Financial Statements  2001

NOTES to the FINANCIAL statements

6 RETIREMENT PROGRAMS

With certain exceptions, employees participate in one of the following three retirement programs based upon the starting date of their employment with the Postal Service. Employee and employer contributions are made to the Civil Service Retirement and Disability Fund (CSRDF), the Dual System or the Federal Employees Retirement System, which are administered by the Office of Personnel Management. Employees may also participate in the Thrift Savings Plan, which is a defined contribution retirement savings and investment plan. Postal Service employees are authorized to participate in the Thrift Savings Plan by the Federal Employees Retirement System Act of 1986. The Plan is administered by the Federal Retirement Thrift Investment Board.

CIVIL SERVICE RETIREMENT SYSTEM (CSRS)

Under the Postal Reorganization Act, officers and career employees are covered by the Civil Service Retirement System, which provides a basic annuity and Medicare coverage. The CSRS fund covers substantially all employees hired prior to January 1, 1984. We and the employee contribute to Medicare at the rate prescribed by law. We do not match contributions to the Thrift Savings Plan for employees who participate in the CSRS.

DUAL CIVIL SERVICE RETIREMENT SYSTEM (DUAL CSRS/SOCIAL SECURITY SYSTEM)

Employees with prior U.S. government service who were hired between January 1, 1984 and January 1, 1987 are covered by the Dual Civil Service Retirement System/Social Security System. We and the employee contribute to Social Security and Medicare at the rates prescribed by law. We do not match contributions to the Thrift Savings Plan for employees who participate in the Dual System.

FEDERAL EMPLOYEES RETIREMENT SYSTEM (FERS)

Effective January 1, 1987, officers and career employees hired since December 31, 1983, except for those covered by the Dual System, are covered by the Federal Employees Retirement System Act of 1986. In addition, employees hired before January 1, 1984 could choose during certain periods in 1987, 1988 and 1998 to participate in the FERS. This system consists of Social Security, a basic annuity plan, and a Thrift Savings Plan.

We and the employee contribute to Social Security and Medicare at the rates prescribed by law. In addition, we are required to contribute to the Thrift Savings Plan 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.

Employer and employee contributions are as follows for each of the three plans for 2001, 2000 and 1999:

	2001	2000	1999
CSRS
Employer	7.00	7.00	7.00
Employee	7.00	7.40	7.25
Dual CSRS
Employer	7.00	7.00	7.00
Employee	0.80	1.20	1.05
FERS
Employer	10.70	10.70	10.70
Employee	0.80	1.20	1.05

The number of employees enrolled in each of the retirement plans at the end of 2001, 2000 and 1999 is as follows:

	2001	2000	1999*
CSRS	248,347	263,383	281,062
Dual CSRS	11,440	12,021	12,598
FERS	514,870	510,509	503,233

* From July 1998 to December 1998, workers covered by CSRS were allowed to switch to FERS. During this period only 3,436, or less than 1.2%, of our employees chose to change plans.

DEFERRED RETIREMENT COSTS

Deferred retirement costs consist of the following (dollars in millions):

	2001	2000
CSRS basic pay increases	$ 24,843	$ 25,857
CSRS retirees' and survivors' cost of living adjustments	7,180	6,326
Total	$ 32,023	$ 32,183

There are no deferred retirement costs associated with FERS.

DEFERRED RETIREMENT LIABILITY-CIVIL SERVICE RETIREMENT SYSTEM

When we increase CSRS employees' current basic pay, we are liable for the additional deferred retirement liability. The Office of Personnel Management determines the estimated increase in our deferred liability resulting from basic pay increases. We amortize and pay this amount in 30 equal annual installments, which includes interest computed at a rate of 5% per year. We make the first payment at the end of the year in which employees receive their pay increase.

The increase in our deferred liability for retirement benefits under the CSRS as a result of basic pay increases was $319 million in 2001, $1,635 million in 2000, and $930 million in 1999.

DEFERRED RETIREMENT LIABILITY-RETIREES' AND THEIR SURVIVORS' COST OF LIVING ADJUSTMENTS (COLAs)

Congress determines the COLAs granted to our retirees. Under the Omnibus Budget Reconciliation Act of 1990, we are liable for our share of the cost of living adjustments granted to those retirees, and their survivors, retiring on or after July 1, 1971. We are not responsible for any costs due to federal civilian service before that date.

Each year the Office of Personnel Management determines the estimated increase in our liability under this law for the current year. We amortize and pay each year's amount in 15 equal annual installments, which include interest computed at a rate of 5% per year.

The increase in our deferred liability for our retirees' COLAs was $1,668 million in 2001, $1,056 million in 2000, and $537 million in 1999.

FUTURE MINIMUM PAYMENTS

We estimate the future minimum payments we have to make in order to fund CSRS benefits and retirees' cost of living adjustments as of September 30, 2001 are as follows (dollars in millions):

EXPENSE COMPONENTS

Listed below are the components of our total retirement expenses that are included in our compensation and benefits expense and related interest expense in the Statements of Operations for 2001, 2000 and 1999 (dollars in millions):

Employer cash contributions to retirement plans were $5,799 million in 2001, $5,516 million in 2000, and $5,164 million in 1999. These amounts do not include Social Security and Medicare contributions and interest expense on deferred retirement liabilities.