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108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     108-49

======================================================================



 
   POSTAL CIVIL SERVICE RETIREMENT SYSTEM FUNDING REFORM ACT OF 2003

                                _______
                                

 March 27, 2003.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Tom Davis of Virginia, from the Committee on Government Reform, 
                        submitted the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 735]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Government Reform, to whom was referred the 
bill (H.R. 735) to amend chapter 83 of title 5, United States 
Code, to reform the funding of benefits under the Civil Service 
Retirement System for employees of the United States Postal 
Service, and for other purposes, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     5
Background and Need for the Legislation..........................     5
Hearings.........................................................     6
Committee Consideration..........................................     6
Committee Oversight Findings.....................................     6
Performance Goals and Objectives.................................     6
New Budget Authority and Tax Expenditures........................     6
Congressional Budget Office Cost Estimate........................     7
Constitutional Authority Statement...............................    11
Section-by-Section Analysis and Discussion.......................    11
Agency View......................................................    14
Unfunded Mandates Reform Act.....................................    15
Federal Advisory Committee Act...................................    15
Changes in Existing Law Made by the Bill, as Reported............    15
Additional Views.................................................    22

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Postal Civil Service Retirement System 
Funding Reform Act of 2003''.

SEC. 2. CIVIL SERVICE RETIREMENT SYSTEM.

  (a) Definitions.--Section 8331 of title 5, United States Code, is 
amended--
          (1) in paragraph (17)--
                  (A) by striking `` `normal cost' '' and inserting `` 
                `normal-cost percentage' ''; and
                  (B) by inserting ``and standards (using dynamic 
                assumptions)'' after ``practice'';
          (2) by amending paragraph (18) to read as follows:
          ``(18) `Fund balance' means the current net assets of the 
        Fund available for payment of benefits, as determined by the 
        Office in accordance with appropriate accounting standards, but 
        does not include any amount attributable to--
                  ``(A) the Federal Employees' Retirement System; or
                  ``(B) contributions made under the Federal Employees' 
                Retirement Contribution Temporary Adjustment Act of 
                1983 by or on behalf of any individual who became 
                subject to the Federal Employees' Retirement System;''; 
                and
          (3) by striking ``and'' at the end of paragraph (27), by 
        striking the period at the end of paragraph (28) and inserting 
        ``; and'', and by adding at the end the following:
          ``(29) `dynamic assumptions' means economic assumptions that 
        are used in determining actuarial costs and liabilities of a 
        retirement system and in anticipating the effects of long-term 
        future--
                  ``(A) investment yields;
                  ``(B) increases in rates of basic pay; and
                  ``(C) rates of price inflation.''.
  (b) Deductions and Contributions.--
          (1) In general.--Section 8334(a)(1) of title 5, United States 
        Code, is amended--
                  (A) by striking ``(a)(1)'' and inserting 
                ``(a)(1)(A)'';
                  (B) by designating the matter following the first 
                sentence as subparagraph (B)(i) and aligning the text 
                accordingly;
                  (C) in subparagraph (B)(i) (as so designated by 
                subparagraph (B)), by striking ``An equal'' and 
                inserting ``Except as provided in clause (ii), an 
                equal''; and
                  (D) by adding at the end the following:
  ``(ii) In the case of an employee of the United States Postal 
Service, the amount to be contributed under this subparagraph shall 
(instead of the amount described in clause (i)) be equal to the product 
derived by multiplying the employee's basic pay by the percentage equal 
to--
          ``(I) the normal-cost percentage for the applicable employee 
        category listed in subparagraph (A), minus
          ``(II) the percentage deduction rate that applies with 
        respect to such employee under subparagraph (A).''.
          (2) Conforming amendments.--Section 8334(k) of title 5, 
        United States Code, is amended--
                  (A) in paragraph (1)(A), by striking ``the first 
                sentence of subsection (a)(1) of this section'' and 
                inserting ``subsection (a)(1)(A)'';
                  (B) in paragraph (1)(B)--
                          (i) by striking ``the second sentence of 
                        subsection (a)(1) of this section'' and 
                        inserting ``subparagraph (B) of subsection 
                        (a)(1)''; and
                          (ii) by striking ``such sentence'' and 
                        inserting ``such subparagraph''; and
                  (C) in paragraph (2)(C)(iii), by striking ``the first 
                sentence of subsection (a)(1)'' and inserting 
                ``subsection (a)(1)(A)''.
  (c) Postal Supplemental Liability.--Subsection (h) of section 8348 of 
title 5, United States Code, is amended to read as follows:
  ``(h)(1)(A) For purposes of this subsection, `Postal supplemental 
liability' means the estimated excess, as determined by the Office, 
of--
          ``(i) the actuarial present value of all future benefits 
        payable from the Fund under this subchapter attributable to the 
        service of current or former employees of the United States 
        Postal Service, over
          ``(ii) the sum of--
                  ``(I) the actuarial present value of deductions to be 
                withheld from the future basic pay of employees of the 
                United States Postal Service currently subject to this 
                subchapter pursuant to section 8334;
                  ``(II) the actuarial present value of the future 
                contributions to be made pursuant to section 8334 with 
                respect to employees of the United States Postal 
                Service currently subject to this subchapter;
                  ``(III) that portion of the Fund balance, as of the 
                date the Postal supplemental liability is determined, 
                attributable to payments to the Fund by the United 
                States Postal Service and its employees, including 
                earnings on those payments; and
                  ``(IV) any other appropriate amount, as determined by 
                the Office in accordance with generally accepted 
                actuarial practices and principles.
  ``(B)(i) In computing the actuarial present value of future benefits, 
the Office shall include the full value of benefits attributable to 
military and volunteer service for United States Postal Service 
employees first employed after June 30, 1971, and a prorated share of 
the value of benefits attributable to military and volunteer service 
for United States Postal Service employees first employed before July 
1, 1971.
  ``(ii) Military service so included shall not be included in the 
computation of any amount under subsection (g)(2).
  ``(2)(A) Not later than June 30, 2004, the Office shall determine the 
Postal supplemental liability as of September 30, 2003. The Office 
shall establish an amortization schedule, including a series of equal 
annual installments commencing September 30, 2004, which provides for 
the liquidation of such liability by September 30, 2043.
  ``(B) The Office shall redetermine the Postal supplemental liability 
as of the close of the fiscal year, for each fiscal year beginning 
after September 30, 2003, through the fiscal year ending September 30, 
2038, and shall establish a new amortization schedule, including a 
series of equal annual installments commencing on September 30 of the 
subsequent fiscal year, which provides for the liquidation of such 
liability by September 30, 2043.
  ``(C) The Office shall redetermine the Postal supplemental liability 
as of the close of the fiscal year for each fiscal year beginning after 
September 30, 2038, and shall establish a new amortization schedule, 
including a series of equal annual installments commencing on September 
30 of the subsequent fiscal year, which provides for the liquidation of 
such liability over 5 years.
  ``(D) Amortization schedules established under this paragraph shall 
be set in accordance with generally accepted actuarial practices and 
principles, with interest computed at the rate used in the most recent 
dynamic actuarial valuation of the Civil Service Retirement System.
  ``(E) The United States Postal Service shall pay the amounts so 
determined to the Office, with payments due not later than the date 
scheduled by the Office.
  ``(F) An amortization schedule established under subparagraph (B) or 
(C) shall supersede any amortization schedule previously established 
under this paragraph.
  ``(3) Notwithstanding any other provision of law, in computing the 
amount of any payment under any other subsection of this section that 
is based upon the amount of the unfunded liability, such payment shall 
be computed disregarding that portion of the unfunded liability that 
the Office determines will be liquidated by payments under this 
subsection.
  ``(4) Notwithstanding any other provision of this subsection, any 
determination or redetermination made by the Office under this 
subsection shall, upon request of the Postal Service, be subject to 
reconsideration and review (including adjustment by the Board of 
Actuaries of the Civil Service Retirement System) to the same extent 
and in the same manner as provided under section 8423(c).''.
  (d) Repeals.--
          (1) In general.--The following provisions of law are 
        repealed:
                  (A) Subsection (m) of section 8348 of title 5, United 
                States Code.
                  (B) Subsection (c) of section 7101 of the Omnibus 
                Budget Reconciliation Act of 1990 (5 U.S.C. 8348 note).
          (2) Rule of construction.--Nothing in this subsection shall 
        be considered to affect any payments made before the date of 
        the enactment of this Act under either of the provisions of law 
        repealed by paragraph (1).

SEC. 3. DISPOSITION OF SAVINGS ACCRUING TO THE UNITED STATES POSTAL 
                    SERVICE.

  (a) In General.--Savings accruing to the United States Postal Service 
as a result of the enactment of this Act--
          (1) shall, to the extent that such savings are attributable 
        to fiscal year 2003 or 2004, be used to reduce the postal debt 
        (in consultation with the Secretary of the Treasury), and the 
        Postal Service shall not incur additional debt to offset the 
        use of the savings to reduce the postal debt in fiscal years 
        2003 and 2004;
          (2) shall, to the extent that such savings are attributable 
        to fiscal year 2005, be used to continue holding postage rates 
        unchanged and to reduce the postal debt, to such extent and in 
        such manner as the Postal Service shall specify (in 
        consultation with the Secretary of the Treasury); and
          (3) to the extent that such savings are attributable to any 
        fiscal year after fiscal year 2005, shall be considered to be 
        operating expenses of the Postal Service and, until otherwise 
        provided for by law, shall be held in escrow and may not be 
        obligated or expended.
  (b) Amounts Saved.--
          (1) In general.--The amounts representing any savings 
        accruing to the Postal Service in any fiscal year as a result 
        of the enactment of this Act shall be computed by the Office of 
        Personnel Management for each such fiscal year in accordance 
        with paragraph (2).
          (2) Methodology.--Not later than July 31, 2003, the Office of 
        Personnel Management shall--
                  (A) formulate a plan specifically enumerating the 
                actuarial methods and assumptions by which the Office 
                shall make its computations under paragraph (1); and
                  (B) submit such plan to the Committee on Government 
                Reform of the House of Representatives and the 
                Committee on Governmental Affairs of the Senate.
          (3) Requirements.--The plan shall be formulated in 
        consultation with the Postal Service and shall include the 
        opportunity for the Postal Service to request reconsideration 
        of computations under this subsection, and for the Board of 
        Actuaries of the Civil Service Retirement System to review and 
        make adjustments to such computations, to the same extent and 
        in the same manner as provided under section 8423(c) of title 
        5, United States Code.
  (c) Reporting Requirement.--The Postal Service shall include in each 
report rendered under section 2402 of title 39, United States Code, the 
amount applied toward reducing the postal debt, and the size of the 
postal debt before and after the application of subsection (a), during 
the period covered by such report.
  (d) Sense of Congress.--It is the sense of the Congress that--
          (1) the savings accruing to the Postal Service as a result of 
        the enactment of this Act will be sufficient to allow the 
        Postal Service to fulfill its commitment to hold postage rates 
        unchanged until at least 2006;
          (2) because the Postal Service still faces substantial 
        obligations related to postretirement health benefits for its 
        current and former employees, some portion of the savings 
        referred to in paragraph (1) should be used to address those 
        unfunded obligations; and
          (3) none of the savings referred to in paragraph (1) should 
        be used in the computation of any bonuses for Postal Service 
        executives.
  (e) Postal Service Proposal.--
          (1) In general.--The United States Postal Service shall, by 
        September 30, 2003, prepare and submit to the President and the 
        Congress its proposal detailing how any savings accruing to the 
        Postal Service as a result of the enactment of this Act, which 
        are attributable to any fiscal year after fiscal year 2005, 
        should be expended.
          (2) Matters to consider.--In preparing its proposal under 
        this subsection, the Postal Service shall consider--
                  (A) whether, and to what extent, those future savings 
                should be used to address--
                          (i) debt repayment;
                          (ii) prefunding of postretirement healthcare 
                        benefits for current and former postal 
                        employees;
                          (iii) productivity and cost saving capital 
                        investments;
                          (iv) delaying or moderating increases in 
                        postal rates; and
                          (v) any other matter; and
                  (B) the work of the President's Commission on the 
                United States Postal Service under section 5 of 
                Executive Order 13278 (67 Fed. Reg. 76672).
          (3) GAO review and report.--Not later than 60 days after the 
        Postal Service submits its proposal pursuant to paragraph (1), 
        the General Accounting Office shall prepare and submit a 
        written evaluation of such proposal to the Committee on 
        Government Reform of the House of Representatives and the 
        Committee on Governmental Affairs of the Senate.
          (4) Legislative action.--Not later than 180 days after it has 
        received both the proposal of the Postal Service and the 
        evaluation of such proposal by the General Accounting Office 
        under this subsection, Congress shall revisit the question of 
        how the savings accruing to the Postal Service as a result of 
        the enactment of this Act should be used.
  (f) Determination and Disposition of Surplus.--
          (1) In general.--If, as of the date under paragraph (2), the 
        Office of Personnel Management determines (after consultation 
        with the Postmaster General) that the computation under section 
        8348(h)(1)(A) of title 5, United States Code, yields a negative 
        amount (hereinafter referred to as a ``surplus'')--
                  (A) the Office shall inform the Postmaster General of 
                its determination, including the size of the surplus so 
                determined; and
                  (B) the Postmaster General shall submit to the 
                Congress a report describing how the Postal Service 
                proposes that such surplus be used, including a draft 
                of any legislation that might be necessary.
          (2) Determination date.--The date to be used for purposes of 
        paragraph (1) shall be September 30, 2025, or such earlier date 
        as, in the judgment of the Office, is the date by which all 
        postal employees under the Civil Service Retirement System will 
        have retired.
  (g) Definitions.--For purposes of this section--
          (1) the savings accruing to the Postal Service as a result of 
        the enactment of this Act shall, for any fiscal year, be equal 
        to the amount (if any) by which--
                  (A) the contributions that the Postal Service would 
                otherwise have been required to make to the Civil 
                Service Retirement and Disability Fund for such fiscal 
                year if this Act had not been enacted, exceed
                  (B) the contributions made by the Postal Service to 
                such Fund for such fiscal year; and
          (2) the term ``postal debt'' means the outstanding 
        obligations of the Postal Service, as determined under chapter 
        20 of title 39, United States Code.

SEC. 4. EFFECTIVE DATE.

  This Act and the amendments made by this Act shall become effective 
on the date of the enactment of this Act, except that the amendments 
made by section 2(b) shall apply with respect to pay periods beginning 
on or after such date.

                          Purpose and Summary

    H.R. 735 reforms the manner by which the United States 
Postal Service funds its obligations to the Civil Service 
Retirement System (CSRS), by modeling the Postal Service's 
funding of its CSRS obligation after its funding of the Federal 
Employee Retirement System (FERS). This would result in 
considerable savings to the Postal Service. The bill requires 
the Postal Service to apply these savings in Fiscal Years 2003, 
2004 and 2005 to paying down its debt to the U.S. Treasury and 
to delaying the next postage rate increase. The bill also 
requires the Postal Service to place savings realized after 
2005 in escrow, and present a plan to Congress outlining how 
savings after fiscal year 2005 should be applied.

                Background and Need for the Legislation

    In a December 2001 report, United States Postal Services: 
Information on Retirement Plans, the GAO raised the question of 
whether the United States Postal Service was paying more or 
less than appropriate to cover payments for the Civil Service 
Retirement System for which it is responsible. At the behest of 
the General Accounting Office, the Office of Personnel 
Management reviewed the current funding procedures of the USPS 
to the Civil Service Retirement System under law.
    The Office of Personnel Management (OPM) determined that 
the Postal Service, based on payments required by existing law, 
would overpay its obligations to the Civil Service Retirement 
System (CSRS, the pre-1984 retirement system) by well over $70 
billion dollars. As a result, without this legislative 
correction, the Postal Service would unnecessarily raise 
postage rates for the American mailing public earlier than 
required.
    In order to correct this problem, OPM proposed legislation 
modeling the Postal Service's payments to CSRS after its 
payments to the current Federal Employee Retirement System 
(FERS). This would result in a reduction in the Postal 
Service's annual obligation to CSRS, allowing the Postal 
Service to delay its next rate increase beyond 2004 to at least 
fiscal year 2006.
    H.R. 735 incorporates much of the language approved by the 
Administration. This bipartisan bill also has the support of 
the Postal Service as well as postal labor unions, management 
groups, and postal consumers.
    The bill requires the Postal Service to work with the 
Department of the Treasury to apply the funds saved to pay down 
its debt to the Treasury in fiscal years 2003 and 2004. In 
fiscal year 2005, the bill directs the Postal Service to use 
the savings to delay an anticipated rate increase. After 2005, 
the bill requires the Postal Service and OPM to calculate the 
difference between the cost to fund CSRS under the bill and the 
cost under the old law. These funds would be held in escrow 
until Congress acts on a Postal Service proposal outlining what 
should be done with the funds.
    Additional mandates, in the form of a sense of Congress, 
would direct that some portion of saved funds be used to hold 
postage rates unchanged until at least 2006, to fund retiree 
health benefits, and to not pay for executive bonuses.
    H.R. 735 as reported differs from the introduced version, 
in that it incorporates several changes to the bill as 
introduced that were suggested by the General Accounting Office 
and the Postal Service.

                                Hearings

    No hearings were held on H.R. 735.

                        Committee Consideration

    On March 6, 2003, the Committee met in open session and 
favorably reported the bill, H.R. 735 (with a manager's 
amendment), by voice vote, a quorum being present.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

                    Performance Goals and Objectives

    H.R. 735 does not authorize funding. Therefore, clause 
3(c)(4) of rule XIII of the Rules of the House of 
Representatives is inapplicable.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of House Rule XIII is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to H.R. 735, the following estimate and comparison 
prepared by the Director of the Congressional Budget Office 
under section 402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 14, 2003.
Hon. Tom Davis,
Chairman, Committee on Government Reform,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 735, the Postal 
Civil Service Retirement System Funding Reform Act of 2003.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark 
Grabowicz and Geoffrey Gerhardt.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 735--Postal Civil Service Retirement System Funding Reform Act of 
        2003

    Summary: Enacting H.R. 735 would permanently reduce 
payments by the United States Postal Service (USPS) to the 
Civil Service Retirement and Disability Fund (CSRDF) starting 
in 2003. CBO estimates that enacting the bill would result in 
net outlays of $7.1 billion over the 2003-2008 period. (Over 
the 2003-2013 period, total costs would be about $7.2 billion.) 
That estimate is the total budgetary impact of the proposal, 
combining both on-budget and off-budget effects. (USPS cash 
flows are considered off-budget.)
    Under the bill, the Postal Service would see its required 
payments to the CSRDF reduced by $3 billion to $5 billion a 
year. The legislation specifies that the Postal Service and the 
Department of the Treasury should determine how to apply the 
savings that would result over the 2003-2005 period. CBO 
expects the Postal Service would use those savings to repay 
debt, delay future rate increases, and invest in capital 
projects or other activities to increase productivity. For 
fiscal years after 2005, the bill would require that savings 
resulting from reduced payments to the CSRDF be held in escrow 
and remain unavailable for obligation unless authorized by 
subsequent legislation.
    By reducing USPS payments to the retirement fund, CBO 
estimates the bill would reduce the agency's costs (off-budget) 
by about $12 billion over the 2003-2008 period. We also 
estimate that enacting H.R. 735 would increase on-budget costs 
by about $19 billion over the same period. Thus the net effect 
of this legislation on the unified federal budget would be a 
cost of about $7.1 billion over the 2003-2008 period largely 
because on-budget offsetting receipts--representing payments 
from the Postal Service to the CSRDF--would be reduced. Over 
the 2003-2013 period, enacting H.R. 735 would combine off-
budget savings of about $34 billion with on-budget costs of 
around $41 billion to produce a net cost of about $7.2 billion.
    H.R. 735 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 735 is shown in the following table. 
The costs of this legislation fall within budget functions 370 
(commerce and housing credit), 900 (net interest), and 950 
(undistributed offsetting receipts).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         By fiscal year, in billions of dollars--
                                                                 ---------------------------------------------------------------------------------------
                                                                   2003    2004    2005    2006    2007    2008    2009    2010    2011    2012    2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING

On-Budget Effects--CSRDF:
    Estimated Budget Authority..................................     3.5     2.7     3.0     3.0     3.2     3.6     3.8     4.2     4.6     4.8     5.2
    Estimated Outlays...........................................     3.5     2.7     3.0     3.0     3.2     3.6     3.8     4.2     4.6     4.8     5.2
Off-Budget Effects--Postal Service:
    Estimated Budget Authority..................................    -2.5    -0.6     0.8    -3.0    -3.2    -3.5    -3.8    -4.1    -4.5    -4.8    -5.2
    Estimated Outlays...........................................    -2.5    -0.6     0.8    -3.0    -3.2    -3.5    -3.8    -4.1    -4.5    -4.8    -5.2
Total Budget Effects:
    Estimated Budget Authority..................................     1.0     2.1     3.8     0.1     0.1     0.1     0.1     0.1     0.1       *       *
    Estimated Outlays...........................................     1.0     2.1     3.8     0.1     0.1     0.1     0.1     0.1     0.1       *       *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes.--* = less than $50 million. Components may not add to totals because of rounding.

    Basis of estimate: For this estimate, CBO assumes that H.R. 
735 will be enacted in the spring of 2003. CBO estimates that 
reducing the Postal Service's payments to the retirement fund 
would reduce the agency's off-budget costs by about $12 billion 
over the 2003-2008 period, but enacting H.R. 735 would increase 
on-budget costs by about $19 billion over the same period. The 
net effect of this legislation on the unified federal budget 
would be a cost of about $7.1 billion over those six years. 
Over the 2003-2013 period, enacting H.R. 735 would combine off-
budget savings of about $34 billion with on-budget costs of 
around $41 billion to produce a net cost of $7.2 billion.

Background

    Although the Postal Service is a federal agency, its 
financial operations are classified as being off-budget. 
Despite this treatment, federal budget documents present the 
net income of the agency in the budgetary totals. The Postal 
Service is required by law to set postage rates to cover its 
full costs. In fiscal year 2002, the Postal Service generated 
$68.1 billion in collections, mostly from postage and user 
fees, and had $67.4 billion in expenses. The agency has the 
authority to borrow up to $15 billion from the Treasury; at the 
end of fiscal year 2002, its outstanding debt with the Treasury 
stood at $11.9 billion.
    Postal employees participate in the federal government's 
two main defined benefit pension programs. Those workers first 
hired prior to 1984 are covered by the Civil Service Retirement 
System (CSRS) while those first hired after 1983, as well as 
former CSRS workers who elected to change coverage, participate 
in the Federal Employees' Retirement System (FERS). In 2002, 
about 30 percent of the USPS workforce was covered by CSRS, and 
the rest were under FERS.
    The Postal Service and its employees each make payroll 
contributions toward both CSRS and FERS. For CSRS workers, both 
the standard agency and employee contribution rates are 7 
percent. For FERS employees, the agency contribution rate for 
most employees is 10.7 percent, while the employee rate is 0.8 
percent. Although CSRS provides more generous benefits than 
FERS, unlike FERS, CSRS is not a fully funded pension system, 
meaning that agency and employee contributions alone are not 
enough to finance the program's benefits. In an effort to make 
up the shortfall between contributions and benefits for its 
current and former employees, the Postal Service makes lump-sum 
payments to the retirement system each year. In 2002, those 
payments amounted to about $3.9 billion.
    The Office of Personal Management projects that, under 
current law, the Postal Service will eventually overfund 
pension obligations for its workers by as much as $71 billion. 
The projected overfunding is due primarily to higher-than-
expected returns on assets held in the CSRDF.

On-Budget Effects

    H.R. 735 would change the way the Postal Service finances 
retirement benefits for many of its current and former 
employees. The proposal would replace two amortization payments 
the Postal Service now makes to CSRDF--amounting to a combined 
$4 billion in 2003 and expected to grow to nearly $6 billion in 
2013--with a new annual payment of $434 million over the next 
40 years that would amortize the agency's estimated unfunded 
liability of about $5 billion. The net effect is to reduce 
Postal Service payments to the CSRDF by $4 billion in 2003, 
$19.5 billion over the 2004-2008 period, and $43.5 billion over 
the 2004-2013 period.
    The legislation also would replace the fixed contribution 
rate, which the Postal Service currently makes for its 
approximately 225,000 employees covered by the CSRS, with a 
rate intended to pay the full normal cost of CSRS benefits 
(including military service credits). This change would 
effectively increase the Postal Service's contribution rate for 
most covered employees from 7 percent to 17.4 percent of 
payroll. In 2004, the first full year of contributions at the 
higher rate, CBO estimates that this would increase the 
agency's retirement contributions by nearly $1 billion, but 
that increase would gradually decline as the CSRS covered 
workers retire. Employee contribution rates for those in CSRS, 
as well as agency and employee contributions for those in the 
Federal Employees' Retirement System, would be unaffected by 
the legislation.
    The Postal Service is an off-budget entity and 
contributions and payments that it makes to the retirement 
trust fund are considered offsetting receipts. Reducing overall 
payments the Postal Service makes to the CSRDF would result in 
a reduction of on-budget receipts to the government. To the 
extent that the Postal Service uses its savings to reduce its 
debt to the Federal Financing Bank, on-budget interest receipts 
would also be lower. Assuming the changes made by H.R. 735 are 
effective in April 2003, CBO projects the net on-budget effect 
of the bill would be a cost of $3.5 billion in 2003 and 
approximately $19 billion over the 2003-2008 period.

Off-Budget Effects

    CBO estimates that enactment of H.R. 735 would reduce net 
expenditures of the USPS by $12 billion over the 2003-2008 
period. After 2005, the bill would direct the agency to 
continue to charge its ratepayers for the estimated cost of its 
current contribution to the CSRDF. However, the legislation 
would require that those collections be held in escrow and 
unavailable for obligation until a subsequent act of the 
Congress specifies how the collections should be used.
    Estimated Effects on Postal Outlays for Fiscal Years 2003-
2005. The Postal Service's response to the change in its 
pension payments is uncertain, but CBO anticipates that the 
agency will use the savings form H.R. 735 to:
           Repay $2 billion of its outstanding debt in 
        fiscal year 2003,
           Invest $1 billion in fiscal year 2003 and $2 
        billion in 2004 in additional capital projects or other 
        activities aimed at improving productivity, and
           Delay the next postal rate increase--
        anticipated late in fiscal year 2004, until fiscal year 
        2006.
    CBO expects that the Postal Service would repay $2 billion 
of its outstanding debt to the Treasury in 2003. That action 
would reduce the agency's interest expenses by about $60 
million annually, beginning in fiscal year 2004. Although the 
bill would require that all of the USPS's savings be used for 
debt redemption over the 2003-2004 period, the legislation 
would not effectively constrain the agency's ability to use its 
line of credit with the Treasury to ensure that net outstanding 
debt is reduced in those years. Because the USPS pays an 
average interest rate on that debt of only 3 percent, CBO 
expects the agency would seek to make capital investments with 
much of the savings that could more effectively contribute to 
lowering its operating costs and thus contribute to a 
postponement of its next rate increase. By fiscal year 2005, 
CBO estimates such investments would lead to operational 
savings of about $300 million per year.
    In July 2002, the Postal Service raised the price of a 
first-class stamp from $0.34 to $0.37 and raised rates for 
other classes of mail. Based on information from the Postal 
Service and on postal revenues to date in 2003, CBO estimates 
that this rate increase will raise over $3 billion in 
additional revenue a year. The CBO baseline assumes a similar 
rate increase late in fiscal year 2004, including a price of 
$0.40 for a first-class stamp.
    We estimate that delaying the next rate increase would 
result in a small loss of revenue in fiscal year 2004 and a 
loss of roughly $3.5 billion in fiscal year 2005. A delay in 
the rate increase also would increase operating expenses 
because the Postal Service would have to deliver higher volumes 
of mail than otherwise expected. (When rates go up, mail volume 
goes down.) Based on information from the Postal Service about 
the relationship between price increases, mail volumes, and 
operating costs, we expect that this increase in expenses would 
be just over half a billion dollars in 2005.
    CBO estimates that those changes in postal revenues and 
expenses would result in lower net outlays of $2.5 billion in 
fiscal year 2003 and $600 million in 2004, with a net increase 
in outlays of $800 million in 2005.
    Estimated Effects on Postal Outlays for Fiscal Years 2006-
2008. For fiscal years after 2005, savings resulting from 
enactment of the bill would not be available for spending 
unless authorized by subsequent legislation. In addition, H.R. 
735 would direct any savings to be considered operating 
expenses of the Postal Service. Thus, the agency's gross costs 
for rate-setting purposes would remain nearly identical to what 
those costs would be under current law even though the agency's 
actual expenditures would decline by the amounts that the bill 
would require to be placed in escrow. As a result, net off-
budget outlays of the Postal Service would decline by the same 
amount as the savings from lower pension payments, beginning in 
fiscal year 2006.
    Intergovernmental and private-sector impact: H.R. 735 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would impose no costs on state, local, or 
tribal governments.
    Estimate prepared by: Federal Costs--Postal Service: Mark 
Grabowicz; CSRDF: Geoffrey Gerhardt. Impact on State, Local, 
and Tribal Governments: Victoria Heid Hall. Impact on the 
Private Sector: Paige Piper/Bach.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                   Constitutional Authority Statement

    Pursuant to rule XIII, clause 3(d)(1), the Committee finds 
that clauses 1 and 18 of Article I, Section 8 of the United 
States Constitution grant Congress the power to enact this law

               Section-by-Section Analysis and Discussion


Section 1. Short title

    This section provides that the bill may be cited as the 
``Postal Civil Service Retirement System Funding Reform Act of 
2003''.

Section 2. Civil Service Retirement System

    This section amends provisions of subchapter III of chapter 
83 of title 5, United States Code, to reform the provisions for 
funding retirement benefits for employees of the United States 
Postal Service under the Civil Service Retirement System.
    Subsection (a)(1) amends section 8331 of title 5, U.S.C., 
by changing the term defined in paragraph (17) of that section 
from ``normal cost'' to ``normal cost percentage.'' The 
insertion of the phrase ``and standards (using dynamic 
assumptions)'' after ``actuarial practice'' changes the method 
of computing normal cost from a static basis to a dynamic one. 
While the term ``normal cost'' was defined in section 8331, it 
had not actually been used in chapter 83 since the last 
reference to it was repealed some years ago.
    Subsection (a)(2) redefines ``Fund balance'' to provide a 
more accurate and functionally useful definition.
    Subsection (a)(3) add the definitions of the term ``dynamic 
assumptions,'' which is virtually identical to the definition 
in paragraphs (9) of section 8401, which is used in the 
administration of the Federal Employees Retirement System.
    Subsection (b) amends the provisions of section 8334(a)(1) 
to change the provisions applicable to employer retirement 
contributions made by the Postal Service.
    Subsections (b)(1)(A) and (b)(1)(B) divide and redesignate 
the existing provisions of section 8334(a)(1).
    Subsection (b)(1)(C) excludes the Postal Service from the 
requirement of agency contributions that match employee 
deductions.
    Subsection (b)(1)(D) provides that the Postal Service 
employer contribution will be a percentage of basic pay equal 
to the normal cost percentage for the type of employee (i.e., 
regular employee, law enforcement officer, etc.), less the 
percentage of basic pay deducted from the employee's basic pay.
    Subsection (b)(2) provides conforming amendments reflecting 
the above changes.
    Subsection (c) rewrites section 8348(h) of title 5, United 
States Code. It repeals the existing provisions requiring 
Postal Service payments for costs ``attributable to any 
benefits payable from the Fund to active and retired Postal 
Service officers and employees, and to their survivors, when 
the increase results from an employee-management agreement 
under title 39 of the United States Code, or any administrative 
action by the Postal Service taken pursuant to law, which 
authorizes increases in pay on which benefits are computed.''
    As amended, section 8348(h)(1)(A) establishes a new 
concept, the ``Postal supplemental liability,'' which is 
essentially the difference between the actuarial present value 
of retirement obligations for Postal Service employees, less 
the present value of prior and future employer and employee 
payments to the Retirement Fund, taking into account the 
earnings on those payments.
    Section 8348(h)(1)(B) sets the basis for inclusion of the 
value of benefits based upon military and volunteer service 
(i.e., Peace Corps, VISTA, etc.), providing for proration in 
the case of pre-Postal reform employees. It also excludes the 
military service so-included from inclusion in computation of 
amount of the annual Treasury payment required to pay for costs 
attributable to military service.
    Section 8348(h)(2) provides for OPM to determine an 
appropriate amortization schedule, including a series of equal 
annual installments commencing September 30, 2004, providing 
for the liquidation of the Postal supplemental liability by 
September 30, 2043. Then, for each fiscal year beginning after 
September 30, 2003, through the fiscal year ending September 
30, 2038, OPM is required to redetermine the Postal 
supplemental liability at the close of the fiscal year and 
establish a new amortization schedule, including a series of 
equal installments commencing on September 30 of the subsequent 
fiscal year, providing for the liquidation of that redetermined 
Postal supplemental liability by September 30, 2043. For each 
fiscal year beginning after September 30, 2038, OPM is required 
to redetermine the Postal supplemental liability at the close 
of the fiscal year and establish a new amortization schedule, 
including a series of annual installments commencing on 
September 30 of the subsequent fiscal year, providing for the 
liquidation of that redetermined Postal supplemental liability 
over five years. All amortization schedules established under 
this section must be set in accordance with generally accepted 
actuarial practices and principles, with interest computed at 
most recent dynamic valuation of the Civil Service Retirement 
System.
    Section 8348(h)(3) provides that in computing the amount of 
any payment under any other subsection of section 8348 that is 
based upon the amount of the Retirement Fund's unfunded 
liability, such payment shall be computed disregarding any 
portion of the unfunded liability that OPM determines will be 
liquidated by the Postal Service amortization payments.
    Section 8348(h)(4) allows the Postal Service to appeal 
determinations made by the Office of Personnel Management to 
the Board of Actuaries of the Civil Service Retirement System.
    Subsection (d)(1)(A) of the bill repeals the existing 
provisions of section 8348(m), requiring Postal Service 
payments based upon retirement costs attributable to retirement 
cost-of-living increases.
    Subsection (d)(1)(B) of the bill prospectively repeals non-
codified provisions requiring additional Postal Service 
payments to the Retirement Fund.

Section 3. Disposition of savings accruing to the United States Postal 
        Service

    Section 3(a)(1) of the bill requires the Postal Service to 
use any savings accrued as a result of the bill in fiscal years 
2003 and 2004 to pay down the Postal Service's debt to the U.S. 
Treasury, in consultation with the Secretary of the Treasury. 
The section prohibits the Postal Service from accumulating 
additional offsetting debt.
    Section 3(a)(2) of the bill requires the Postal Service to 
apply any saving accruing in fiscal year 2005 to hold postage 
rates unchanged, and to pay down debt.
    Section 3(a)(3) of the bill requires the Postal Service in 
fiscal years after 2005, to include savings accruing in the 
revenue requirement, and to place them in an escrow account 
until Congress acts on a Postal Service proposal for the funds.
    Section 3(b) of the bill directs the Office of Personnel 
Management to calculate the accrued savings as defined under 
Section 3(g) of the bill. The Postal Service would have the 
opportunity to appeal the Office of Personnel Management's 
calculations to the Board of Actuaries of the Civil Service 
Retirement System.
    Section 3(c) of the bill directs the Postal Service to 
account for its debt repayments under Section 3(a) in its 
annual report.
    Section 3(d) of the bill expresses the sense of Congress 
that enactment will allow the Postal Service to fulfill its 
public commitment to hold postage rates steady until at least 
fiscal year 2006. It also expresses the sense of Congress that 
some portion of the savings should be used to prefund the 
Postal Service's retiree health care liabilities, and that none 
of the savings should be used in the computation of executive 
bonuses.
    Section 3(e) of the bill requires the Postal Service to 
present a plan to the President and Congress by September 30, 
2003 outlining how the savings that would be held in escrow 
under Section 3(a)(3) should be treated. The General Accounting 
Office would be required to submit its evaluation of the Postal 
Service's plan to Congress within 60 days. The bill directs 
Congress to act on this proposal within 180 days of receiving 
GAO's evaluation, in order to prevent the escrow account from 
going into effect.
    Section 3(f) of the bill requires the Office of Personnel 
Management to determine on September 30, 2025, whether a 
surplus exists in the Postal Service's Civil Service Retirement 
System fund, and if so, directs the Postal Service to propose 
to Congress how the surplus should be disbursed.
    Section 3(g) of the bill defines ``savings accrued'' as the 
difference between the amount the Postal Service would have 
paid to the Civil Service Retirement System absent this 
legislation and the amount the Postal Service actually pays. 
Section 3(g) also defines ``postal debt'' as the outstanding 
obligations of the Postal Service under Chapter 20 of Title 39, 
United States Code.

Section 4. Effective date

    Section 4 of the bill provides that it will be effective on 
enactment, except that the increases in Postal Service 
contributions based upon the basic pay of employees will apply 
only to pay periods beginning on or after the date of 
enactment.

                              Agency View

                              United States Postal Service,
                                    Washington, DC, March 21, 2003.
Hon. Tom Davis,
Chairman, Committee on Government Reform,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The U.S. Postal Service is extremely 
pleased that both the House and Senate have moved quickly to 
introduce The Postal Civil Service Retirement System Funding 
Reform Act of 2003, H.R. 735 and S. 380 respectively. We 
support this critically needed legislation, which would reform 
the method of funding benefits under the Civil Service 
Retirement System for employees of the Postal Service. We 
appreciate the recognition and understanding of the potential 
benefits of this reform for the Postal Service, its employees, 
our customers, and the nation's $900 billion mailing industry.
    The Postal Service continues to face long-term challenges. 
However, quick approval and enactment of this legislation will 
allow the Postal Service to provide stable postage rates until 
2006, and significantly reduce our $11 billion debt over the 
next few years.
    We do have concerns with those provisions of Section 3 of 
H.R. 735 that provide for the establishment of an escrow 
account for accrued savings attributable to any fiscal year 
after fiscal year 2005. Under these provisions, beginning in 
2006, the Postal Service would be required to pay into an 
escrow account the amount of ``savings'' calculated by OPM. The 
Postal Service would then be unable to use those funds until a 
report prepared by the Postal Service had been evaluated by 
GAO, approved by Congress, and subsequent enabling legislation 
enacted. This compounds the complexity of planning future 
Postal Service revenue requirements and rate offerings.
    I want to emphasize that the Postal Service supports both 
the House and Senate versions of this legislation. We are 
committed to working with your committee to review and refine 
Section 3 of H.R. 735. We look forward to expeditious passage 
of this legislation.
            Sincerely,
                                            John E. Potter,
                                           Postmaster General, CEO.

                           Unfunded Mandates

    The Committee finds that the legislation does not impose 
any Federal mandates within the meaning of section 423 of the 
Unfunded Mandates Reform Act (Public Law 104-4).

                     Federal Advisory Committee Act

    The Committee finds that the legislation does not establish 
or authorize establishment of an advisory committee within the 
definition of 5 U.S.C. App., section 5(b).

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

TITLE 5, UNITED STATES CODE

           *       *       *       *       *       *       *



PART III--EMPLOYEES

           *       *       *       *       *       *       *


Subpart G--Insurance and Annuities

           *       *       *       *       *       *       *


CHAPTER 83--RETIREMENT

           *       *       *       *       *       *       *



                SUBCHAPTER III--CIVIL SERVICE RETIREMENT


Sec. 8331. Definitions

  For the purpose of this subchapter--
          (1) * * *

           *       *       *       *       *       *       *

          (17) ``[normal cost] normal-cost percentage'' means 
        the entry-age normal cost computed by the Office of 
        Personnel Management in accordance with generally 
        accepted actuarial practice and standards (using 
        dynamic assumptions) and expressed as a level 
        percentage of aggregate basic pay;
          [(18) ``Fund balance'' means the sum of--
                  [(A) the investments of the Fund calculated 
                at par value; and
                  [(B) the cash balance of the Fund on the 
                books of the Treasury;
        but does not include any amount attributable to--
                  [(i) the Federal Employees' Retirement 
                System; or
                  [(ii) contributions made under the Federal 
                Employees' Retirement Contribution Temporary 
                Adjustment Act of 1983 by or on behalf of any 
                individual who became subject to the Federal 
                Employees' Retirement System;]
          (18) ``Fund balance'' means the current net assets of 
        the Fund available for payment of benefits, as 
        determined by the Office in accordance with appropriate 
        accounting standards, but does not include any amount 
        attributable to--
                  (A) the Federal Employees' Retirement System; 
                or
                  (B) contributions made under the Federal 
                Employees' Retirement Contribution Temporary 
                Adjustment Act of 1983 by or on behalf of any 
                individual who became subject to the Federal 
                Employees' Retirement System;

           *       *       *       *       *       *       *

          (27) ``Nuclear materials courier''--
                  (A) * * *
                  (B) includes an employee who is transferred 
                directly to a supervisory or administrative 
                position within the same Department of Energy 
                organization, after performing duties referred 
                to in subparagraph (A) for at least 3 years; 
                [and]
          (28) ``Government physician'' has the meaning given 
        that term under section 5948[.]; and
          (29) ``dynamic assumptions'' means economic 
        assumptions that are used in determining actuarial 
        costs and liabilities of a retirement system and in 
        anticipating the effects of long-term future--
                  (A) investment yields;
                  (B) increases in rates of basic pay; and
                  (C) rates of price inflation.

           *       *       *       *       *       *       *


Sec. 8334. Deductions, contributions, and deposits

  (a)(1)(A) The employing agency shall deduct and withhold from 
the basic pay of an employee, Member, Congressional employee, 
law enforcement officer, firefighter, bankruptcy judge, judge 
of the United States Court of Appeals for the Armed Forces, 
United States magistrate, Court of Federal Claims judge, member 
of the Capitol Police, member of the Supreme Court Police, or 
nuclear materials courier, as the case may be, the percentage 
of basic pay applicable under subsection (c).
  [An equal] (B)(i) Except as provided in clause (ii), an equal 
amount shall be contributed from the appropriation or fund used 
to pay the employee or, in the case of an elected official, 
from an appropriation or fund available for payment of other 
salaries of the same office or establishment. When an employee 
in the legislative branch is paid by the Chief Administrative 
Officer of the House of Representatives, the Chief 
Administrative Officer may pay from the applicable accounts of 
the House of Representatives the contribution that otherwise 
would be contributed from the appropriation or fund used to pay 
the employee.
  (ii) In the case of an employee of the United States Postal 
Service, the amount to be contributed under this subparagraph 
shall (instead of the amount described in clause (i)) be equal 
to the product derived by multiplying the employee's basic pay 
by the percentage equal to--
          (I) the normal-cost percentage for the applicable 
        employee category listed in subparagraph (A), minus
          (II) the percentage deduction rate that applies with 
        respect to such employee under subparagraph (A).

           *       *       *       *       *       *       *

  (k)(1) Effective with respect to pay periods beginning after 
December 31, 1986, in administering this section in the case of 
an individual described in section 8402(b)(2) of this title--
          (A) the amount to be deducted and withheld by the 
        employing agency shall be determined in accordance with 
        paragraph (2) of this subsection instead of [the first 
        sentence of subsection (a)(1) of this section] 
        subsection (a)(1)(A); and
          (B) the amount of the contribution under [the second 
        sentence of subsection (a)(1) of this section] 
        subparagraph (B) of subsection (a)(1) shall be the 
        amount which would have been contributed under [such 
        sentence] such subparagraph if this subsection had not 
        been enacted.
  (2)(A) * * *

           *       *       *       *       *       *       *

  (C) For purposes of this paragraph--
          (i) * * *

           *       *       *       *       *       *       *

          (iii) the term ``total deduction'', as used with 
        respect to any Federal wages (or portion thereof), 
        means an amount equal to the amount of those wages (or 
        of that portion), multiplied by the percentage which 
        (but for this subsection) would apply under [the first 
        sentence of subsection (a)(1)] subsection (a)(1)(A) 
        with respect to the individual involved; and

           *       *       *       *       *       *       *


Sec. 8348. Civil Service Retirement and Disability Fund

  (a) * * *

           *       *       *       *       *       *       *

  [(h)(1) Notwithstanding any other statute, the United States 
Postal Service shall be liable for that portion of any 
estimated increase in the unfunded liability of the Fund which 
is attributable to any benefits payable from the Fund to active 
and retired Postal Service officers and employees, and to their 
survivors, when the increase results from an employee-
management agreement under title 39, or any administrative 
action by the Postal Service taken pursuant to law, which 
authorizes increases in pay on which benefits are computed.
  [(2) The estimated increase in the unfunded liability, 
referred to in paragraph (1) of this subsection, shall be 
determined by the Office of Personnel Management. The United 
States Postal Service shall pay the amount so determined to the 
Office in 30 equal annual installments with interest computed 
at the rate used in the most recent valuation of the Civil 
Service Retirement System, with the first payment thereof due 
at the end of the fiscal year in which an increase in pay 
becomes effective.]
  (h)(1)(A) For purposes of this subsection, ``Postal 
supplemental liability'' means the estimated excess, as 
determined by the Office, of--
          (i) the actuarial present value of all future 
        benefits payable from the Fund under this subchapter 
        attributable to the service of current or former 
        employees of the United States Postal Service, over
          (ii) the sum of--
                  (I) the actuarial present value of deductions 
                to be withheld from the future basic pay of 
                employees of the United States Postal Service 
                currently subject to this subchapter pursuant 
                to section 8334;
                  (II) the actuarial present value of the 
                future contributions to be made pursuant to 
                section 8334 with respect to employees of the 
                United States Postal Service currently subject 
                to this subchapter;
                  (III) that portion of the Fund balance, as of 
                the date the Postal supplemental liability is 
                determined, attributable to payments to the 
                Fund by the United States Postal Service and 
                its employees, including earnings on those 
                payments; and
                  (IV) any other appropriate amount, as 
                determined by the Office in accordance with 
                generally accepted actuarial practices and 
                principles.
  (B)(i) In computing the actuarial present value of future 
benefits, the Office shall include the full value of benefits 
attributable to military and volunteer service for United 
States Postal Service employees first employed after June 30, 
1971, and a prorated share of the value of benefits 
attributable to military and volunteer service for United 
States Postal Service employees first employed before July 1, 
1971.
  (ii) Military service so included shall not be included in 
the computation of any amount under subsection (g)(2).
  (2)(A) Not later than June 30, 2004, the Office shall 
determine the Postal supplemental liability as of September 30, 
2003. The Office shall establish an amortization schedule, 
including a series of equal annual installments commencing 
September 30, 2004, which provides for the liquidation of such 
liability by September 30, 2043.
  (B) The Office shall redetermine the Postal supplemental 
liability as of the close of the fiscal year, for each fiscal 
year beginning after September 30, 2003, through the fiscal 
year ending September 30, 2038, and shall establish a new 
amortization schedule, including a series of equal annual 
installments commencing on September 30 of the subsequent 
fiscal year, which provides for the liquidation of such 
liability by September 30, 2043.
  (C) The Office shall redetermine the Postal supplemental 
liability as of the close of the fiscal year for each fiscal 
year beginning after September 30, 2038, and shall establish a 
new amortization schedule, including a series of equal annual 
installments commencing on September 30 of the subsequent 
fiscal year, which provides for the liquidation of such 
liability over 5 years.
  (D) Amortization schedules established under this paragraph 
shall be set in accordance with generally accepted actuarial 
practices and principles, with interest computed at the rate 
used in the most recent dynamic actuarial valuation of the 
Civil Service Retirement System.
  (E) The United States Postal Service shall pay the amounts so 
determined to the Office, with payments due not later than the 
date scheduled by the Office.
  (F) An amortization schedule established under subparagraph 
(B) or (C) shall supersede any amortization schedule previously 
established under this paragraph.
  (3) Notwithstanding any other provision of law, in computing 
the amount of any payment under any other subsection of this 
section that is based upon the amount of the unfunded 
liability, such payment shall be computed disregarding that 
portion of the unfunded liability that the Office determines 
will be liquidated by payments under this subsection.
  (4) Notwithstanding any other provision of this subsection, 
any determination or redetermination made by the Office under 
this subsection shall, upon request of the Postal Service, be 
subject to reconsideration and review (including adjustment by 
the Board of Actuaries of the Civil Service Retirement System) 
to the same extent and in the same manner as provided under 
section 8423(c).

           *       *       *       *       *       *       *

  [(m)(1) Notwithstanding any other provision of law, the 
United States Postal Service shall be liable for that portion 
of any estimated increase in the unfunded liability of the Fund 
which is attributable to any benefits payable from the Fund to 
former employees of the Postal Service who first become 
annuitants by reason of separation from the Postal Service on 
or after July 1, 1971, or to their survivors, or to the 
survivors of individuals who die on or after July 1, 1971, 
while employed by the Postal Service, when the increase results 
from a cost-of-living adjustment under section 8340 of this 
title.
  [(2) The estimated increase in the unfunded liability 
referred to in paragraph (1) of this subsection shall be 
determined by the Office after consultation with the Postal 
Service. The Postal Service shall pay the amount so determined 
to the Office in 15 equal annual installments with interest 
computed at the rate used in the most recent valuation of the 
Civil Service Retirement System, and with the first payment 
thereof due at the end of the fiscal year in which the cost-of-
living adjustment with respect to which the payment relates 
becomes effective.
  [(3) In determining any amount for which the Postal Service 
is liable under this subsection, the amount of the liability 
shall be prorated to reflect only that portion of total service 
(used in computing the benefits involved) which is attributable 
to civilian service performed after June 30, 1971, as estimated 
by the Office.]

           *       *       *       *       *       *       *

                              ----------                              


     SECTION 7101 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1990

  (a) * * *

           *       *       *       *       *       *       *

  [(c) Provision Relating to Pre-1991 COLAs.--(1) For the 
purpose of this subsection--
          [(A) the term ``pre-1991 COLA'' means a cost-of-
        living adjustment which took effect in any of the 
        fiscal years specified in subparagraphs (A)-(N) of 
        paragraph (3);
          [(B) the term ``post-1990 fiscal year'' means a 
        fiscal year after fiscal year 1990; and
          [(C) the term ``pre-1991 fiscal year'' means a fiscal 
        year before fiscal year 1991.
  [(2) Notwithstanding any other provision of law, an 
installment (equal to an amount determined by reference to 
paragraph (3)) shall be payable by the United States Postal 
Service in a post-1990 fiscal year, with respect to a pre-1991 
COLA, if such fiscal year occurs within the 15-fiscal year 
period which begins with the first fiscal year in which that 
COLA took effect.
  [(3) Notwithstanding any provision of section 8348(m) of 
title 5, United States Code, or any determination thereunder 
(including any made under such provision, as in effect before 
October 1, 1990), the estimated increase in the unfunded 
liability referred to in paragraph (1) of such section 8348(m) 
shall be payable, in accordance with this subsection, based on 
annual installments equal to--
          [(A) $6,500,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1977;
          [(B) $7,000,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1978;
          [(C) $10,400,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1979;
          [(D) $20,500,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1980;
          [(E) $26,100,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1981;
          [(F) $28,100,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1982;
          [(G) $30,600,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1983;
          [(H) $5,700,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1984;
          [(I) $19,400,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1985;
          [(J) $7,400,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1986;
          [(K) $8,500,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1987;
          [(L) $36,800,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1988;
          [(M) $51,600,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1989; and
          [(N) $63,500,000 each, with respect to the cost-of-
        living adjustment which took effect in fiscal year 
        1990;
  [(4) Any installment payable under this subsection shall be 
paid by the Postal Service at the same time as when it pays any 
installments for which the Postal Service might otherwise be 
liable in such fiscal year, with respect to such COLA, under 
section 8348(m) of title 5, United States Code.]

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                            ADDITIONAL VIEWS

    H.R. 735 has many good features. It strengthens the Postal 
Service, lowers the Postal Service' debt, and protects postal 
consumers. H.R. 735 has also been endorsed by a coalition of 
postal unions and the mailing industry.
    The legislation, however, is not perfect. In particular, we 
do not believe that requiring the Postal Service to pay the 
pension costs associated with military service is a good idea.
    Under current law, Treasury pays the retirement costs 
related to the military service of employees in CSRS. H.R. 735 
shifts the burden of costs related to the military service of 
postal employees covered by CSRS to the Postal Service. In 
fact, the bill not only requires the Postal Service to pay 
military pensions for current and future retirees, but it also 
makes the Postal Service reimburse Treasury for costs that have 
already been paid. This shift will require the Postal Service 
to pay $27.2 billion more than it otherwise would have to pay. 
This is unfair to the Postal Service.
    During the markup of H.R. 735, Mr. Waxman offered and 
withdrew an amendment that would have maintained the status 
quo, leaving the responsibility for paying for military costs 
with the federal treasury, where they have always been and 
where they belong. We hope this issue will be addressed before 
the bill goes to the floor.

                                   Henry A. Waxman.
                                   Tom Lantos.
                                   Elijah E. Cummings.
                                   Danny K. Davis.
                                   Wm. Lacy Clay.
                                   Stephen F. Lynch.
                                   Chris Van Hollen.
                                   Jim Cooper.