OIG Report: Using U.S. Postal Service-Specific Assumptions for Calculating the Civil Service Retirement System Liability
This report presents the results of our self-initiated review of Using U.S. Postal Service-Specific Assumptions for Calculating the Civil Service Retirement System (CSRS) Liability (Project Number 13BG015FT001). Our objective was to review the assumptions used for the Postal Service’s CSRS liability calculation and determine what effect those assumptions may have on the CSRS liability calculation estimate. See Appendix A for additional information about this review.
The CSRS is a pension program offered to employees of the Postal Service and federal agencies. The Postal Service and its employees contribute to the pension program for future benefits. The U.S. Office of Personnel Management (OPM) administers the CSRS and reported, as of September 30, 2012, the Postal Service had an unfunded liability of $18.7 billion for CSRS. The U.S. Postal Service Office of Inspector General (OIG) previously analyzed funding levels and provided comparisons to the federal government, military, state governments, and corporations. Those comparisons supported that the Postal Service had funded its pension liabilities at 105 percent.Previous recommendations focused on legislation to refund surpluses and address future surpluses.1 This report focuses on the calculations behind the CSRS liability. Specifically, we wanted to identify whether there were characteristics of Postal Service employees that distinguish them from other federal employees to the extent that those characteristics impact the CSRS liability. To assist in answering our objective, the OIG contracted with Hay Group, an independent actuarial firm with expertise in Postal Service pension benefits.
Conclusion
Demographic differences between Postal Service and other federal employees impacted the calculation of the CSRS liability estimate. Specifically, Postal Service employees have distinguishing employee characteristics (salary growth and life expectancy) that the OPM does not take into consideration when applying actuarial assumptions. When calculating the CSRS liability using actuarial assumptions specific to the Postal Service, the liability is reduced by $1.3 billion. Using assumptions that more closely align with Postal Service employees causes the CSRS liability to decrease from $209.9 billion to $208.6 billion.
We believe the Postal Service’s CSRS liability should be calculated using actuarial assumptions specific to Postal Service employees. This approach provides a more accurate estimate of retirement liabilities that are more likely to match future retirement benefits actually paid.
Characteristic and demographic differences between Postal Service employees and other federal employees impact the projected CSRS liability. Specifically:
Postal Service employees have received smaller pay increases than assumed, general increases have been lower than predicted, and Postal Service employees have fewer steps in their pay scale than typical federal employees. Consequently, Postal Service employees reach the top step more quickly and salary growth ceases, effectively reducing the CSRS liability.
The OPM projected improved mortality rates for federal employees, which increased the CSRS liability. However, when considering only Postal Service employees, the mortality improvements for retired men ages 55 to 64 were significantly lower at 0.3 percent compared to the OPM’s 1.7 percent projection. Overall, the mortality improvement for retired men was 1 percent for Postal Service employees compared to the OPM’s 2 percent projection. For retired females, the mortality improvement was slightly higher at 1.5 percent for Postal Service employees compared to the OPM’s 1.2 percent projection. The combined effect of these differences reduces the CSRS liability.