The Postal Civil Service Retirement System Funding Reform Act of 2003 was signed by the President on April 23, 2003. This Act adjusted Postal Service contributions to the Civil Service Retirement System (CSRS) to prevent over-funding its pension obligations for CSRS covered employees and retirees by $105 billion.

     Public Law 108-18 makes several changes to both the determination of CSRS benefits that the Postal Service is responsible for and the way the Postal Service funds its CSRS benefit obligations. The Act transferred from the United States Department of the Treasury to the Postal Service the responsibility for funding the costs of CSRS benefits that current and former Postal Service employees have earned through military service. In relieving the Treasury of its responsibility for these costs, the Act created a direct cost transfer of $27 billion from U.S. taxpayers to postal ratepayers. Had this change in responsibility not been included in the Act, the Postal Service not only would have fully funded its CSRS obligations as of the end of 2002, but would have over-funded these obligations by $10 billion.

     Recognizing the change in fundamental public policy that created that transfer of responsibility, Public Law 108-18 provides an opportunity to reconsider funding responsibility of these costs. The United States Postal Service, the Department of the Treasury, and the Office of Personnel Management (OPM) each submitted proposals "detailing whether and to what extent the Department of the Treasury or the Postal Service should be responsible for the funding of benefits attributable to the military service of current and former employees of the Postal Service" as required by the Act on September 30. The Postal Service recommended that the responsibility of these costs should be returned to the Treasury. This recommendation was based on the fact that 90 percent of the cost of military service benefit was earned by military service

performed before the creation of the Postal Service on July 1, 1971. Additionally, $17 billion of the $27 billion cost transfer is wholly retroactive, relating to funding between the years 1971 and 2002 by Treasury in accordance with 5 U.S.C. 8348(g)(2).

     Both the Department of Treasury and OPM recommended that the Postal Service should be responsible for these costs. To support this position, they indicated that benefits attributable to military service are a retirement benefit that Postal Service employees receive just like other benefits, and postal ratepayers should pay the full costs of all benefits received by its employees. Additionally, they believe that "the old law can be viewed as more of an historic accident than a deliberate policy choice." Accordingly, they believed that funding the cost related to military service was previously overlooked by Congress. Finally, they contended that the payment of military service costs for Postal Service employees is consistent with the funding of Federal Employees Retirement System (FERS), which includes the cost of military service.

     Under the Act, the General Accounting Office (GAO) must prepare a written evaluation of each agency's proposal as to who should pay these costs earned through military service. That evaluation was submitted to the Committee on Government Reform of the House of Representatives and the Committee on Governmental Affairs of the Senate on November 26, 2003.

     The Act also modified how the Postal Service funds CSRS obligations. It no longer makes either the 30-year payments related to the estimated cost of pay increases on CSRS benefits or the 15-year payments required to fund the cost of retiree COLAs. Under Public Law 108-18, the Postal Service began to pay 17.4 percent of current CSRS employees' wages to the retirement fund rather than the 7 percent previously paid. Also, in 2004, the Postal Service will be required to make the first of 40 annual payments currently estimated at $423 million to liquidate the newly-calculated unfunded retirement liability estimated at $4.8 billion as