) (1,148)
+ Normal Costs 2,673 2,725
+ Interest @ 4.4% and 4.7%, respectively
4,033
4,192
Subtotal Net Periodic Costs 4,783 5,769
- Premium Payments
(2,744)
(2,531)
Actuarial Liability at September 30 95,614 93,575
- Fund Balance at September 30 (47,292) (45,744)
Unfunded Obligations at September 30 $ 48,322 $ 47,831
Postal Service Retiree Health Benefit Fund Funded Status and Components of Net Periodic Costs
as calculated by OPM *
* The 2013 medical inflation rate which is assumed to be 3.0% per annum as of the valuation date, rising to 5.6% in 2021 and then
grading down to an ultimate value of 4.2%. The 2012 medical inflation assumption was 3.7% as of the valuation date and increases to
6.2% in 2026 before it grades down to an ultimate value of 4.4%.
The table above shows that despite our inability to pay the required PSRHBF prefunding payments in 2012 and 2013, the
Postal Service has funded 49% of the actuarial liability as of September 30, 2013 and 2012.
The OPM valuation of post-retirement health liabilities and normal costs was prepared in accordance with Federal
Accounting Standards Advisory Board (FASAB) 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 and an interest rate assumption of 4.4% are consistent with the pension valuation
assumptions, and decrements are based upon counts or numbers rather than dollars.
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 3.0% per annum as of the valuation date, increasing to 5.6% in 2021, and then trending down to
an ultimate value of 4.2%. Past-year medical inflation was assumed to be 5.2%, grading down to an ultimate value of
4.4%. Normal costs are derived from the current FEHBP on-roll population with an accrual period from entry into FEHBP
to assumed retirement. Entry into the FEHBP is generally later than entry into the retirement systems.
The accrued liability is equal to the total liability less future normal cost payments. The amounts used in these valuations
use the same methodology and assumptions as OPM’s financial statements, except that the average government share
of premium payments for annuitants is substituted for annuitant medical costs less annuitant premium payments. This
amount is assumed to increase at 3.7% per annum as of the valuation date, rising to 6.2% in 2026 before trending down
to an ultimate value of 4.4%. For current postal annuitants, the government share of premium payments is adjusted to
reflect the pro-rata share of civilian service to total service for which the Postal Service is responsible. The pro-rata
adjustment is made by applying calculated factors based upon actual payments that vary by the age and Medicare status
of the enrollments. For active postal employees, the pro-rata share in retirement is assumed to be 93% of the total.