To borrow a saying often attributed to Yogi Berra, “It’s tough to make predictions, especially about the future.” Whenever people make estimates about liabilities for long- term expenses, such as pension and retiree health payments, they’re making predictions about the future. The problem is that predictions are based on the present, and the present is always changing.
Since 1992, the Postal Service has had a surplus in the Federal Employees’ Retirement System (FERS) program, according to the Office of Personnel Management (OPM). A surplus occurs when assets exceed the amount of the liability. In October, the OIG released a white paper called Causes of the Postal Service FERS Surplus. The paper, produced with the assistance of Hay Group actuarial firm, examined the reasons behind the FERS surplus.
Hay Group found that the surplus had emerged in part because of differences between the Postal Service and the rest of the federal government and recommended using assumptions based just on the Postal Service population rather than everyone in FERS. Hay Group developed an estimate of the surplus under Postal Service-specific assumptions.
After the OIG released the paper, the Office of Personnel Management (OPM) released a new estimate of the FERS surplus as it does every autumn. In this new estimate, OPM used a different prediction for future interest rates and also made changes to demographic assumptions such as how long postal employees and retirees will live. OPM’s estimate of the FERS surplus declined substantially.
To take into account this new information, the OIG asked Hay Group to update their previous estimate of the surplus to reflect OPM’s assumption changes and new 2011 data. Hay Group also included the most recent Postal Service-service forecasts about future salary increases. Hay Group found the projected surplus under Postal Service-specific assumptions to be $12.48 billion as of fiscal year (FY) 2012; whereas OPM, using FERS-wide assumptions, projected the surplus to be $3.0 billion.In either case, the Postal Service’s FERS fund is more than 100 percent funded, while Fortune 1000 companies are on average only 80 percent funded according to 2010 data.