Clearly, any service that is creditable towards a CSRS or FERS benefit but  is rendered while employed by an entity other than the Postal Service has  no direct relationship to the Service’s operations. This feature is one of many that  collectively constitute a plan of benefits that defers a portion of an  employee’s total compensation until retirement. With respect to the Postal Service’s assertion that approximately 90 percent  of the cost of military service was earned before the Service was created in  1971, we asked OPM to calculate the additional cost to the Treasury of  making it responsible for the entire cost of benefits attributable to all  military service estimated to have been rendered before 1972 by both  former and current employees of the Postal Service. The PMAs  agreed to do so in response to a series of reports we issued. One might reasonably argue that the Postal Service should be treated like  other agencies with respect to its funding of pension costs. However,  our previous recommendations and observations did not specifically  address whether the cost of military service benefits should be included as  part of a dynamic normal cost factor. Yet, for purposes of  estimating the Postal Service’s share of the CSRS portion of CSRDF assets  and the actuarial present value of future benefits, OPM allocated the years  of creditable military service of former and current Postal Service  employees proportionally over the employees’ civilian career. Should the Congress decide that the  Postal Service should be responsible for funding CSRS military service  benefits attributable to its employees, the Congress should then decide the  extent to which these benefits should be attributed to the Postal Service  and perhaps to other self-supporting agencies. The OPM and Treasury proposal provided five alternative allocation  approaches; however, none of their approaches included an allocation  alternative that reflects the extent to which the Postal Service’s current and  former employees had, by the time the Service commenced operations in  1971, completed the 5 years of civilian service needed to be entitled to have  their past military service credits used in the computation of an annuity. Matters for Congressional Consideration

To help promote full and consistent funding of CSRS benefits among self- supporting federal agencies, we suggest that the Congress consider  requiring all self-supporting federal entities to pay the dynamic cost of  employee pension benefit costs not paid for by employee contributions  and deposits, excluding military service costs, and   treating all self-supporting federal entities consistently with regard to  whatever decision is made on Postal Service funding of the military  service component of CSRS employee benefits. OPM and Treasury

In written comments on a draft of this report, the Secretary of the Treasury  and Director of OPM disagreed with our statement that there is no direct  relationship between an employee’s prior military service and the  operations of the Postal Service. However, we continue to view the  relationship between military service and postal operations as indirect  because the activities performed while serving in the military did not  directly contribute to the daily operations of the Postal Service at the time  the military service was rendered. As stated in our report, our position is  that the Congress needs to decide whether the Postal Service should fund  the cost of military service attributable to military service of its current and  former employees.
Why GAO Did This Study

The Postal Civil Service Retirement System Funding Reform Act of 2003 (the Act) required the United States Postal Service, Department of the Treasury, and Office of Personnel Management (OPM) to prepare proposals detailing whether and to what extent the Treasury and Postal Service should fund the benefits attributable to the military service of the Postal Service's current and former Civil Service Retirement System (CSRS) employees. The Act required GAO to evaluate the proposals. Our objective in doing so was to assess the agencies' positions and provide additional information where it may be useful.

What GAO Found

The positions taken by OPM and Treasury and the Postal Service were driven in part by differing views on the nature and extent of the relationship between military service and an entity's operations. The Postal Service favors returning the responsibility for funding benefits attributable to military service to the Treasury, making arguments that include Treasury's historic responsibility for these benefits, the legislative history surrounding the Postal Service's funding of retirement benefits, the fact that the majority of military service by CSRS employees was rendered before the current Postal Service was created, and that military service has no connection to the Postal Service's functions or operations. OPM and Treasury favor the recently enacted law, arguing that the Postal Service was intended to be self-supporting, military service is a benefit like other CSRS benefits that should be allocated proportionally over an employee's career, and the current law is one in a series that developed today's approach to funding the Postal Service's CSRS costs. GAO observed that there is no direct relationship between an employee's military service and an entity's operations, but an indirect relationship is established once an employee is hired into a position whose retirement plan provisions credit military service when computing a civilian benefit. GAO has long held the position that federal entities should be charged the full costs of retirement benefits not covered by employee contributions in the belief that it enhances recognition of costs and budgetary discipline at the same time it promotes sounder fiscal and legislative decisions. However, our previous recommendations and matters for congressional consideration did not specifically address whether the cost of military service benefits should be included in CSRS employee benefit costs. Currently there is inconsistency in how various self-supporting government entities treat these costs. The military service of many Postal Service retirees was already creditable to a civilian pension when the Postal Service began operations in 1971. OPM's current approach, however, allocated the years of creditable military service of these employees over their entire civilian careers. If Congress decides that the Postal Service should be responsible for military service costs applicable to its employees, then consideration of an allocation alternative reflecting the extent to which the military service of current and former employees was already creditable towards a civilian pension when the Postal Service began operating would enhance the decision-making process.