rate of funding, we would pay substantially more than would be needed to cover the future benefits expected to be paid to our employees and retirees participating in CSRS. The projected over-funding was mostly 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. A subsequent GAO report stated that were it not for the transfer of the cost of military service to us, the plan was already overfunded by approximately $6 billion. Adding the present value of participant future contributions increases the overfunding to $10 billion.

Because of OPM's projection of significant overfunding, the Administration proposed PL108-18.

As part of PL108-18, in May 2003 we began to dynamically fund the plan at 17.4% of our current CSRS employees' wages. The Act further requires that the Postal Service pay an additional annual amount, if necessary, each September beginning 2004 as determined by OPM. The additional amount is based on a calculation of any potential "supplemental liability", if one exists. It would represent the excess of the actuarial present value of future benefits over the actuarial present value of future contributions, earnings, and other actuarial factors related to postal participants in the CSRS plan. Such additional obligations may result due to the deviation of actual results from valuation assumptions used by OPM to determine the CSRS base contributions. Pursuant to PL 108-18, commencing September 30, 2004, we will pay each September 30th a portion of the calculated supplemental liability, if any, sufficient to fully fund the amount in forty years after the enactment of the law. Under multi-employer plan accounting, such amounts will be recognized by us when payable.

OPM's original estimate of the "supplemental liability" of $4.8 billion as of September 30, 2002, assumed the dynamic funding of the plan starting October 1, 2002. Since the law went into effect April 23, 2003, and the first payment of our supplemental deferred liability, if necessary, will not be due until September 30, 2004, we estimated, and OPM confirmed, that the present value of the liability increased to $5.8 billion as of September 2003. The increase adds interest to the prior balance at 6.75% and calculates an additional liability due to the delayed start in dynamic funding. Under the law OPM is not required to furnish the final actuarial calculation of the September 30, 2003 liability until June 30, 2004. OPM will recalculate the supplemental liability, if any, on an annual basis. Each September 30th, we will make any required payment resulting from this calculation.

OPM's 2002 assumptions of 3.75% annual CPI, 4.25% annual salary increases and 6.75% annual interest used in calculating the supplemental liability are not postal specific and do not reflect the most current experience. OPM advised that the actual inflation adjustments were 1.4% for 2003 and 2.1% for 2004.We anticipate these adjustments will be included in OPM's new calculation of the September 30, 2003, supplemental liability estimate if any exists. On September 30, 2004, we will be required to make any necessary payment to the CSRDF. We estimated the September 30, 2004 amount payable based upon the OPM estimate of the supplemental liability and began accruing that payable over the period from the enactment of the law to September 30, 2004. The related expense in 2003 amounted to $125 million. Our previously recorded deferred retirement cost liability and equal asset offset were removed from our balance sheet effective on the date the law was enacted. Under prior law, the liability represented the total amount of fixed payments to CSRDF as determined by OPM. The potential liability under the new law is variable in nature. Therefore we are disclosing information on any potential supplemental liability in these notes.

8 revenue forgone

Our operating revenue includes accruals for revenue forgone. Revenue is forgone when Congress mandates that we provide free mail for certain mailers. Congress appropriated money to reimburse us for the revenue that we have forgone in providing these services. In our operating revenue, we have included as revenue the amounts appropriated by Congress for revenue forgone of $31 million for 2003, $48 million for 2002 and $67 million for 2001. Legislation enacted in 2002 and 2001 delayed payment of the amount authorized for 2003 and 2002 until the first day of the subsequent fiscal year, respectively. Accordingly, the Postal Service has recorded these amounts as a receivable at year end.

Under the Revenue Forgone Reform Act of 1993, Congress is required to reimburse us $29 million annually through 2035 (42 years). This reimbursement is for two purposes: services we performed in 1991, 1992 and 1993 for which we have not yet been paid; and for shortfalls in the reimbursement for the costs we incurred for processing and delivering certain nonprofit mail from 1994 through 1998.

The Revenue Forgone Reform Act of 1993 authorized a total of $1.218 billion in payments. We calculated the present value of these future reimbursements to be approximately $390 million at 7% interest. We recognized the $390 million as revenue during fiscal