Postal Pension Funding Reform:

Review of Military Service Funding Proposals

GAO-04-281: Published: Nov 26, 2003. Publicly Released: Nov 26, 2003.

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The Postal Civil Service Retirement System Funding Reform Act of 2003 (the Act) required the United States Postal Service, Department of the Treasury, and Office of Personnel Management (OPM) to prepare proposals detailing whether and to what extent the Treasury and Postal Service should fund the benefits attributable to the military service of the Postal Service's current and former Civil Service Retirement System (CSRS) employees. The Act required GAO to evaluate the proposals. Our objective in doing so was to assess the agencies' positions and provide additional information where it may be useful.

The positions taken by OPM and Treasury and the Postal Service were driven in part by differing views on the nature and extent of the relationship between military service and an entity's operations. The Postal Service favors returning the responsibility for funding benefits attributable to military service to the Treasury, making arguments that include Treasury's historic responsibility for these benefits, the legislative history surrounding the Postal Service's funding of retirement benefits, the fact that the majority of military service by CSRS employees was rendered before the current Postal Service was created, and that military service has no connection to the Postal Service's functions or operations. OPM and Treasury favor the recently enacted law, arguing that the Postal Service was intended to be self-supporting, military service is a benefit like other CSRS benefits that should be allocated proportionally over an employee's career, and the current law is one in a series that developed today's approach to funding the Postal Service's CSRS costs. GAO observed that there is no direct relationship between an employee's military service and an entity's operations, but an indirect relationship is established once an employee is hired into a position whose retirement plan provisions credit military service when computing a civilian benefit. GAO has long held the position that federal entities should be charged the full costs of retirement benefits not covered by employee contributions in the belief that it enhances recognition of costs and budgetary discipline at the same time it promotes sounder fiscal and legislative decisions. However, our previous recommendations and matters for congressional consideration did not specifically address whether the cost of military service benefits should be included in CSRS employee benefit costs. Currently there is inconsistency in how various self-supporting government entities treat these costs. The military service of many Postal Service retirees was already creditable to a civilian pension when the Postal Service began operations in 1971. OPM's current approach, however, allocated the years of creditable military service of these employees over their entire civilian careers. If Congress decides that the Postal Service should be responsible for military service costs applicable to its employees, then consideration of an allocation alternative reflecting the extent to which the military service of current and former employees was already creditable towards a civilian pension when the Postal Service began operating would enhance the decision-making process.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: In October 2004, staff from the Government Efficiency and Financial Management Subcommittee of the Committee on Government Reform (to whom we issued our report in 2003) informed GAO that the committee leadership had considered, but could not support, requiring self-supporting federal entities to fund the employer's portion of the dynamic cost of civil service pensions (exclusive of military service) from full costing and the fees collected from the public or other agencies. Nonetheless, in December 2006, Congress passed Public Law 109-435, the Postal Accountability and Enhancement Act, which required the Postal Service (a self-supporting federal entity) to pay their full dynamic civil service pension costs, exclusive of military service. Consequently, we consider this matter for congressional consideration closed.

    Matter: To help promote full and consistent funding of CSRS benefits among selfsupporting federal agencies, we suggest that the Congress consider requiring all self-supporting federal entities to pay the dynamic cost of employee pension benefit costs not paid for by employee contributions and deposits, excluding military service costs.

  2. Status: Closed - Implemented

    Comments: In October 2004, staff from the Government Efficiency and Financial Management Subcommittee of the Committee on Government Reform (to whom we issued our report in 2003)informed GAO that the committee leadership considered, but determined it could not support, requiring all self-supporting federal entities to treat funding the military service component of the employer's portion of the dynamic cost of civil service pensions the same as the Postal Service. Consequently, we consider this matter for congressional consideration closed.

    Matter: To help promote full and consistent funding of CSRS benefits among selfsupporting federal agencies, we suggest that the Congress consider treating all self-supporting federal entities consistently with regard to whatever decision is made on Postal Service funding of the military service component of CSRS employee benefits.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: OPM submitted to Congress estimates of the additional cost to the Treasury of making the Postal Service responsible only for employee military service that became creditable after June 30, 1971. Subsequent to OPM's submission, bills were introduced in both the House (H.R. 4341) and Senate (S. 2468) that would, if enacted, transfer responsibility for funding all Civil Service Retirement System (CSRS) benefits attributable to military service for all current and former Postal Service CSRS employees back to the Treasury.

    Recommendation: If the Congress decides that the Postal Service should be responsible for military service costs associated with its employees, we recommend that the Office of Personnel Management provide the Congress with estimates of the additional cost to the Treasury of making the Postal Service responsible only for employee military service that became creditable after June 30, 1971.

    Agency Affected: Office of Personnel Management

 

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