December 4, 2012 (RARC-WP-13-002)

Two months ago, we released a white paper entitled Causes of the Postal Service FERS Surplus. The paper was prepared with the assistance of the actuarial firm Hay Group. Hay Group found that the postal surplus in the Federal Employees’ Retirement System (FERS) resulted from differences between Postal Service characteristics and the characteristics of the rest of the federal government and recommended using Postal Service-specific assumptions to measure the FERS liability. Under Postal Service-specific assumptions, the $11.4 billion FERS surplus projected as of fiscal year (FY) 2011 increased to $24.0 billion.

Since the release of the white paper, the Office of Personnel Management (OPM) has issued its annual estimate of the FERS surplus based on new economic and demographic assumptions adopted in July. In the new estimate, the surplus that OPM originally projected to be $11.4 billion decreased to $2.6 billion as of FY 2011 ($3.0 billion as of FY 2012).

We asked Hay Group to update their previous estimate of the surplus using Postal Service-specific assumptions to reflect OPM’s changes. Hay Group found the projected surplus to be $12.48 billion as of FY 2012.

We support using Postal Service-specific assumptions whatever the effect on the surplus as it provides a more accurate and stable estimate of Postal Service liability that is more likely to match the future payout stream. In addition, we suggest changes to the FERS program to set Postal Service contribution rates based on Postal Service-specific assumptions and to provide a mechanism for returning FERS surpluses once they have occurred.

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