The Postal Services Rhbf Contributions Are A Major Expense Is Their Cost Built Into The Postal Rate Base
To a large degree it is. The explanation requires revisiting the rate-setting process that existed before PAEA became law. Under old law, rates were set on a cost-of-service basis. Accordingly, rates were set sufficiently high to cover costs, including the large amounts the Postal Service spent to fund its pension promises. As noted above, the 2003 relief legislation greatly reduced the Services pension contributions, but required that, starting in 2006, all pension savings go into an escrow account. The escrow payments, which the Service could not then touch, counted as an expense. In 2005, the Service sought a 5.4 percent across-the-board rate increase solely to cover the escrow expense. The Postal Rate Commission approved the request, which took effect in January 2006. In May 2006, the Postal Service sought a second, larger rate hike, with a small portion of that attributed to the escrow expense. In early 2007, the PRC approved this second request, with rate increases averaging 7.6 percent. In other words, postal rates were increased to give the Service enough revenue to cover the escrow expense, as well as its other costs. When PAEA eliminated the escrow account in favor of RHBF contributions, the dollar amount of expenses stayed roughly the same, even though the nature of the expenses changed. Accordingly, postal rates had been set high enough to cover the new RHBF contributions.
When The Service Defaults On Statutory Funding Contributions How Is That Recorded
The required contribution amount is reported as a cost, and it reduces profits or widens losses. Because no contribution is actually made, there is no addition to fund assets. For instance, the Postal Services statutory RHBF contribution in 2015 was $5.7 billion. Together with other costs, that obligation contributed to the Services $5.1 billion net loss in 2015. However, because the Service defaulted on the payment, it obviously did not reduce cash on hand, did not add to RHBF assets, and did not reduce the unfunded retiree health benefits liability.
Federal Employees Retirement System
If you were hired in 1984 or later, you are covered under FERS. When you retire, OPM will calculate the average of your three highest years of earnings. If you retire before age 62, or with fewer than 20 years of service, OPM will pay you annually one percent of your high three average. If you are at least 62 and have more than 20 years of service when you retire, this figure increases to 1.1 percent. You also will receive Social Security and the USPS will contribute to your Thrift account one percent of your base salary each year, plus it will match contributions that you make.
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Would The Medicare Proposal Impose Any Costs On Postal Stakeholders
For the most part it would not. Postal retirees would remain in the FEHB Program and would largely retain the overall health coverage they have now, although more of it would come through Medicare. One group that would see higher costs is the minority of postal retirees not currently enrolled in Medicare Part B because they would have to start paying Part Bs premiums. Meanwhile, with less financial pressure on the Postal Service, it would be less likely that changes burdening stakeholders, such as higher postal rates, further reductions in the postal workforce, the closing of more postal facilities, or a rethinking of postal employees fringe benefits, would be undertaken.
Law Requires Postal Retirees To Enroll In Medicare
The landmark Postal Service Reform Act Congress passed this week ends the mandate that the Postal Service pre-fund its retiree health benefit costs and requires postal workers to enroll in Medicare Parts A and B when they turn 65. The latter provision could end up affecting all federal employees.
All current federal retirees, including current postal retirees, can choose whether or not to enroll in Medicare Part B. Plans in the Federal Employee Health Benefits program cover retirees whether they enroll in Medicare or choose to maintain coverage under FEHB only.
In the private sector, very few Americans have a choice of whether or not to enroll in original Medicare at age 65 if they want to maintain their employer-sponsored health insurance in retirement. Some companies offer retiree health benefits exclusively through Medicare Advantage plans.
Of course, many employees lose their employer-sponsored health insurance entirely when they retire. They can enroll in either a Medicare supplement plan or a Medicare Advantage plan. Both are available to people who have Medicare Part A and Part B. Most private sector retiree health plans are designed to supplement Medicare, and might not pay your medical costs during any period you were eligible for Medicare but did not sign up for coverage. Military retirees also must prove they are enrolled in Medicare Parts A and B if they want to continue coverage under TRICARE, which is then called TRICARE for Life.
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Have Events Borne Out That Rosy Forecast
No, the numbers are sobering. Postmaster General Brennan expects the Service will need to make annual RHBF contributions of about $3 billion to amortize its unfunded retiree health care liability, even under the 40-year schedule that begins in 2017. She further expects that funding the additional future benefits pledged each year in return for work that year will require another $3.3 billion, for a total of about $6.3 billion. That is about $2.5 billion less than the Service was supposed to contribute in 2015 or 2016, but it is about $3.2 billion more than the Service actually contributed. The numbers are big because the unfunded liability remains very large and retiree health benefits are very expensive.
What Is The Postal Service Retiree Health Benefits Fund
In 2006, the Postal Service had fully funded its pensions. However, Congress and the Bush Administration were concerned that the Service had put nothing aside to finance promised retiree health care benefits. This concern reflected the facts that the promised benefits entail massive future liabilities and that delivering the benefits is a firm commitment to current and former postal employees. Accordingly, when Congress enacted the Postal Accountability and Enhancement Act of 2006 , it established a dedicated fund for retiree health care benefits, the Retiree Health Benefits Fund .
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How Large Is The Postal Services Retiree Health Care Liability
The U.S. Office of Personnel Management estimated that the present value of the Postal Services retiree health care liability was $105.2 billion at the end of 2015, while the assets in the RHBF were $50.3 billion. The difference, $54.8 billion, is the unfunded retiree health benefit liability as of the end of 2015. For comparison, the Postal Service had total revenue of $68.9 billion in fiscal year 2015.
Benefits Not Administered By Opm
You can keep your existing life insurance when you retire, but you must submit questions or claims directly to the Office of Federal Employees’ Group Life Insurance. Your FEGLI coverage will change significantly at age 65, and at retirement, you will have to choose which option you wish to pay for. You also are eligible for the Federal Long Term Care Insurance Program. The federal government does not pay for this benefit, but has negotiated very favorable rates for federal employees and retirees. The cost depends on the plan features you choose.
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Defaulting On Legal Obligations Normally Has Severe Consequences What Have Been The Consequences For The Us Postal Service
Several months before its first default, then Postmaster General Patrick Donahoe warned in congressional testimony, We have insufficient revenue to cover our costs and are rapidly approaching our statutory debt limit of $15 billion. If the Postal Service were a private company, we would be engaged in Chapter 11 bankruptcy proceedings. Of course, the Postal Service is not a normal business. Following its first default, the government enterprise reported, e have suffered no penalties or damages as a result of our inability to make these payments. Congress appears to be less bothered by the Services serial defaults than by the cost-cutting that would occur if the Service were forced into reorganization or bankruptcy.
Federal Employees Pay Social Security Taxes
All federal employees hired in 1984 or later pay Social Security taxes. This includes the president, the vice president, and members of Congress. It also includes federal judges and most political appointees.
They all pay the same amount of Social Security taxes as people working in the private sector.
How Much Did The Service Pay In Health Benefit Premiums In Fiscal Year 2015
Health coverage is an expensive fringe benefit. The Service reported that approximately 492,000 active employees received health benefits in 2015, at a cost to the Service of $4.8 billion. In addition, roughly 490,000 annuitants and survivors were enrolled in the FEHB Program, and the Service spent $3.1 billion on their premiums in 2015.
Health Benefits & Life Insurance
Medical health plans under the Federal Employees Health Benefits program are diverse and costs are comparatively low considering that the federal government pays two thirds of the premiums for employees and retirees. The medical plan is an employee-employer contribution system and includes HMO and Blue Cross and Blue Shield programs. There are literally hundreds of plans to choose from.
The Federal Employees Group Life Insurance program is available to all employees. The FEGLI program offers low cost term life insurance for the employee and basic coverage for the family. FEGLI offers up to five times the employees salary in death benefits.
Other insurance benefits include:
- Federal Employees Long Term Care
- Federal Employees Dental Vision Care
- Federal Flexible Spending Account Program
One of the primary benefits of Postal Service employment is the satisfaction you experience from working in a challenging and rewarding position. Positions are available with the level of responsibility and authority that you desire.
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To Set The Record Straight Was Paea Controversial And Bitterly Partisan Legislation That Received Almost No Support On One Side Of The Aisle And Nearly Unanimous Support On The Other Such As The Patient Protection And Affordable Care Act
No, PAEA was popular, noncontroversial legislation that garnered broad bipartisan support.
It passed the House under a suspension of the rules on a voice vote, and the Senate approved it by unanimous consent. PAEA was the product of much hard work and reflected compromises between Congress and the Administration, between the two houses of Congress, and on both sides of the aisle.
How Much Has The Postal Service Contributed To The Rhbf So Far
The Postal Service has to date contributed $20.9 billion. In addition, $17.1 billion was transferred from the fund holding the CSRS surplus.
**** This was a transfer between two federal funds, both outside the Postal Service.
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What Do The Terms Funded And Pay
An employers promises to pay future benefits are said to be fully funded if there is a dedicated fund with assets equal to the present value of expected future payments to current and former workers. For example, if an employer has a $10 billion liability for future pension benefits to current and former workers and if the employer has a pension fund with assets of $10 billion, the pension plan is 100 percent funded. In contrast, pay-as-you-go means putting aside nothing when future benefits are promised and, instead, dealing with the costs only when they come due. For example, if an employer hopes to finance pension commitments as they come due in the future solely out of future earnings, that would be a 100 percent pay-as-you-go approach.
A rough analogy may also be helpful in distinguishing between the approaches. If a couple saves in anticipation of retirement, that is similar to the funded approach. If a couple decides not to worry about post-retirement-age expenses during their normal working years, but wait until after they have reached retirement age, that is similar to the pay-as-you-go approach, which may require them to keep working.
Does The Funded Approach Also Distort The Bottom Line
No, the funded approach accurately portrays the costs and income of each years operations. The reason is that the full costs of operations are reported when they occur. For example, if a worker receives a pledge of future retiree health benefits with a present value of $2,500 as partial compensation for this years labor services, the funded approach requires the employer to put aside $2,500 for paying the future bills. Hence, the $2,500 of deferred compensation appears as a current cost, which accurately aligns when costs are incurred and when they are reported.
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Disability Benefits & The Special Rules
Unfortunately, there are some federal employees that can end up developing a physical or mental condition making it difficult to continue with their service. Once their condition is confirmed and is expected to carry on for at least a year or more, these federal employees are eligible to apply for disability retirement.Read More
Usps Explains How Medicare Integration Would Benefit Usps Retirees
To help restore USPS to financial stability, the organizations leaders for many years have called for Medicare to be fully integrated into postal retiree health plans.
To help you understand what this means, here are some things you should know:
Integrating the Postal Services Federal Employee Health Benefits plans with Medicare would benefit both USPS and its retirees. When postal employees retire and are enrolled in Medicare, their Medicare coverage becomes their primary health coverage and their FEHB plans become their secondary health coverage.
Most private sector employers and many state and local governments that provide retiree health care to their employees require them to enroll in Medicare parts A and B.
While currently postal retirees are not required to enroll in Medicare when they become eligible at age 65, the majority of retirees do so voluntarily. In fact, 3 out of 4 retirees sign up for Medicare Part B because they determine that having both Medicare and an FEHB plan provides a better value for their out-of-pocket medical costs.
Current legislative proposals being discussed on Capitol Hill would require that the Postal Services FEHB plans integrate with Medicare. If enacted, these proposals would be similar to what occurs in the private sector and at the state and local government levels.
The Postal Service also requires legislative reform, a better product and service pricing system, and continued efforts to innovate and improve efficiency.
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How Much Do Postal Workers Get Paid When They Retire
Many postal workers spend their entire careers working for the U.S. Postal Service. Its a career that comes with many USPS benefits, including a standardized federal retirement plan. How much a postal worker makes in USPS retirement depends on which retirement plan he falls under and how long he has worked for the USPS.
Automatic USPS retirement kicks in at age 65, but there are retirement plans in place under both the Civil Service Retirement System and Federal Employment Retirement System that affect pay. Those who retire under the Voluntary Early Retirement Authority must meet certain qualifications to receive their monthly payment.
How Has The Services Unfunded Retiree Health Benefit Liability Changed Over The Last Decade
As shown in Table 2, the Services liability was $74.8 billion at the end of fiscal year 2006, and it was all unfunded. After PAEAs enactment, however, the assets of the RHBF built up rapidly. By the end of fiscal year 2010, the retiree health benefit liability was $91.1 billion but the fund had assets of $42.5 billion. Hence, from 2006 to 2010, the unfunded liability dropped from $74.8 billion to $48.6 billion, and the funding ratio rose from 0 percent to 47 percent. Because the Postal Service has defaulted on all subsequent contributions, however, fund assets have risen slowly since then, with interest earnings on prior contributions the only source of growth. By the end of fiscal year 2015, the funding ratio, at 48 percent, was close to what it had been in 2010, but the dollar amount of the unfunded liability had increased from $48.6 billion to $54.8 billion. If the Service had been able to maintain PAEAs funding schedule, the liability would now be approximately 80 percent funded.
Post Office Pensions: Some Key Myths And Facts
UPDATE: Some text in the final paragraph has been revised.
Yes, Ive written about the Post Office before, both back a year ago and at the beginning of the month. This article attempts to distill the issue into basics, a TL DR version of those articles, as concerns about the United States Postal Services short- and long-term viability continue. Also, I am discussing neither the general business model nor speculation as to the Trump administrations intentions. Bearing that in mind, lets begin:
MYTH: The Post Office is required to fund pensions in advance in a manner applies to no other private-sector company.
FACT: ALL companies are required to fund any pension promises they make to their employees. NONE of them are permitted to take a pay as you go approach but must contribute to a pension fund an amount equivalent to what a worker has accrued that year in benefit promises, regardless of how far into the future that worker will be retiring, and must make up for any shortfalls due to asset losses or other reasons. The USPS and private sector companies use the same general actuarial principles to do so, though there are differences in assumptions, particulars of the calculations, etc.
However, even here, again, all companies which promise retiree medical benefits must account for them in their financial reporting even if they dont prefund.
MYTH: The requirement to fund retiree medical benefits in such a short period of time was especially burdensome and unfair.