Management’s Discussion and Analysis of
Financial Condition and Results of Operations
OPM estimates the contributions and benefit payments for the next five years as follows:
Projection of CSRS and FERS Contributions and Benefit Payments* as calculated by OPM |
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|---|---|---|---|---|
(Dollars in billions) |
CSRS |
FERS |
||
|
Total Contributions |
Total Benefit Payments |
Total Contributions |
Total Benefit Payments |
2008 |
$ 0.5 |
$ 9.4 |
$ 3.1 |
$ 0.8 |
2009 |
0.4 |
10.0 |
3.4 |
0.9 |
2010 |
0.4 |
10.6 |
3.7 |
1.1 |
2011 |
0.4 |
11.2 |
4.1 |
1.3 |
2012 |
0.3 |
11.8 |
4.4 |
1.5 |
* Assumes total employee population remains constant |
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Health Benefits
Postal employees and retirees may participate in the Federal Employees’ Health Benefits Program (FEHBP), which is administered by OPM. We account for our employee and retiree health benefit costs as an expense in the period our contribution is due and payable to FEHBP, using multiemployer plan accounting rules in accordance with Financial Accounting Standards Board Statement 106 (FAS 106), Employers’ Accounting for Postretirement Benefits Other Than Pensions.
The drivers of our active employee health care costs are the number of employees electing coverage and the premium costs of the plans they select. In 2008, health benefit expenses for active employees were $5,376 million, a decrease of $25 million compared to 2007. This was 6.9% of our total operating expenses. The 2007 expense of $5,401 million was 6.7% of our total operating expenses and increased by $56 million, or 1.0%, over 2006.
Premiums for each plan participating in FEHBP are determined annually by OPM. OPM announced average premium increases effective in January 2008 were 2.0%, 1.8% in January 2007 and 6.6% in January 2006. The low level of premium increases in 2007 and 2008 are the result of lower plan costs and the application of plan reserves to lower premiums. However, in September 2008, OPM announced an average premium increase of 7.0% for January 2009.
Retiree Health Benefits
Eligible postal employees, those with at least five consecutive years participation in the FEHBP immediately preceding retirement, are entitled to continue to participate in FEHBP postretirement. As outlined in FAS 106, the amount we pay into the PSRHBF, plus our portion of the current premium expense, is recognized as an expense when due. See Note 4, Postal Accountability and Enhancement Act, Public Law 109-435 (P.L. 109-435) and Note 9, Health benefit programs, in Notes to the Financial Statements, for further discussion of this accounting treatment.
P.L. 109-435 made several changes to the way we fund and report our obligations for postretirement health benefits. The law established the PSRHBF and directed OPM to determine any Postal Service surplus in the Civil Service Retirement and Disability Fund as of September 30, 2006, and to deposit the surplus into the PSRHBF by June 30, 2007. OPM attributed to the Postal Service a surplus of $17.1 billion in the CSRS fund as of September 30, 2006, and transferred the funds as required on June 29, 2007. P.L. 109-435 also required that we begin to fund the OPM-determined obligation for retiree health benefits by paying into the PSRHBF the 2006 escrow resulting from P.L. 108-18 ($2.958 billion) and by making additional annual payments averaging $5.6 billion per year through 2016. Beginning in 2017, the PSRHBF will begin to pay our portion of the premium payments. Payment to the PSRHBF was $5.6 billion in 2008 and $5.4 billion in 2007.
Under P.L. 109-435, OPM will continue to charge us for our portion of the premiums for postal retirees currently participating in FEHBP, and we will continue to expense these payments as they become due until 2017. The major drivers of our retiree health benefits premium costs are the number of current participants on the rolls, the mix of plans selected by retirees, the premium costs of those plans, and the apportionment of premium costs to the federal government for retiree service prior to 1971. Retiree health benefit premium expense, exclusive of the expense for the PSRHBF, has increased every year. Retiree health benefits employee premium expense increased 4.7% in 2008 and 5.4% in 2007. The number of Postal Service annuitants and survivors has grown to approximately 452,000 in 2008 compared to 450,000 in 2007, and 448,000 in 2006. The average monthly apportionment, the percentage of retiree premiums charged to the Postal Service, has increased from 66.4% in 2006 to 69.9% in 2008. A summary of the retiree health benefits expense for 2008, 2007, and 2006 is included in the table below.