Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The assets of the PSRHBF are composed entirely of special issue Treasury securities with maturities ranging up to 15 years. The long-term securities bear interest rates ranging from 4% to 5%, while the short-term securities have an interest rate of 3.75%. The expected rate of return was 6.25% for both 2008 and 2007, while the actual rates of return were 4.8% for 2008 and 5.0% for 2007.
Because there are several areas of judgment involved in calculating this obligation, estimates could vary widely depending on the assumptions used. Utilizing the same underlying data that was used in preparing the estimate in the Postal Service Retiree Health Benefit Fund Funded Status and Components of Net Periodic Costs chart, the September 30, 2008 obligation could range from $40 billion to $70 billion, solely by varying the inflation rate by plus or minus 1% while the 2007 unfunded obligation would range from $49 billion to $69 billion using the same assumption.
Projection of PSRHBF Contributions and Benefit Payments |
Contributions |
Payments |
|---|---|---|
(Dollars in millions) |
||
2009 |
$ 5,400 |
$ — |
2010 |
5,500 |
— |
2011 |
5,500 |
— |
2012 |
5,600 |
— |
2013 |
5,600 |
— |
Workers’ Compensation
Our employees are covered by the Federal Employees’ Compensation Act, administered by the Department of Labor’s Office of Workers’ Compensation Programs (OWCP), which makes all decisions regarding injured workers’ eligibility for benefits. However, we pay all workers’ compensation claims from postal funds.
We record as a liability the present value of all future payments we expect to make for those employees receiving workers’ compensation. At the end of 2008, we estimate our total liability for future workers’ compensation costs at $7,968 million, an increase of $197 million, or 2.5%, from 2007. In 2007, our liability decreased $92 million, or 1.2%, from 2006. Our workers’ compensation expense was $1,227 million for 2008, $880 million for 2007, and $1,279 million for 2006.
As discussed in Note 11, Workers' compensation, in the Notes to the Financial Statements, we implemented an improved model for estimating our liability for workers compensation in 2008, with the assistance of an independent actuary. The revised model is similar to that used in the independent actuarial valuation, which formed the basis for the recorded liability in 2007. The revised model combines four generally accepted actuarial valuation techniques to project our future claim payments based upon our currently open claims and our past claim payment experience. In addition, we refined our estimation in 2008 by taking a longer period of claim payment experience into consideration in the projection. The cumulative impact of the changes in estimate reduced our 2007 liability and expense by $685 million and our 2008 liability and expense by $154 million.
In 2008, we experienced a 1.5% increase in the number of medical claims receiving payments and a 3.8% increase in the number of compensation claims receiving payments. The actual claim payments increased $56 million, or 6.2%, over 2007. A factor in this increase was COLAs of 2.4% granted to all compensation claimants in March 2007 and 4.3% granted in March 2008, which raised the payments to all compensation claimants on the rolls. Medical claims payments during the year grew by 8.9%.
In 2007, we experienced a 4.6% decrease in the number of medical claims receiving payments and a 0.2% decrease in the number of compensation claims receiving payments. Although the number of claims receiving payments decreased, the actual cost of claims increased $41 million, or 4.7%, over 2006. A factor in this increase was the 2.4% March 2007 COLA, which raised the payments to all compensation claimants on the rolls.
Transportation Expenses
Transportation expenses for 2008 were $6,961 million, an increase of $459 million, or 7.1%, compared to 2007. Compared to 2006, 2007 transportation expenses increased $457 million or 7.6%. Transportation costs are largely made up of air and highway transportation.
Transportation Expense |
2008 |
2007 |
2006 |
|---|---|---|---|
(Dollars in millions) |
|||
Highway Transportation |
$ 3,499 |
$ 3,150 |
$ 2,977 |
Air Transportation |
3,047 |
2,990 |
2,771 |
Other Transportation |
415 |
362 |
297 |
Total Transportation Expense |
$ 6,961 |
$ 6,502 |
$ 6,045 |