U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

19–010

" SENATE ! 108TH CONGRESS

1st Session 

REPORT

2003

108–35

POSTAL CIVIL SERVICE RETIREMENT SYSTEM 

FUNDING REFORM ACT OF 2003

R E P O R T

OF THE

COMMITTEE ON GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

TO ACCOMPANY

S. 380

TO AMEND CHAPTER 83 OF TITLE 5, UNITED STATES CODE, TO 

REFORM THE FUNDING OF BENEFITS UNDER THE CIVIL SERVICE RETIREMENT SYSTEM FOR EMPLOYEES OF THE UNITED 

STATES POSTAL SERVICE, AND FOR OTHER PURPOSES

APRIL 8, 2003.—Ordered to be printed 


E:\Seals\Congress.#13
(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

MICHAEL D. BOPP, Staff Director and Chief Counsel 

ANN C. FISHER, Professional Staff Member 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel 

SUSAN E. PROPPER, Minority Counsel 

DARLA D. CASSELL, Chief Clerk

108TH CONGRESS REPORT " SENATE ! 1st Session 108–35 

POSTAL CIVIL SERVICE RETIREMENT SYSTEM FUNDING 

REFORM ACT OF 2003

APRIL 8, 2003.—Ordered to be printed 

Ms. COLLINS, from the Committee on Governmental Affairs, 

submitted the following 

R E P O R T 

[To accompany S. 380] 

The Committee on Governmental Affairs, to which was referred 

the bill (S. 380) to amend chapter 83 of title 5, United States Code, 

to reform the funding of benefits under the Civil Service Retirement System for employees of the United States Postal Service, 

and for other purposes, having considered the same, reports favorably thereon with an amendment and recommends that the bill as 

amended do pass.

CONTENTS 

Page 

I. Purpose and Summary .................................................................................. 1

II. Background .................................................................................................... 2

III. Legislative History ......................................................................................... 5

IV. Section-by-Section Analysis .......................................................................... 6

V. Evaluation of Regulatory Impact .................................................................. 9

VI. CBO Cost Estimate ........................................................................................ 10

VII. Changes to Existing Law .............................................................................. 14

I. PURPOSE AND SUMMARY

S. 380, the Postal Civil Service Retirement System Funding Reform Act of 2003, is a bipartisan bill to reform the funding of benefits under the Civil Service Retirement System for employees of the 

Postal Service, and for other purposes.

S. 380 would require USPS to contribute annually to the Civil 

Service Retirement and Disability Fund (CSRDF) on behalf of employees covered by CSRS an amount equal to the dynamic normal 

cost of CSRS minus the amount contributed by employees. (The dynamic normal cost of CSRS is currently estimated to be equal to 

24.4 percent of payroll. Employees covered by CSRS are required 

to have 7 percent of pay withheld and deposited in the CSRDF. 

2

Thus, the required USPS contribution would be equal to 17.4 percent of payroll.) Because the dynamic normal cost of CSRS includes 

the effects of future employee pay raises and retiree COLAs, the 

separate payments that USPS is required to make under current 

law to fund the future increases in CSRS annuities that result 

from pay raises and COLAs would no longer be necessary. Consequently, S. 380 would repeal the provisions of law that require 

the Postal Service to amortize over 15 years the increases in future 

CSRS annuities that result from annual employee pay raises and 

retiree COLAs. 

Under S. 380, OPM would be required to estimate any ‘‘supplemental liability’’ of the Postal Service with respect to CSRS benefits earned by current or former USPS employees and to amortize 

this supplemental liability over 40 years. In addition, S. 380 would 

include the value of CSRS benefits attributable to military service 

as a financial obligation of the Postal Service in the calculation of 

the Postal Service’s supplemental liability. 

The Reform Act expresses the ‘‘Sense of Congress’’ that the savings accruing to the USPS will be sufficient to allow the USPS to 

fulfill its commitment to hold postage rates stable until at least 

2006. The Committee also notes that some portion of the savings 

should be used to address the Postal Service’s substantial unfunded 

post-retirement health obligations; and that none of the savings 

should be used in the computation of bonuses to Postal Service executives or managers. 

S. 380 requires that the Secretary of the Treasury shall specify 

the manner and extent to which the savings accruing as a result 

of the enactment of the Act shall be used to pay down postal debt. 

The bill also requires the USPS to submit a report to Congress by 

December 31, 2003, describing how it proposes to address its obligations relating to unfunded post-retirement health care costs of 

current and former employees. The Postal Service also would be required to send a report to GAO, the Senate Governmental Affairs 

Committee and House Government Reform and Oversight Committee detailing how much of the future savings attributable to the 

legislation the Postal Service would use for debt repayment, prefunding of post-retirement health care costs for postal employees, 

capital improvements, holding rates stable, and other purposes. 

II. BACKGROUND

OVER-FUNDING OF CSRS LIABILITY

On November 1, 2002, the Office of Personnel Management 

(OPM) had good news for the Postal Service (USPS). A review of 

USPS payments to the civil service retirement fund for pension obligations to employees on board before 1984 revealed a far more 

positive picture than had previously been believed. USPS—unlike 

any other federal agency—is required to pay into the fund an 

amount that approximates the full cost of its employees’ participation in the Civil Service Retirement System (CSRS). Because pension investments have been earning interest at a higher rate than 

presumed in the statutory funding formula, OPM reported that the 

Postal Service’s deferred liability for pension obligations was only $5 billion instead of $32 billion. According to OPM, if USPS continues to make payments based on the latter figure, the liability 

3

will eventually be over-funded by $78 billion. OPM stated that, 

‘‘the major reason for the projected over-funding is due to the excess interest earned by the CSRS fund; that is, interest earnings 

in excess of the 5 percent that was assumed under the statutory 

funding method.’’

Because of the potential over-funding, and the fact that needed 

changes in scheduled payments cannot occur without changes to 

existing laws, OPM sent a legislative proposal to Congress to rectify the situation, while ‘‘protecting employee interests and the integrity of the [postal] retirement system.’’ According to OPM, there 

are two elements of the Postal Service’s financing of CSRS benefits 

that distinguish the agency from other federal agencies, and which 

are important factors in the potential over-funding of CSRS benefits for its employees. First, the Postal Service is responsible only 

for CSRS benefits that were earned by USPS employees after June 

30, 1971. Consequently, a significant proportion of the Postal Service’s early contributions to the Civil Service Retirement and Disability Fund have remained in the Fund for a number of years, 

during which interest has accrued. Second, due to a series of laws 

passed between 1989 and 1993, USPS is required to pay for the increases in CSRS pensions that result from annual cost-of-living adjustments. As a result, the Postal Service—unlike any other federal 

agency—is required to pay into CSRDF an amount that approximates the full cost of the CSRS. It is these two factors, in combination with the interest earnings in excess of the assumed 5 percent 

rate of return, that have led to projected pension contributions and 

interest earnings exceeding the value of CSRS benefits owed to 

USPS retirees and survivors. 

According to OPM, the assumed interest rate used in CSRS financing has been set at 5 percent since 1972. However, while OPM 

uses a 5 percent interest rate in its static valuation of CSRS, it currently uses a nominal interest rate of 6.75 percent when valuing 

the liabilities of the CSRS on a dynamic basis. The dynamic valuation of CSRS liabilities is a more accurate measure of the present 

value of future CSRS annuities. Since the enactment of the Omnibus Budget Reconciliation Act (OBRA) of 1990—which required the 

Postal Service to pay for the increase in CSRS liabilities resulting 

from COLAs granted since 1971 and to amortize the cost of future 

COLAs—USPS has been paying the full dynamic cost of its CSRS 

liabilities. 

S. 380 continues the Postal Service’s liability for the retirement 

costs attributable to its employees covered by the CSRS, which was 

imposed when the Post Office Department became the self-supporting United States Postal Service in July 1971. It also makes 

the Postal Service responsible for retirement benefits due to its 

CSRS enrollees as a result of prior military service, an obligation 

the Postal Service has agreed to assume. The Committee notes that 

the Reform Act’s treatment of these payments by the Postal Service 

is not an adoption of any position by the Committee on whether 

any agency or Department of the executive branch should have responsibility for these costs attributable to its employees covered by 

CSRS.

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DELAYED POSTAL RATE INCREASE

The Reform Act expresses the ‘‘Sense of Congress’’ that the savings accruing to the USPS will be sufficient to allow the USPS to 

fulfill its commitment to hold postage rates stable until at least 

2006. This issue is of high importance to the mailing community. 

Upon introduction of S. 380, Postmaster General Jack Potter announced that enactment of the bill would allow the Postal Service 

to hold off raising rates until 2006, rather than 2004, as it had 

planned. The Committee believes it is especially important in these 

difficult economic times to note the significant adverse impact such 

an untimely postal rate increase would have on the $900 billion 

mailing industry, which employs nine million Americans in fields 

as diverse as magazine and newspaper publishing, direct mailing, 

printing and paper production. Postal rates have already risen 

three times in the past two years. 

DEBT REDUCTION

The deteriorating state of the Postal Service’s finances has been 

a source of concern to the Committee. Over the past few years, the 

Postal Service has come perilously close to reaching its statutory 

debt limit of $15 billion. The Postal Service Board of Governors has 

made it clear that it will not seek authorization from Congress for 

a higher borrowing limit, as it has done in the past. The Postal 

Service deserves recognition for decreasing its debt level by $200 

million this past year. With enactment of this legislation, the Postal Service will be able to use part of the savings to pay down its 

debt. To ensure that a portion is indeed used for debt repayment, 

the Committee approved language requiring the Secretary of the 

U.S. Treasury to specify a plan that the Postal Service must follow 

to use these savings to reduce its debt. 

UNFUNDED HEALTH CARE COSTS REPORT

The Postal Service has a statutory obligation to fund a portion 

of the health insurance premiums of its current and future retirees—an obligation estimated to be between $40 and $50 billion as 

of September 30, 2002. To this point, the Postal Service has not indicated how this obligation and future costs will be funded. For 

that reason, the Committee included language in S. 380 that requires USPS to report to Congress by December 31, 2003 on how 

it proposes to address this currently unfunded obligation and future costs for the purpose of (1) funding, (2) financial statement reporting, and (3) rate-setting. Furthermore, the bill requires GAO to 

prepare and submit a written evaluation of the USPS proposal. It 

is anticipated that the White House Commission on the Postal 

Service will also address the issue of how best to satisfy this outstanding obligation. The Committee looks forward to receiving the 

Commission’s report in July. 

DISPOSITION OF SAVINGS REPORTS

The Postal Service has stated that, because of the savings it 

would realize under the provisions of this legislation, it would not 

have to file a new rate case seeking to increase postal 4 rates until 

the end of 2005, for rates that would go into effect in 2006. However, the benefits of this legislation will continue to be realized by 

5

the Postal Service for many years. It is the view of this Committee 

that the substantial reductions in the Postal Service’s obligation to 

the Treasury occasioned by this bill warrant continued oversight by 

Congress to ensure that a portion of these savings are used to meet 

other key obligations of the Postal Service. 

For this reason, S. 380 requires that, before filing its rate case 

in 2005 and at least eight months before filing any subsequent rate 

case, the Postal Service must submit a report to this Committee 

and to the House Committee on Government Reform and Oversight 

recommending how much of the future savings the Postal Service 

would receive as a result of this legislation should be used for the 

following: debt repayment to the U.S. Treasury; prepaying to the 

U.S. Treasury post-retirement health care costs for postal employees; capital investments to improve productivity and cost saving; 

keeping postal rates stable; and other purposes. The recommendations should also take into consideration, as appropriate, the report 

of the President’s Commission on the United States Postal Service. 

The report required by this legislation is to be accompanied by 

a letter from the Secretary of the Treasury commenting on the recommendations, and must also be transmitted to the General Accounting Office (GAO) for its review and evaluation. GAO will have 

45 days to prepare and submit an evaluation of the Postal Service’s 

report to this Committee and the House Committee on Government 

Reform on Oversight. The Postal Service shall not take any action 

to implement the recommendations in the report until 90 days 

after the report has been submitted. This timetable will allow the 

Committees to take actions that might be necessary to respond to 

the proposed allocation of savings outlined in the report before the 

Postal Service begins the process of preparing a new rate case. 

III. LEGISLATIVE HISTORY

S. 380, the Postal Civil Service Retirement System Funding Reform Act of 2003, was introduced by Sen. Susan M. Collins of 

Maine and Sen. Thomas R. Carper of Delaware on February 12, 

2003 and referred to the Governmental Affairs Committee. The bill 

was cosponsored by Sen. Joseph Lieberman of Connecticut, Sen. 

Ted Stevens of Alaska, Sen. George Voinovich of Ohio, Sen. Richard Durbin of Illinois, Sen. Sam Brownback of Kansas, Sen. Robert 

Bennett of Utah, Sen. George Allen of Virginia, Sen. Mark Pryor 

of Arkansas, Sen. Norm Coleman of Minnesota, Sen. James Jeffords of Vermont, and Sen. John Sununu of New Hampshire. 

The Committee met on March 5, 2003, to consider S. 380. A manager’s amendment in the nature of a substitute was adopted by 

voice vote. 

The manager’s amendment, offered by Chairman Collins and cosponsored by Ranking Member Lieberman and Senators Carper 

and Voinovich, made technical changes to improve upon the clarity 

of certain definitions within the bill. It also added a new reporting 

requirement for the Postal Service. 

On that same date, the Committee ordered the bill reported by 

voice vote, with no members present dissenting. Senators present 

were Stevens, Coleman, Bennett, Fitzgerald, Sununu, Akaka, Durbin, Carper, Lautenberg and Collins. 

6

IV. SECTION-BY-SECTION ANALYSIS

To accompany the Manager’s Amendment to S. 380. 

Section 1. Short Title 

This section would provide that the bill may be cited as the 

‘‘Postal Civil Service Retirement System Funding Reform Act of 

2003’’. 

Section 2. Civil Service Retirement System 

This section would amend provisions of subchapter III of chapter 

83 of title 5, United States Code, to reform the provisions for funding retirement benefits for employees of the United States Postal 

Service under the Civil Service Retirement System. 

Paragraph (1) of subsection (a) would amend section 8331 of title 

5, by changing the term defined in paragraph (17) of that section 

from ‘‘normal cost’’ to ‘‘normal cost percentage.’’ The insertion of the 

phrase ‘‘and standards (using dynamic assumptions)’’ after ‘‘actuarial practice’’ changes the method of computing normal cost from 

a static basis to a dynamic one. While the term ‘‘normal cost’’ was 

defined in section 8331, it had not actually been used in chapter 

83 since the last reference to it was repealed some years ago. 

Paragraph (2) would redefine ‘‘Fund balance’’ to provide consistency between financial reporting and actuarial computations, 

thereby ensuring proper accounting for liabilities. 

Paragraphs (3) and (4) would make technical changes. 

Paragraph (5) would add a definition of the term ‘‘dynamic assumptions,’’ incorporating the language used in the definition in 

paragraph (9) of section 8401, which is used in the administration 

of the Federal Employees’ Retirement System. 

Subsection (b) would amend the provisions of section 8334(a)(1) 

to change the provisions applicable to employer retirement contributions made by the Postal Service. The amendments would exempt the Postal Service from the requirement to make agency contributions that match employee deductions, and would provide that 

the Postal Service employer contribution will be a percentage of 

basic pay equal to the difference between the product of the normal 

cost percentage for the type of employee (i.e., regular employee, law 

enforcement officer, etc.), and the basic pay of that employee, and 

the product of the percentage of basic pay deducted from the employee’s basic pay, and the basic pay of that employee. 

Subsection (c) would provide for computation of any retirement 

costs not covered by past or future Postal Service or employee payments to the Retirement Fund, and for amortization of those costs 

by Postal Service payments over a 40 year amortization schedule. 

It would completely eliminate the existing provisions of section 

8348 dealing with Postal Service payments. 

Paragraph (1) would rewrite section 8348(h). It would repeal the 

existing provisions requiring Postal Service payments for costs ‘‘attributable to any benefits payable from the Fund to active and retired Postal Service officers and employees, and to their survivors, 

when the increase results from an employee-management agreement under title 39 of the United States Code, or any administrative action by the Postal Service taken pursuant to law, which authorizes increases in pay on which benefits are computed.’’

7

As amended, section 8348(h)(1)(A) would establish a new concept, 

the ‘‘Postal supplemental liability,’’ which is essentially the actuarial present value of retirement obligations for Postal Service employees, less the sum of several items, including the present value 

of future employer and employee payments to the Retirement 

Fund; the portion of the Fund balance attributable to payments to 

the Fund by the Postal Service; benefit payments attributable to 

the Postal Service, and any other appropriate amount determined 

by the Office of Personnel Management under generally accepted 

actuarial practices and accounting principles. 

Section 8348(h)(1)(B) would set the basis for inclusion of the 

value of benefits based upon military and volunteer service (i.e. 

Peace Corps, VISTA, etc.), providing for proration in the case of 

postal employees hired before the Postal Reorganization Act was 

enacted on June 30, 1971. It would exclude military service in the 

computation of the amount of the annual Treasury payment required to pay for costs attributable to military service. 

Section 8348(h)(2) would require the Office of Personnel Management (OPM) to determine an appropriate amortization schedule, including a series of equal annual installments commencing September 30, 2004, providing for the liquidation of the Postal supplemental liability by September 30, 2043. Then, for each fiscal year 

beginning after September 30, 2003, through the fiscal year ending 

September 30, 2038, OPM would be required to redetermine the 

Postal supplemental liability at the close of the fiscal year and to 

establish a new amortization schedule, including a series of installments commencing on September 30 of the subsequent fiscal year, 

providing for the liquidation of that redetermined Postal supplemental liability by September 30, 2043. For each fiscal year beginning after September 30, 2038, OPM would be required to redetermine the Postal supplemental liability at the close of the fiscal year 

and to establish a new amortization schedule, including a series of 

equal annual installments commencing on September 30 of the 

subsequent fiscal year, providing for the liquidation of that redetermined Postal supplemental liability over five years. All amortization schedules established under this section would be required to 

be set in accordance with generally accepted actuarial practices 

and principles, based on the dynamic interest rate. The Postal 

Service would be required to pay the amounts determined by OPM, 

no later than the date established by OPM.

Section 8348(h)(3) would provide that in computing the amount 

of any payment under any other subsection of section 8348 that is 

based upon the amount of the Retirement Fund’s unfunded liability, such payment shall be computed disregarding any portion of 

the unfunded liability that OPM determines will be liquidated by 

the Postal Service’s amortization payments. 

Paragraph (2) of subsection (c) would repeal the existing provisions of section 8348(m), that currently require Postal Service payments based upon retirement costs attributable to retirement costof-living increases. 

Subsection (d) would prospectively repeal provisions of the Omnibus Budget Reconciliation Act of 1990 requiring additional Postal 

Service payments to the Retirement Fund, and provide a rule of 

construction for those repealed provisions. 

8

Section 3. Disposition of Savings Accruing to the USPS 

Subsection (a) defines ‘‘postal debt’’ as the outstanding obligations of the USPS. 

Subsection (b) requires that the Secretary of the Treasury, in 

consultation with the USPS, shall determine the extent to which 

savings generated by the Act shall be used to pay down postal debt 

to the Treasury. 

Paragraph (1) of subsection (c) states that each fiscal year OPM 

will compute the amount of savings accruing to the USPS as a result of the Act. 

Paragraph (A) provides that, no later than July 31, 2003, OPM 

shall formulate a plan for calculating these savings, specifically describing the actuarial methods and assumptions they will use. 

Paragraph (B) requires that OPM’s plan be submitted to the Senate Governmental Affairs Committee and the House Government 

Reform Committee. 

Paragraph (3) requires that the plan be formulated in consultation with the Postal Service and shall allow the USPS the opportunity to request a review of the plan by the Board of Actuaries 

of the Civil Service Retirement System. The Board will have the 

authority to make any necessary adjustments to the plan. 

Paragraph (4) states that nothing in this subsection or subsection 

(b) shall be considered to apply to any fiscal year beginning on or 

after October 1, 2007. 

Subsection (d) requires the Postal Service to issue a report relating to the period after the enactment of the Act and before October 

1, 2007 that details the amount of the savings applied toward reducing the postal debt, and the size of the postal debt before and 

after the application of subsection (b). 

Paragraph (1) of subsection (e) states that it is the Sense of Congress that the savings accruing to the USPS as a result of this Act 

shall be sufficient to hold rates stable until at least 2006. 

Paragraph (2) states that it is the Sense of Congress that some 

portion of the savings should be used to address the USPS’s substantial unfunded health care obligations for its current and former 

employees. 

Paragraph (3) states that it is the Sense of Congress that none 

of these savings should be used in the computation of bonuses for 

executives or managers. 

Paragraph (1) of subsection (f) requires the USPS to prepare a 

report related to unfunded health care costs and submit it to the 

President and Congress no later than December 31, 2003. 

Paragraph (A) states that the report should describe how the 

USPS proposes to address its unfunded post-retirement health care 

costs of current and former employees. 

Paragraph (B) states that the report should outline how prior 

and future actuarial accrued costs for post-retirement health care 

benefits and the amounts necessary to prefund those costs are 

treated for purposes of financial statement reporting and establishing rates of postage and fees for postal services. 

Paragraph (2) suggests that the USPS should consider the recommendations of the White House Commission on the Postal Service when preparing its report under subsection (f). 

Paragraph (3) provides that not later than 60 days after USPS 

submits its health care report, required by subsection (f) of paraVerDate Jan 31 2003 09:34 Apr 10, 2003 Jkt 019010 PO 00000 Frm 00010 Fmt 6659 Sfmt 6602 E:\HR\OC\SR035.XXX SR035
9

graph (1), to Congress and the President, the GAO shall prepare 

and submit a written evaluation of the report to the Senate Committee on Governmental Affairs and the House Government Reform Committee. 

Paragraphs (1) (A) and (B) of subsection (g) states that as of September 30, 2025, or whenever the last CSRS covered employee retires, if OPM, after consulting with the Postmaster General (PMG) 

determines, in the process of conducting their annual computation, 

that the Postal Service has not only paid off its CSRS liability, but 

has in fact overpaid into the CSRS fund, then OPM shall alert the 

Postmaster General as to the size of the overpayment and the PMG 

shall then submit a report to Congress describing how that overpayment should be used. If necessary, the PMG shall submit draft 

legislation to Congress. 

Paragraph (1) of subsection (h) states that no later than December 31, 2004, and after that date, not later than 8 months prior to 

the USPS filing a rate case, the Postal Service shall submit a report to the Senate Governmental Affairs Committee, House Government Reform and Oversight Committee and GAO making recommendations for the disposition of future savings accruing to the 

Postal Service as a result of the Act. The report shall be accompanied by a letter of comment from the Secretary of the Treasury.

Paragraph (A) states that the report should describe whether, 

and to what extent, those savings should be used to address debt 

repayment, prefunding of post-retirement health care benefits, productivity and cost savings capital investments, maintaining postal 

rate stability, or any other matter. 

Paragraph (B) states that the report should take into consideration the findings of the President’s Commission on the United 

States Postal Service. 

Paragraph (2) requires that GAO prepare, and submit to Congress, a written evaluation of the Postal Service’s report not later 

than 45 days after the USPS submits their report. 

Paragraph (3) prohibits USPS from taking any action to implement their recommendations for disposition of the savings until 90 

days after the report is submitted to Congress. 

Section 4. Effective Date 

Subsection (a) requires that the Act take effect on the date of enactment. 

Subsection (b) requires that the Act shall only apply to pay periods beginning on or after the date of enactment of this Act. 

V. EVALUATION OF REGULATORY IMPACT

S. 380 contains no intergovernmental or private-sector mandates 

as defined in UMRA and would impose no costs on state, local, or 

tribal governments. 

10

VI. CBO COST ESTIMATE

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, March 19, 2003. 

Hon. SUSAN M. COLLINS, 

Chairman, Committee on Governmental Affairs, 

U.S. Senate, Washington, DC. 

DEAR MS. CHAIRMAN: The Congressional Budget Office has prepared the enclosed revised cost estimate for S. 380, the Postal Civil 

Service Retirement System Funding Reform Act of 2003. This estimate supersedes the CBO estimate of S. 380 dated March 17, 2003. 

The previous version of the estimate contained an error in the discussion of the bill’s on-budget costs. However, this error does not 

affect the on-budget or off-budget cost of the bill, so this revised 

cost estimate does not change CBO’s estimate of the cost of enacting the legislation. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contacts are Mark Grabowicz and 

Geoffrey Gerhardt. 

Sincerely, 

DOUGLAS HOLTZ-EAKIN, 

Director. 

Enclosure.

S. 380—Postal Civil Service Retirement System Funding Reform 

Act of 2003

Summary: Enacting S. 380 would permanently reduce payments 

by the United States Postal Service (USPS) to the Civil Service Retirement and disability Fund (CSRDF) starting in 2003. CBO estimates that enacting the bill would result in net outlays of $17 billion over the 2003–2008 period, and about $40 billion over the 

2003–2013 period. That estimate is the total budgetary impact of 

the proposal, combining both on-budget and off-budget effects. 

(USPS cash flows are considered off-budget.) 

Under the bill, the Postal Service would see its required payments to the CSRDF reduced by $3 billion to $5 billion a year. The 

legislation specifies that the Postal Service and the Department of 

the Treasury would determine how to apply the savings. CBO expects the Postal Service would use those savings to repay debt, 

delay future rate increases, and invest in capital projects or other 

activities to increase productivity. 

By reducing USPS payments to the retirement fund, CBO estimates the bill would lower the agency’s costs (off-budget) by about 

$2 billion over the 2003–2008 period. We also estimate that enacting S. 380 would increase on-budget costs by about $19 billion over 

the same period. Thus the net effect of this legislation on the unified federal budget would be a cost of about $17 billion over the 

2003–2008 period largely because on-budget offsetting receipts—

representing payments from the Postal Service to the CSRDF—

would be reduced. Over the 2003–2013 period, enacting S. 380 

would combine off-budget savings of about $2 billion with on-budget costs of around $42 billion to produce a net cost of about $40 billion. 

11

S. 380 contains no intergovernmental or private sector mandates 

as defined in the Unfunded Mandates Reform Act (UMRA) and 

would impose no costs on State, local, or tribal governments. 

Estimated cost to the Federal Government: The estimated budgetary impact of S. 380 is shown in the following table. The costs 

of this legislation fall within budget functions 370 (commerce and 

housing credit), 900 (net interest), and 950 (undistributed offsetting 

receipts).

By fiscal year, in billions of dollars—

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

CHANGES IN DIRECT SPENDING

On-Budget Effects—CSRDF: 

Estimated Budget Authority .................... 3.5 2.7 3.0 3.0 3.2 3.6 3.8 4.2 4.6 4.8 5.2

Estimated Outlays ................................... 3.5 2.7 3.0 3.0 3.2 3.6 3.8 4.2 4.6 4.8 5.2

Off-Budget Effects—Postal Servivce: 

Estimated Budget Authority .................... ¥2.5 ¥0.6 0.8 0.3 0 0 0 0 0 0 0

Estimated Outlays ................................... ¥2.5 ¥0.6 0.8 0.3 0 0 0 0 0 0 0

Total Budget Effects: 

Estimated Budget Authority .................... 1.0 2.1 3.8 3.3 3.2 3.6 3.8 4.2 4.6 4.8 5.2

Estimated Outlays ................................... 1.0 2.1 3.8 3.3 3.2 3.6 3.8 4.2 4.6 4.8 5.2

Note.—Components may not add to totals because of rounding. 

Basis of estimate 

For this estimate, CBO assumes that S. 380 will be enacted in 

the spring of 2003. CBO estimates that reducing the Postal Service’s payments to the retirement fund would reduce the agency’s 

off-budget costs by about $2 billion over the 2003–2008 period, but 

enacting S. 380 would increase on-budget costs by about $19 billion 

over the same period. The net effect of this legislation on the unified federal budget would be a cost of about $17 billion over those 

six years. Over the 2003–2013 period, enacting S. 380 would combine off-budget savings of about $2 billion with on-budget costs of 

around $42 billion to produce a net cost of $40 billion. 

Background 

Although the Postal Service is a federal agency, its financial operations are classified as being off-budget. Despite this treatment, 

federal budget documents present the net income of the agency in 

the budgetary totals. The Postal Service is required by law to set 

postage rates to cover its full costs. In fiscal year 2002, the Postal 

Service generated $68.1 billion in collections, mostly from postage 

and user fees, and had $67.4 billion in expenses. The agency has 

the authority to borrow up to $15 billion from the Treasury; at the 

end of fiscal year 2002, its outstanding debt with the Treasury 

stood at $11.9 billion. 

Postal employees particapate in the federal government’s two 

main defined benefit pension programs. Those workers first hird 

prior to 1984 are covered by the Civil Service Retirement System 

(CSRS) while those first hired after 1983, as well as former CSRS 

workers who elected to change coverage, participate in the Federal 

Employee’s Retirement System (FERS). In 2002, about 30 percent 

of the USPS workforce was covered by CSRS, and the rest were 

under FERS. 

The Postal Service and its employees each make payroll contributions toward both CSRS and FERS. For CSRS workers, both the 

12

standard agency and employee contribution rates are 7 percent. 

For FERS employees, the agency contribution rate for most employees is 10.7 percent, while the employee rate is 0.8 percent. Although CSRS provides more generous benefits than FERS, unlike 

FERS, CSRS is not a fully funded pension system, meaning that 

agency and employee contributions alone are not enough to finance 

the program’s benefits. In an effort to make up the shortfall between contributions and benefits for its current and former employees, the Postal Service makes lump-sum payments to the retirement system each year. In 2002, those payments amounted to 

about $3.9 billion. 

The Office of Personal Management projects that, under current 

law, the Postal Service will eventually overfund pension obligations 

for its workers by as much as $71 billion. The projected overfunding is due primarily to higher-than-expected returns on assets 

held in the CSRDF. 

On-budget effects 

S. 380 would change the way the Postal Service finances retirement benefits for many of its current and former employees. The 

proposal would replace two amortization payments the Postal Service now makes to CSRDF—amounting to a combined $4 billion in 

2003 and is expected to grow to nearly $6 billion in 2013—with a 

new annual payment of $434 million over the next 40 years that 

would amortize the agency’s estimated unfunded liability of about 

$5 billion. The net effect of changes in amortization payments is to 

reduce Postal Service payments to the CSRDF by $4 billion in 

2003, $19.5 billion over the 2004–2008 period, and $43.5 billion 

over the 2004–2013 period. 

The legislation also would replace the fixed contribution rate, 

which the Postal Serice currently makes for its approximately 

225,000 employees covered by the CSRS, with a rate intended to 

pay the full normal cost of CSRS benefits (including military service credits). This change would effectively increase the Postal Service’s contribution rate for most covered employees from 7 percent 

to 17.4 percent of payroll. In 2004, the first full year of contributions at the higher rate, CBO estimates that this would increase 

the agency’s retirement contributions by nearly $1 billion, but that 

increase would gradually decline as the CSRS covered workers retire. Employee contribution rates for those in CSRS, as well as 

agency and employee contributions for those in the Federal Employee’s Retirement System, would be unaffected by the legislation. 

The Postal Service is an off-budget entity and contributions and 

payments that it makes to the retirement trust fund are considered 

offsetting receipts. Reducing overall payments the Postal Service 

makes to the CSRDF would result in a reduction of on-budget receipts to the government. To the extent that the Postal Service 

uses its savings to reduce its debt to the Federal Financing Bank, 

on-budget interest receipts would also be lower. Assuming the 

changes made by S. 380 are effective in April 2003, CBO projects 

the net on-budget effect of the bill would be cost of $3.5 billion in 

2003, and approximately $19 billion over the 2003–2008 period. 

13

Off-budget effects 

CBO estimates that enactment of S. 380 would reduce net expenditures of the USPS by $2 billion over the 2003–2008 period. 

Estimated Effects on Postal Outlays for Fiscal Years 2003–2006. 

The Postal Service’s response to the change in its pension payments in uncertain, but CBO anticipates that the agency will use 

the savings from S. 380 to: • Repay $2 billion of its outstanding debt in fiscal year 2003; • Invest $1 billion in fiscal year 2003 and $2 billion in 2004 

in additional capital projects or other activities aimed at improving productivity; and • Delay the next postal rate increase—anticipated late in fiscal year 2004, until fiscal year 2007. CBO expects that the Postal Service would repay about $2 billion 

of its outstanding debt to the Treasury in 2003. That action would 

reduce the agency’s interest expenses by about $60 million annually, beginning in fiscal year 2004. Because the USPS pays an average interest rate on that debt of only 3 percent, CBO expects the 

agency would seek to make capital investments with much of the 

savings that could more effectively contribute to lowering its operating costs and thus contribute to a postponement of its next rate 

increase. For fiscal years 2005 and 2006, CBO estimates such investments would lead to operational savings of about $300 million 

and $600 million per year, respectively. 

In July 2002, the Postal Service raised the price of a first-class stamp from $0.34 to $0.37 and raised rates for other classes of 

mail. Based on information from the Postal Service and on postal 

revenues to date in 2003, CBO estimates that this rate increase 

will raise over $3 billion in additional revenue a year. The CBO 

baseline assumes a similar rate increase late in fiscal year 2004, 

including a price of $0.40 for a first-class stamp. 

We estimate that delaying the next rate increase would result in 

a small loss of revenue in fiscal year 2004 and losses of roughly 

$3.5 billion in each of fiscal years 2005 and 2006. A delay in the 

rate increase also would increase operating expenses because the 

Postal Service would have to deliver higher volumes of mail than 

otherwise expected. (When rates go up, mail volume goes down.) 

Based on information from the Postal Service about the relationship between price increases, mail volumes, and operating costs, we 

expect that this increase in expenses would be about a billion dollars annually in 2005 and 2006. 

CBO estimates that those changes in postal revenues and ex- penses would result in lower net outlays of $2.5 billion in fiscal 

year 2003 and $600 million in 2004, with net increases in outlays 

of $800 million in 2005 and $300 million in 2006. 

Estimated Effects on Postal Outlays in Fiscal Years after 2006. 

After 2006, CBO assumes that the Postal Service will use a combination of rate increases and controls on spending to ensure that 

its income covers the costs of its services, as required by law and 

as assumed in the CBO baseline. Thus, S. 380 would have no effect 

on net postal outlays after fiscal year 2006 when we expect the 

next rate increase would occur. 

Intergovernmental and private-sector impact: S. 380 contains no 

intergovernmental or private-sector mandates as defined in UMRA 

and would impose no costs on state, local, or tribal governments. 

14

Previous CBO Estimates: This cost estimate of S. 380 supersedes 

and replaces the estimate for the same bill that CBO released on 

March 17, 2003. The previous cost estimate contained an error in 

the discussion under ‘‘Basis of Estimate’’ of the legislation’s onbudget effects. The earlier estimate said that the on-budget effect 

of replacing the Postal Service’s current amortization payments to 

the CSRDF would be to reduce offsetting receipts by $3.5 billion in 

2003, $15.5 billion over the 2004–2008 period, and $38 billion during the 2004–2013 period. Those figures were incorrect. CBO estimates the change in amortization payments would reduce receipts 

by $4 billion in 2003, $19.5 billion during the 2004–2008 period, 

and $43.5 billion over the 2004–2013 period. This correction does 

not change CBO’s estimate of either the on-budget or off-budget 

cost of enacting the legislation. The numbers shown in the table 

and cited in the ‘‘Summary’’ are unchanged. 

On March 14, 2003, CBO transmitted a cost estimate for H.R. 

735, the Postal Civil Service Retirement System Funding Reform 

Act of 2003, as ordered reported by the House Committee on Government Reform on March 6, 2003. CBO estimated that enacting 

that bill would result in net outlays of $7.1 billion over the 2003–

2008 period and $7.2 billion over the 2003–2013 period. Estimated 

outlays for H.R. 735 are lower because, for fiscal years after 2005, 

that bill would require that savings resulting from reduced payments to the CSRDF be held in escrow and remain unavailable for 

obligation unless authorized by subsequent legislation. S. 380 does 

not contain any such requirement. 

Estimate prepared by: Federal costs—Postal Service: Mark 

Grabowicz; CSRDF: Geoffrey Gerhardt; impact on state, local, and 

tribal governments: Victoria Heid Hall; impact on the private sector: Paige Piper/Bach. 

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis.

VII. CHANGES TO EXISTING LAW

In compliance with paragraph 12 of rule XXVI of the Standing 

Rules of the Senate, changes in existing laws made by S. 380 as 

reported are shown as follows (existing law proposed to be omitted 

is enclosed in black brackets, new matter is printed in italic, existing law in which no change is proposed is shown in roman): 

15

UNITED STATES CODE 

TITLE 5—GOVERNMENT ORGANIZATION AND 

EMPLOYEES 

PART III. EMPLOYEES 

Subpart G. Insurance and Annuities 

CHAPTER 83. RETIREMENT 

Subchapter III. Civil Service Retirement 

§ 8331. Definitions 

* * * * * * *

(17) ø‘‘normal cost’’¿ ‘‘normal cost percentage’’ means the 

entry-age normal cost computed by the Office of Personnel 

Management in accordance with generally accepted actuarial 

practice and standards (using dynamic assumptions) and expressed as a level percentage of aggregate basic pay; 

(18) ø‘‘Fund balance’’ means the sum of—¿ ‘‘Fund balance’’—

(A) øthe investments of the Fund calculated at par 

value; and¿ means the current net assets of the Fund, as 

determined by the Office in accordance with appropriate accounting standards; and

(B) øthe cash balance of the Fund on the books of the 

Treasury; but does not include any amount attributable 

to—¿ shall not include any amount attributable to—

(i) the Federal Employees’ Retirement System; or 

(ii) contributions made under the Federal Employees’ Retirement Contribution Temporary Adjustment 

Act of 1983 by or on behalf of any individual who became subject to the Federal Employees’ Retirement 

System; 

* * * * * * *

(27) ‘‘Nuclear materials courier’’—

(A) means an employee of the Department of Energy, the 

duties of whose position are primarily to transport, and 

provide armed escort and protection during transit of, nuclear weapons, nuclear weapon components, strategic 

quantities of special nuclear materials or other materials 

related to national security; and 

(B) includes an employee who is transferred directly to 

a supervisory or administrative position within the same 

Department of Energy organization, after performing duties referred to in subparagraph (A) for at least 3 years; 

øand¿

(28) ‘‘Government physician’’ has the meaning given that 

term under section 5948ø.¿; and

(29) ‘‘dynamic assumptions’’ means economic assumptions 

that are used in determining actuarial costs and liabilities of 

a retirement system and in anticipating the effects of long-term 

future—

(A) investment yields; 

16

(B) increases in rates of basic pay; and 

(C) rates of price inflation.

* * * * * * *

§ 8334. Deductions, contributions, and deposits 

ø(a)(1) The employing agency shall deduct and withhold from the 

basic pay of an employee, Member, Congressional employee, law 

enforcement officer, firefighter, bankruptcy judge, judge of the 

United States Court of Appeals for the Armed Forces, United 

States magistrate, Court of Federal Claims judge, member of the 

Capitol Police, member of the Supreme Court Police, or nuclear 

materials courier, as the case may be, the percentage of basic pay 

applicable under subsection (c). An equal amount shall be contributed from the appropriation or fund used to pay the employee or, 

in the case of an elected official, from an appropriation or fund 

available for payment of other salaries of the same office or establishment. When an employee in the legislative branch is paid by 

the Chief Administrative Officer of the House of Representatives, 

the Chief Administrative Officer may pay from the applicable accounts of the House of Representatives the contribution that otherwise would be contributed from the appropriation or fund used to 

pay the employee.¿

(a)(1)(A) The employing agency shall deduct and withhold from 

the basic pay of an employee, Member, congressional employee, law 

enforcement officer, firefighter, bankruptcy judge, judge of the 

United States Court of Appeals for the Armed Forces, United States 

magistrate judge, Court of Federal Claims judge, member of the 

Capitol Police, member of the Supreme Court Police, or nuclear materials courier, as the case may be, the percentage of basic pay applicable under subsection (c). 

(B)(i) Except in the case of an employee of the United States Postal Service, an equal amount shall be contributed from the appropriation or fund used to pay the employee or, in the case of an elected official, from an appropriation or fund available for payment of 

other salaries of the same office or establishment. When an employee 

in the legislative branch is paid by the Chief Administrative Officer 

of the House of Representatives, the Chief Administrative Officer 

may pay from the applicable accounts of the House of Representatives the contribution that otherwise would be contributed from the 

appropriation or fund used to pay the employee. 

(ii) In the case of an employee of the United States Postal Service, 

an amount shall be contributed from the appropriation or fund used 

to pay the employee equal to the difference between—

(I) the product of—

(aa) the basic pay of that employee; and 

(bb) the normal cost percentage applicable to the employee category of that employee under paragraph (1) (A); 

and 

(II) the product of— (aa) the basic pay of that employee; and 

(bb) the percentage applicable to that employee under 

subsection (c) deducted from basic pay under paragraph 

(1)(A).

* * * * * * *

17

ø(m) A Member who has served in a position in the executive 

branch for which the rate of basic pay was reduced for the duration 

of the service of the Member to remove the impediment to the appointment of the Member imposed by article I, section 6, clause 2 

of the Constitution, or the survivor of such a Member, may deposit 

to the credit of the Fund an amount equal to the difference between the amount deducted from the basic pay of the Member during that period of service and the amount that would have been deducted if the rate of basic pay which would otherwise have been 

in effect during that period had been in effect, plus interest computed under subsection (e).¿

* * * * * * * 

§ 8348. Civil Service Retirement and Disability Fund 

* * * * * * * 

ø(h)(1) Notwithstanding any other statute, the United States 

Postal Service shall be liable for that portion of any estimated increase in the unfunded liability of the Fund which is attributable 

to any benefits payable from the Fund to active and retired Postal 

Service officers and employees, and to their survivors, when the increase results from an employee-management agreement under 

title 39, or any administrative action by the Postal Service taken 

pursuant to law, which authorizes increases in pay on which benefits are computed. 

ø(2) The estimated increase in the unfunded liability, referred to 

in paragraph (1) of this subsection, shall be determined by the Office of Personnel Management. The United States Postal Service 

shall pay the amount so determined to the Office in 30 equal annual installments with interest computed at the rate used in the 

most recent valuation of the Civil Service Retirement System, with 

the first payment thereof due at the end of the fiscal year in which 

an increase in pay becomes effective.¿

(h)(1)(A) In this subsection, the term ‘‘Postal supplemental liability’’ means the estimated excess, as determined by the Office of Personnel Management, of the difference between—

(i) the actuarial present value of all future benefits payable 

from the Fund under this subchapter attributable to the service 

of current or former employees of the United States Postal Service; and 

(ii) the sum of—

(I) the actuarial present value of deductions to be withheld from the future basic pay of employees of the United 

States Postal Service currently subject to this subchapter 

under section 8334; 

(II) the actuarial present value of the future contributions 

to be made under section 8334 with respect to employees of 

the United States Postal Service currently subject to this 

subchapter; 

(III) that portion of the Fund balance, as of the date the 

Postal supplemental liability is determined, attributable to 

payments to the Fund by the United States Postal Service 

and employees of the United States Postal Service, including earnings on those payments; and 

18

(IV) any other appropriate amount as determined by the 

Office in accordance with generally accepted actuarial practices and principles. 

(B)(i) In computing the actuarial present value of future benefits, 

the Office shall include the full value of benefits attributable to military and volunteer service for United States Postal Service employees first employed after June 30, 1971, and prorated share of the 

value of benefits attributable to military and volunteer service for 

United States Postal Service employees first employed before July 1, 

1971. 

(ii) Military service included in the computation under clause (i) 

shall not be included in computation of the payment required under 

subsection (g) (2). 

(2)(A) Not later than June 30, 2004, the Office of Personnel Management shall determine the Postal supplemental liability, as of 

September 30, 2003. The Office shall establish an amortization 

schedule, including a series of equal annual installments commencing September 30, 2004, which provides for the liquidation of 

such liability by September 30, 2043. 

(B) The Office shall redetermine the Postal supplemental liability 

as of the close of the fiscal year, for each fiscal year beginning after 

September 30, 2003, through the fiscal year ending September 30, 

2038, and shall establish a new amortization schedule, including a 

series of equal annual installments commencing on September 30 of 

the subsequent fiscal year, which provides for the liquidation of 

such liability by September 30, 2043. 

(C) The Office shall redetermine the Postal supplemental liability 

as of the close of the fiscal year for each fiscal year beginning after 

September 30, 2038, and shall establish a new amortization schedule, including a series of equal annual installments commencing on 

September 30 of the subsequent fiscal year, which provides for the 

liquidation of such liability over 5 years. 

(D) Amortization schedules established under this paragraph 

shall be set in accordance with generally accepted actuarial practices and principles based on the dynamic interest rate. 

(E) The United States Postal Service shall pay the amounts determined under this paragraph for deposit in the Fund, with payments 

due not later than the date scheduled by the Office. 

(3) Notwithstanding any other provision of law, in computing the 

amount of any payment under any provision other than this subsection that is based upon the amount of the unfunded liability, 

such payment shall be computed disregarding that portion of the 

unfunded liability that the Office determines will be liquidated by 

payments under this subsection.

* * * * * * *

Æ