Review of the Office of Personnel Management's Analysis of the United States Postal Service's Funding of Civil Service Retirement System Costs

In our December 2001 report, "United States Postal Service: Information on Retirement Plans" (GAO-02-170), we raised the question of whether the United States Postal Service (USPS) was paying more or less than appropriate to cover benefit payments for the Civil Service Retirement System (CSRS) for which it is responsible. In May 2002, we asked the Office of Personnel Management (OPM) to calculate a hypothetical "Postal Fund" balance and projected funding status by estimating the present value (PV) of the future benefits USPS is required to fund for CSRS retirees and survivors under current law and extent to which prior and projected future contributions required by current law would fund these benefits. OPM released its analysis in November 2002, indicating that, based on current contributions, USPS's CSRS obligations would be significantly overfunded in the future. The Administration has proposed legislation that addresses this overfunding. In this correspondence we will (1) review OPM's analysis for reasonableness and (2) analyze the legislative proposal to identify any issues needing further consideration.

To perform its analysis, OPM determined the net assets (USPS agency and employee contributions plus earnings benefits and administrative expenses) available in the hypothetical "Postal Fund" as of September 30, 2002. OPM then calculated the PV of future benefits payable and future contributions to determine the extent to which "Postal Fund" net assets and required future contributions would fund the projected remaining benefits to be paid. In reviewing OPM's calculation, we also identified several adjustments that would improve its accuracy and collectively resulted in an increase of about $5 billion to the "Postal Fund" net assets. These include changing the basis of accounting for employee withholdings and USPS contributions from cash to accrual, reflecting certain employee voluntary and civilian service deposits and redeposits in the analysis that were not in OPM's initial analysis, using actual data on 30-year and 15-year payments by USPS rather than the estimated payments used in OPM's initial analysis, and making other miscellaneous adjustments. As a result of OPM's analysis, the Administration has proposed legislation that reduces the payments USPS would be required to make for CSRS benefits from approximately $4.7 billion annually to an estimated $1.8 billion in fiscal year 2003, a savings of $2.9 billion. Several issues, could affect the amount of annual payments: treatment of military service costs, treatment of payments made with appropriated funds, treatment of underfunded or overfunded amounts and future refinements, and choice of demographic assumptions.