COST METHODS AND ASSUMPTIONS

OPM used the following assumptions in their analysis:

• The actuarial cost method is Entry Age Normal.
• Long-term economic assumptions are as follows:
• Rate of inflation — 3.5%.
• FERS COLA — 2.8%.
• Annual general salary increases — 4.25%.
• Interest rate — 6.25%.
• The Postal Service is not required to make any agency contributions to CSRS. Employees continue to contribute 7% of basic pay.
• Postal Service contribution rate to FERS will not change; contributions will continue at the current rate of 11.2% of pay (the employee contribution is 0.8% of pay) until October 1, 2010, when it will change to the new rate of 11.5% of pay.

The OPM Board of Actuaries decided to incorporate an assumption of future mortality improvement into the actuarial valuation as of September 30, 2007. This caused the dynamic normal cost of CSRS to increase from 25.2% of pay to 25.8% and the FERS normal cost to increase from 12.0% to 12.3%. It also caused an increase in the actuarial liabilities. This adjustment to the FERS normal cost indicates that the percentage of base salary contributed by the employer may need to increase further in the future.