On November 1, 2002, the Office of Personnel Management advised us that it had completed a review of estimates and our current scheduled funding to the Civil Service Retirement System. OPM determined that at our current rate of funding, we will pay substantially more than will be needed to fund the future benefits expected to be paid to our employees and retirees participating in the Civil Service Retirement System.

As discussed in Note 6, we participate in retirement programs administered by OPM. As required by law, each year OPM determines the estimated liability of the CSRDF for both management-granted increases in CSRS employees' current basic pay and for COLAs the government grants retirees. We amortize and pay this liability amount in 30 equal annual installments for management-granted increases and 15 years for government granted COLAs, both of which include interest computed at a rate of 5% per year. The liability is calculated as part of a multi-employer plan of the U.S. government. Nothing in current legislation permits determining our liability separately.

Office of Personnel Management analysis shows that the net accumulated value of our payments already received is currently approaching the value of the future CSRS benefits applicable to our participants. If current funding provisions remain in place, we will pay substantially more than our equitable share of the CSRS retirement obligations. The projected over-funding is due to the excess interest earned by the fund; that is, interest earnings in excess of the 5% that was assumed under the statutory funding method. Office of Personnel Management has proposed a reduction in future postal payments to the plan. The related estimated reduction of our deferred retirement benefit liability would be in excess of $20 billion.

Any change in funding would require legislation since we have made payments according to the statute. If legislation to change the funding requirements is enacted, we would reduce the deferred retirement asset and liability balances in the period such legislation becomes effective.