Report to the PRC: Retiree Health Benefit Fund Liability Examination

Executive Summary

The Postal Regulatory Commission (PRC) retained Segal Consulting (Segal) to conduct an independent liability examination for Postal Service workers covered by the Retiree Health Benefit (RHB) Fund.

PRC specifically requested that we evaluate:

Whether the current assumptions were developed in accordance with generally accepted actuarial principles and methods set forth in the Actuarial Standards of Practice (ASOPs);

Finding: In our opinion, the selection of assumptions was in compliance with the relevant ASOPs, as they are currently issued and reflecting the recently proposed revisions to those ASOPs.

Whether the current assumptions are reasonable and appropriate given the specific structure of the RHB plan of benefits;

Finding: The current assumptions produce valuation results that are within the range of reasonable outcomes based on generally accepted actuarial principles. However, it would also be appropriate to use postal-specific assumptions.

The appropriateness of postal-specific assumptions does not imply that government-wide assumptions may not also be appropriate. ASOP 35 notes that actuaries may consider several different assumptions equally reasonable for a given measurement. Actuaries must also consider the purpose of the measurement when determining the assumptions to be used.

Advantages and disadvantages of using postal-specific assumptions, from both the perspectives of the Postal Service and the government as a whole.

Finding: We have concluded that, in the context of actuarial standards and evaluation of past experience provided by both the OPM and USPS OIG actuaries, it would be appropriate to use postal-specific assumptions to determine RHB liability. Postal-specific assumptions would provide a more accurate estimate of RHB liability, though if no further action is taken to enroll eligible Postal Service retirees in Medicare, postal-specific assumptions could increase the liability estimate.

From the perspective of the government as a whole, separate postal-specific assumptions would add complexity to the liability calculations, and may not have a significant impact on the total liability of the Federal Employees Health Benefits Program (FEHB).

We reviewed all information supplied to us. We evaluated the selection of assumptions for compliance with the relevant ASOPs, as they are currently issued and reflecting the recently proposed revisions to those ASOPs. We considered the reasonableness and appropriateness of the demographic and health experience that may serve as the basis for assumptions for determining RHB liability, whether based on the experience specific to U.S. Postal Service workers or based on the experience for all federal government workers.

The balance of this report discusses our review process and our findings in more detail.

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