of September 30, 2002. This liability will be reviewed and recalculated annually by OPM and revised as required.

     The Act places additional requirements on the Postal Service. Specifically, the Act identifies the amount of the averted potential over-funding as "savings" to the Postal Service. "Savings" are defined as the difference between the contributions that the Postal Service would have made for each year if the Act had not been enacted and the contributions made by the Postal Service for each year under the Act. In 2003 and 2004, the Act provides that "savings" be used to reduce outstanding debt to the U. S. Treasury. The 2003 "savings" amount is estimated at $3.5 billion. The Postal Service reduced its debt with the Treasury by $3.8 billion in 2003, thus exceeding the requirements of the Act. Savings in 2005 will be used to hold postal rates steady until 2006 and savings accruing to the Postal Service after 2005, until otherwise provided for by law, must be placed in escrow. As required by Public Law 108-18, on September 30, 2003, the Postal Service submitted its proposal to the President, Congress, and the GAO, outlining how the "savings" under the Act should be used. The Act calls for Congress to revisit the issue of post-2005 "savings" after it receives the Postal Service's proposal and the evaluation of that proposal by GAO.

     Beyond 2005, the escrow requirement of the Act, unless terminated, will result in not only increased postage rates but also more frequent postage rate increases as the overfunding amounts escalate. Accordingly, from the standpoint of the postal ratepayer, there are no "savings" under Public Law 108-18 after 2005, so long as the escrow continues in effect. The purpose of the escrow provision, as the Postal Service understands it, was to serve as a temporary forcing mechanism to compel all parties to face up to, and the Congress then to take action on, the important financial issues identified in the legislation's statement of the Sense of Congress. Based upon its impact on postage rates and the resulting negative consequences on the mailing industry, the general

public, and the economy as a whole, the Postal Service has recommended that the escrow requirement be eliminated.

     The Act records as the sense of Congress that, "because the Postal Service still faces substantial obligations related to postretirement health benefits for its current and former employees, some portion of the savings . should be used to address those unfunded obligations." The Postal Service submitted two proposals pertaining to the use of "savings" for years after 2005. The first proposal assumes that the current legislation is amended and that the United States Treasury funds the CSRS costs associated with the military service of Postal Service employees and retirees. The second proposal assumes that responsibility for funding military service costs remains transferred to the Postal Service.

     Returning the funding of CSRS costs of military service to the United States Treasury increases the "savings" under the Act, and makes available additional funds that can be used to pre-fund retiree health benefits for both CSRS and FERS employees. While the Postal Service believes the military service charge should be returned to the United States Treasury, it proposes that the resulting $10 billion in over-funding not be withdrawn, and that it remains in the Civil Service Retirement and Disability Fund in a separate account designated as the "Postal Service Retiree Health Benefit Fund." With this change, the Postal Service would be in a financial position to pre-fund retiree health benefits for employees and retirees.

     Should the Postal Service not be relieved of the new responsibility for the funding of military service costs, the Postal Service proposes the use of "savings" or over-funding realized under the Act, in priority sequence, as follows: (1) to fund and pre-fund postretirement health care benefits; (2) to repay debt; and (3) to fund productivity and cost saving capital investments.

     To address the larger retiree health benefit obligation, this proposal implements a solution for fully funding postretirement health benefits. This proposal pre-funds the current service cost of these benefits, beginning in