Notes to the Financial Statements

Note 10 – Retirement programs

Pension Programs

Our employees participate in one of the following pension programs based upon the starting date of their employment with the federal government. Employee and employer contributions are made to the Civil Service Retirement System (CSRS), the Dual Civil Service Retirement System/Social Security (Dual CSRS), or the Federal Employees Retirement System (FERS), all of which are administered by the Office of Personnel Management. Employees may also participate in the Thrift Savings Plan (TSP), which is a defined contribution retirement savings and investment plan. Postal Service employees are authorized to participate in the TSP by the Federal Employees Retirement System Act of 1986. The TSP is administered by the Federal Retirement Thrift Investment Board.

CSRS

Under the Postal Reorganization Act, officers and career employees hired prior to January 1, 1984 are covered by the Civil Service Retirement System, which provides a basic annuity toward which we and the employee contribute at rates prescribed by law. Effective October 14, 2006, P.L.109-435 suspends the obligation of making employer contributions for CSRS employees’ retirement. We do not match TSP contributions for employees who participate in CSRS. In addition, employees hired before January 1, 1984, could choose during certain periods in 1987, 1988 and 1998 to switch their participation to FERS.

Dual CSRS

Employees with prior U.S. government service who were hired between January 1, 1984, and January 1, 1987, are covered by Dual CSRS, which consists of a basic annuity and Social Security. We and the employee contribute to Social Security and the basic annuity at rates prescribed by law. We do not match TSP contributions for employees who participate in Dual CSRS.

FERS

Effective January 1, 1987, officers and career employees hired since December 31, 1983 are covered by the Federal Employees Retirement System Act of 1986, except for those covered by Dual CSRS. Also included are employees formerly covered by CSRS who elected in 1987, 1988 and 1998 to participate in FERS.

This system consists of Social Security, a basic annuity plan, and TSP. We and the employee contribute to Social Security and the basic annuity plan at the rate prescribed by law. In addition, we are required to contribute to TSP a minimum of 1% per year of the basic pay of employees covered by this system. We also match a voluntary employee contribution up to 3% of the employee’s basic pay, and 50% of a contribution between 3% and 5% of basic pay.

Employee / Employer Contributions

Employer and employee base contributions, as a percentage of employee basic pay, are as follows for each of the three plans for 2007, 2006, and 2005.

The number of employees enrolled in each of the retirement plans at the end of 2007, 2006, and 2005 is as follows.

Expense Components

The following table lists the components of our total retirement expenses that are included in compensation and benefits expense and related interest expense in the Statements of Operations for 2007, 2006 and 2005.

Employer cash contributions to retirement plans were $3,889 million in 2007, $5,122 million in 2006, and $5,014 million in 2005. These amounts do not include Social Security contributions and interest expense on deferred retirement liabilities.

P.L.109-435 relieved the Postal Service of the obligation to pay for the portion of the CSRS pension costs attributable to the military service of its retirees that was previously imposed by P.L.108-18. The cost of these benefits was estimated by OPM to be $27 billion in 2003. The elimination of the military service funding requirement dramatically impacted the funded status of the portion of the CSRS allocated to the Postal Service. P.L.109-435 directed OPM to determine the funded status of the CSRS, without the military benefits, on September 30, 2006 by June 15, 2007. OPM determined that, as a result of the changes imposed by P.L.109-435, the Postal Service portion of the CSRS had a surplus of $17.1 billion. Accordingly, the “supplemental liability” payment required by P.L.108-18 was suspended and no amount was incurred or paid in 2007.

Beginning in 2004, we had been required by P.L.108-18 to pay an additional annual amount into the CSRS retirement plan, if necessary, each September, as determined by OPM. The “supplemental liability” represented the excess of the actuarial present value of the future benefits liability over the actuarial present value of plan assets, future contributions, earnings, and other actuarial factors related to postal participants in the CSRS plan.

The following table presents OPM’s estimate of the present value of our CSRS “supplemental liability” as of September 30, 2006 and 2005. This calculation assumed general salary increases of 2.8%, COLAs of 3.25%, and interest of 6.25% and was intended to provide for the liquidation of the “supplemental liability” over a 38-year period ending in September 30, 2043.

* Expected employer and employee contributions

** Excess of contribution benefits paid as estimated by OPM

As explained above, the “supplemental liability” payments were suspended until 2017 by P.L.109-435. At that time, OPM will perform an actuarial valuation and determine whether additional “supplemental liability” payments are necessary. Accordingly, no “supplemental liability” payment was made in 2007. The “supplemental liability” payment in 2006 was $257 million.