STATEMENT OF THE HONORABLE DAN G. BLAIR DEPUTY DIRECTOR OFFICE OF PERSONNEL MANAGEMENT at a hearing of the SUBCOMMITTEE ON TRANSPORTATION, TREASURY AND INDEPENDENT AGENCIES COMMITTEE ON APPROPRIATIONS U.S. HOUSE OF REPRESENTATIVES on PROPOSED LEGISLATIVE CHANGES IN U.S. POSTAL SERVICE PAYMENTS TO FUND RETIREMENT BENEFITS FOR POSTAL EMPLOYEES UNDER THE CIVIL SERVICE RETIREMENT SYSTEM MARCH 27, 2003 MR. CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE: I AM PLEASED TO APPEAR TODAY ON BEHALF OF OPM DIRECTOR, KAY COLES JAMES, BEFORE THIS DISTINGUISHED SUBCOMMITTEE TO DISCUSS PROPOSED LEGISLATIVE CHANGES IN THE U.S. POSTAL SERVICE PAYMENTS TO FUND RETIREMENT BENEFITS FOR POSTAL EMPLOYEES UNDER THE CIVIL SERVICE RETIREMENT SYSTEM (CSRS). AS YOU ARE AWARE, LAST YEAR THE OFFICE OF PERSONNEL MANAGEMENT DISCOVERED THAT IF POSTAL PAYMENTS WERE TO CONTINUE ON THE BASIS REQUIRED UNDER EXISTING LAW, THE POSTAL SERVICE WOULD OVERFUND THE ESTIMATED CSRS LIABILITY BY ALMOST $78 BILLION. BASED UPON THAT DISCOVERY, THE ADMINISTRATION PROPOSED THE CORRECTIVE LEGISLATION UPON WHICH H.R.735 IS BASED. IN MY TESTIMONY TODAY, I WILL COVER A NUMBER OF ASPECTS OF THIS SITUATION, INCLUDING- * THE HISTORY OF POSTAL RETIREMENT FUNDING * HOW THE POTENTIAL OVER-FUNDING CAME ABOUT * HOW THAT SITUATION WAS DISCOVERED * THE ADMINISTRATION'S RESPONSIBLE PROPOSAL FOR CORRECTING THE PROBLEM THAT IS THE FOUNDATION FOR H.R. 735 * HOW FUNDING DIFFERENCES UNDER THE FEDERAL EMPLOYEES RETIREMENT SYSTEM PREVENT SUCH A PROBLEM FROM OCCURRING * WHY IT IS APPROPRIATE FOR THE POSTAL SERVICE TO FUND THE COST OF CREDIT FOR MILITARY SERVICE, AND * WHY A DECISION ON MILITARY FUNDING SHOULD NOT BE DEFERRED. HOWEVER, BEFORE GOING INTO COMPLEX DETAILS, I WOULD LIKE TO EMPHASIZE THAT THE CORE OF THE ISSUE IS SIMPLE. UNLESS THE EXISTING MANDATORY STATUTORY PROVISIONS ARE AMENDED, THE POSTAL SERVICE WILL BE REQUIRED TO PAY MORE INTO THE RETIREMENT FUND THAN WILL BE NECESSARY TO PAY FOR BENEFITS THAT WILL BE RECEIVED BY ITS EMPLOYEES UNDER THE CIVIL SERVICE RETIREMENT SYSTEM. FOR OBVIOUS REASONS, THIS SUBJECT IS IMPORTANT NOT ONLY TO THE POSTAL SERVICE AND ITS EMPLOYEES, BUT TO EVERY CUSTOMER OF THE POSTAL SERVICE AS WELL. ACCORDINGLY, WE APPRECIATE THIS OPPORTUNITY TO SHED MORE LIGHT ON THE SUBJECT. THE FOLLOWING IS A SYNOPSIS OF THE HISTORY OF THE STATUTORY PROVISIONS APPLICABLE TO POSTAL FUNDING OF CSRS BENEFITS. WHEN THE POSTAL SERVICE WAS ESTABLISHED AS AN INDEPENDENT ENTITY WITHIN THE EXECUTIVE BRANCH IN 1971, THE CONGRESS MADE THE POLICY DECISION THAT POSTAL EMPLOYEES WOULD CONTINUE UNDER THE SAME BENEFIT PROGRAMS AVAILABLE TO GOVERNMENT EMPLOYEES GENERALLY, INCLUDING THE CIVIL SERVICE RETIREMENT SYSTEM. ORIGINALLY, THE POSTAL SERVICE AND ITS EMPLOYEES ALSO MADE THE SAME PAYMENTS TO THE RETIREMENT FUND THAT WERE MADE BY OTHER AGENCIES AND EMPLOYEES. HOWEVER, IN 1974, THE CONGRESS ENACTED THE FIRST OF A NUMBER OF LAWS THAT PROVIDED FOR ADDITIONAL POSTAL PAYMENTS TO THE RETIREMENT FUND, WITH OBLIGATIONS RETROACTIVE TO 1971. PUBLIC LAW 93-349 ADDED SUBSECTION (h) TO SECTION 8348 OF TITLE 5, UNITED STATES CODE (WITH PROVISION FOR DELAYING RETROACTIVE PAYMENTS) REQUIRING PAYMENTS FOR RETIREMENT COSTS RESULTING FROM NEGOTIATED AGREEMENTS, AS FOLLOWS- (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. POSTAL RETIREMENT FUNDING REMAINED UNCHANGED UNTIL 1989, WHEN, IN THE FIRST OF A SERIES OF BILLS RESPONDING LARGELY TO BUDGET RATHER THAN FUNDING ISSUES, THE CONGRESS REQUIRED THE POSTAL SERVICE TO PAY FOR COST-OF-LIVING ADJUSTMENTS FOR ITS ANNUITANTS, ENACTING PUBLIC LAW 101-239. THAT LAW ADDED SUBSECTION (m) TO SECTION 8348 OF TITLE 5, WHICH CURRENTLY PROVIDES- (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. AS ORIGINALLY ENACTED, SECTION 8348(m)(1) REQUIRED PAYMENTS ONLY FOR EMPLOYEES WHO SEPARATED OR DIED AFTER OCTOBER 1, 1986. HOWEVER, THE FOLLOWING YEAR IN 1990, THE CONGRESS REVISITED THE ISSUE OF POSTAL FUNDING, ENACTING PUBLIC LAW 101-508, WHICH AMENDED SECTION 8348(m)(1) TO REQUIRE PAYMENTS FOR EMPLOYEES WHO SEPARATED OR DIED AT ANY TIME AFTER THE POSTAL SERVICE WAS CREATED. WHILE THE 1989 LEGISLATION HAD INCLUDED A SCHEDULE AND DIRECTIONS SPECIFYING THE AMOUNTS OF PAYMENTS TO BE MADE UNDER SECTION 8348(m), THOSE PROVISIONS WERE SUPERCEDED BY NEW PROVISIONS OF PUBLIC LAW 101-508. THE ORIGINAL PROVISIONS REQUIRED- (2) SIZE OF ANNUAL INSTALLMENTS TO FUND PREVIOUS YEARS' COLAS- Notwithstanding any provision of section 8348(m) of title 5, United States Code (as added by subsection (a)), the estimated increase in the unfunded liability referred to in paragraph (1) of such section 8348(m) shall be payable based on annual installments equal to- (A) $100,000 each, with respect to the cost-of-living adjustment which took effect in fiscal year 1987; (B) $6,000,000 each, with respect to the cost-of-living adjustment which took effect in fiscal year 1988; and (C) $15,000,000 each, with respect to the cost-of-living adjustment which took effect in fiscal year 1989. (3) ADDITIONAL AMOUNT PAYABLE- (A) GENERALLY- The first payment made under the provisions of section 8348(m) of title 5, United States Code (as added by subsection (a)) shall include, in addition to the amount which would otherwise be payable at that time, an amount equal to the sum of any amounts which would have been due under those provisions in any prior year if this section had been enacted before October 1, 1986. (B) COMPUTATION METHOD- Subject to paragraph (2), the additional amount payable under this paragraph shall be computed in accordance with section 8348(m) of title 5, United States Code (as added by subsection (a)), and shall include interest. Interest on an amount-- (i) shall be computed at the rate used in the most recent valuation of the Civil Service Retirement System; (ii) shall accrue, and be compounded, annually; and (iii) shall be computed for the period beginning on the date by which such amount should have been paid (if this section had been enacted before October 1, 1986) and ending on the date on which payment is made. HOWEVER, SECTION 7103 OF PUBLIC LAW 101-508 SUBSTITUTED A NEW SCHEDULE FOR PAYMENTS THAT OTHERWISE WOULD HAVE BEEN DUE UNDER SUBSECTION 8348(m)- (a) Definition. - For the purpose of this section, the term 'pre-1987 fiscal year' means a fiscal year before fiscal year 1987. (b) For Past Retirement COLAs. - As payment for any amounts which would have been due in any pre-1987 fiscal year under the provisions of section 8348(m) of title 5, United States Code (as amended by section 7101) if such provisions had been in effect as of July 1, 1971, the United States Postal Service shall pay into the Civil Service Retirement and Disability Fund - (1) $216,000,000, not later than September 30, 1991; (2) $266,000,000, not later than September 30, 1992; (3) $316,000,000, not later than September 30, 1993; (4) $416,000,000, not later than September 30, 1994; and (5) $471,000,000, not later than September 30, 1995. SECTION 7101(c) OF PUBLIC LAW 101-508, AS AMENDED THE FOLLOWING YEAR BY PUBLIC LAW 102-238, ALSO PROVIDED ADDITIONAL NEW PROVISIONS FOR POSTAL PAYMENTS REQUIRING THE POSTAL SERVICE TO MAKE PAYMENTS FOR PRE-1991 COST-OF-LIVING ADJUSTMENTS TO ANNUITIES- (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 due in that same fiscal year under section 8348(m) of title 5, United States Code. (5) An installment payable under this subsection in a fiscal year, with respect to a pre-1991 COLA, shall be in lieu of any other installment 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. THE FINAL OF THE SERIES OF LAWS INCREASING POSTAL PAYMENTS WAS ENACTED IN 1993, AT WHICH TIME SECTION 11101(a) OF PUBLIC LAW 103-66 REQUIRED- (a) In addition to any other payments required under section 8348(m) of title 5, United States Code, or any other provision of law, the United States Postal Service shall pay into the Civil Service Retirement and Disability Fund a total of $693,000,000, of which - (1) at least one-third shall be paid not later than September 30, 1996; (2) at least two-thirds shall be paid not later than September 30, 1997; and (3) any remaining balance shall be paid not later than September 30, 1998. POSTAL PAYMENTS HAVE CONTINUED TO THE CURRENT DATE UNDER THESE PROVISIONS. LAST YEAR, THE GENERAL ACCOUNTING OFFICE (GAO) CONDUCTED A REVIEW OF POSTAL SERVICE FINANCES. AS A PART OF THAT REVIEW, GAO ASKED OPM TO REVIEW THE POSTAL SERVICE'S CSRS FINANCING AS IF A SEPARATE RETIREMENT ACCOUNT HAD BEEN ESTABLISHED FOR INCOME AND BENEFIT PAYMENTS SINCE 1971. WE UNDERTOOK THAT ANALYSIS AND DISCUSSED THE RESULTS WITH THE BOARD OF ACTUARIES FOR THE CIVIL SERVICE RETIREMENT AND DISABILITY FUND. THE BOARD AGREED WITH OUR FINDINGS AND, AS AN ADDITIONAL MEASURE OF PRUDENCE AND SOUND GOVERNANCE, WE THEN PROVIDED THOSE RESULTS TO STAFF AT BOTH THE DEPARTMENT OF THE TREASURY AND THE OFFICE OF MANAGEMENT AND BUDGET (OMB) FOR ADDITIONAL ANALYSIS INDEPENDENT OF OPM. OUR WORK WAS CAREFULLY REVIEWED BY ACTUARIAL STAFF AND OTHERS AT BOTH AGENCIES AND THEY ALSO CONCURRED IN OUR FINDINGS. DUE TO A NUMBER OF FACTORS, BUT PRIMARILY HIGHER THAN EXPECTED YIELDS ON PENSION INVESTMENTS, OPM ACTUARIES PROJECTED THAT FUTURE PAYMENTS REQUIRED UNDER CURRENT LEGISLATION WILL OVERFUND THE POSTAL SERVICE ESTIMATED CSRS LIABILITY BY ALMOST $78 BILLION. THIS CONCLUSION WAS ARRIVED AT THROUGH CAREFUL ANALYSIS CONDUCTED BY THE ACTUARIES AND OTHERS AT OPM, THE DEPARTMENT OF THE TREASURY, AND OMB. BECAUSE OF THIS POTENTIAL OVERFUNDING, AND THE FACT THAT NEEDED CHANGES IN SCHEDULED PAYMENTS CANNOT OCCUR WITHOUT CHANGES TO EXISTING LAWS, DIRECTOR JAMES DIRECTED THAT WE DEVELOP THE LEGISLATIVE PROPOSAL THAT WAS SUBMITTED LAST YEAR. THAT PROPOSAL WOULD HAVE REDUCED POSTAL SERVICE PAYMENTS TO THE RETIREMENT FUND AND ENSURED THAT THE POSTAL SERVICE MEETS ITS PENSION OBLIGATIONS FOR ITS CURRENT AND RETIRED CSRS EMPLOYEES. IN ADDITION, IT WOULD HAVE HELPED THE POSTAL SERVICE REACH A MORE SOUND FINANCIAL FOOTING. IT IS ALSO IMPORTANT TO NOTE THAT THE ADMINISTRATION'S PROPOSAL WOULD NOT AFFECT EITHER THE AMOUNT POSTAL EMPLOYEES CURRENTLY CONTRIBUTE TOWARD THEIR CSRS BENEFITS OR THE AMOUNT OF THE BENEFIT THEY STAND TO RECEIVE DURING RETIREMENT. IN ADDITION, THE PROPOSAL WOULD NOT CHANGE THE ANNUAL DISCRETIONARY APPROPRIATIONS FOR OPM OR THE POSTAL SERVICE. FEDERAL EMPLOYEES' RETIREMENT SYSTEM (FERS) BENEFITS FOR POSTAL SERVICE EMPLOYEES ARE ALREADY FULLY FUNDED UNDER STATUTORY PROVISIONS THAT REQUIRE PAYMENT OF THE FULL COST OF FUTURE BENEFITS ON A CURRENT BASIS, AND PROVIDE FOR PERIODIC ACTUARIAL EVALUATIONS TO ENSURE A CONTINUED ABILITY TO PAY THOSE BENEFITS. THE PROPOSAL IS CONSISTENT WITH THE FERS STATUTE'S FUNDING PROVISIONS, AS WELL AS THE ADMINISTRATION'S PROPOSAL TO FULLY FINANCE THE CSRS LIABILITIES FOR NON-POSTAL EMPLOYEES AND RETIREES. ALL WHO HAVE ANALYZED THIS MATTER WITHIN THE ADMINISTRATION ARE COMMITTED TO THE PRINCIPLE THAT THE PROTECTION OF EMPLOYEE INTERESTS AND THE INTEGRITY OF THE RETIREMENT SYSTEM ARE OF PARAMOUNT IMPORTANCE. WE BELIEVE THAT THE BEST AND MOST RESPONSIBLE COURSE OF ACTION GIVEN THIS SITUATION IS TO FUND ACCRUING BENEFITS ON A DYNAMIC, NORMAL COST BASIS, AND TO AMORTIZE THE REMAINING UNFUNDED LIABILITY OVER 40 YEARS. AS NOTED EARLIER, THIS APPROACH IS CONSISTENT WITH THE FINANCING PROVISIONS OF THE NEWER FEDERAL EMPLOYEES' RETIREMENT SYSTEM, AS WELL AS THE ADMINISTRATION'S PROPOSAL FOR CSRS LIABILITIES ASSOCIATED WITH NON-POSTAL EMPLOYEES AND RETIREES. WE ALSO BELIEVE THAT, IN THE EVENT THAT ANY OVERFUNDING RESULTS FROM FUTURE DEVIATIONS FROM ECONOMIC ASSUMPTIONS, H.R. 735's REQUIREMENT FOR A REPORT AND RECOMMENDATIONS PROVIDES AN APPROPRIATE MEANS TO DEAL WITH THAT SITUATION. I AM PARTICULARLY PLEASED TO ADVISE YOU THAT THIS PROBLEM CANNOT ARISE UNDER THE FEDERAL EMPLOYEES' RETIREMENT SYSTEM. WHEN FERS WAS DESIGNED, A BEDROCK PRINCIPLE OF THE PROGRAM WAS THAT IT WOULD BE FULLY FUNDED BY EMPLOYER AND EMPLOYEE CONTRIBUTIONS MADE AT THE TIME SERVICE IS PERFORMED. MOREOVER, FERS WAS DESIGNED WITH THE FLEXIBILITY TO MODIFY CONTRIBUTION RATES AS THE ECONOMIC FACTORS THAT AFFECT FUNDING CHANGE OVER TIME. THUS, NOT ONLY THE POSTAL SERVICE, BUT ALL AGENCIES IN ALL BRANCHES OF GOVERNMENT FUND THE FUTURE COSTS OF FERS BENEFITS FOR THEIR EMPLOYEES AT THE TIME THOSE OBLIGATIONS ARE CREATED. IN FERS THERE IS A MECHANISM TO ADJUST THE POSTAL PAYMENTS TO REFLECT ACTUAL EXPERIENCE. HOWEVER, THE POSTAL PAYMENTS UNDER CSRS ARE BASED ON LEGISLATIVE MANDATES THAT ARE DESIGNED TO COVER THE COSTS ASSOCIATED WITH PAY RAISES AND COLA'S BUT WHICH DO NOT PROVIDE ANY FLEXIBILITY TO ADJUST THESE PAYMENTS IF THE ACTUAL EXPERIENCE TURNS OUT TO BE DIFFERENT THAN WHAT IS EXPECTED. FOR THE NON-POSTAL SIDE OF CSRS, THE MANDATED PAYMENTS HAVE NOT BEEN SUFFICIENT TO COVER THE COSTS. FOR MOST AGENCIES, THE STATUTORILY REQUIRED PAYMENTS DO NOT DEFRAY THE FULL COSTS OF BENEFITS. HOWEVER, FOR THE POSTAL SERVICE, THE LEGISLATIVELY MANDATED CSRS PAYMENTS HAVE BEEN AT A RATE THAT WOULD EVENTUALLY HAVE RESULTED IN OVER-FUNDING. KEEPING FERS FUNDING IN MIND, IT IS NOW APPROPRIATE TO EXAMINE THE ISSUE OF FUNDING SERVICE CREDIT FOR MILITARY SERVICE. THE QUESTION OF HOW MILITARY SERVICE CREDIT SHOULD BE FUNDED IS NOT A NEW ONE. IT HAS BEEN ADDRESSED UNDER FERS SINCE THE VERY BEGINNING OF THAT SYSTEM, WITH THE COST OF CREDITING MILITARY SERVICE UNDER FERS INCLUDED IN THE NORMAL COST. THUS, UNDER FERS, MILITARY SERVICE CREDIT IS FULLY PAID FOR BY ALL AGENCIES AND THEIR EMPLOYEES, INCLUDING THE POSTAL SERVICE. CURRENT LAW GOVERNING FUNDING OF CSRS DOES NOT REQUIRE THE POSTAL SERVICE TO PAY FOR THE COST OF BENEFITS ATTRIBUTABLE TO MILITARY SERVICE. UNLIKE UNDER FERS WHERE PAYMENTS ARE BASED UPON ACTUAL COSTS, AGENCY PAYMENTS UNDER CSRS ARE AND HAVE GENERALLY BEEN BASED UPON LEGISLATIVE MANDATES THAT ARE NOT LINKED TO ACTUAL COSTS. HOWEVER, SINCE THIS PROPOSAL IS PREDICATED ON A NEW APPROACH, MODELED AFTER THE FUNDING OF FERS, WE BELIEVE CHARGING THE POSTAL SERVICE FOR MILITARY SERVICE CREDIT UNDER CSRS IS NOW APPROPRIATE. IT IS IMPORTANT THAT THE LEGISLATION SHOULD PROVIDE THAT FUTURE POSTAL CSRS FUNDING ACCURATELY INCORPORATE ALL RETIREMENT LIABILITIES, AS WELL AS ALL PAYMENTS AND EARNINGS. MOREOVER, THERE IS NOTHING UNIQUE ABOUT SERVICE CREDIT FOR MILITARY SERVICE AS AN ELEMENT OF THE TOTAL COST OF RETIREMENT BENEFITS. IT IS SIMPLY ONE ELEMENT OF COST, LIKE ALL OTHER PROVISIONS THAT AFFECT THE TOTAL COST OF BENEFITS. PLEASE KEEP IN MIND THAT THE POSTAL SERVICE IS ALREADY PAYING THE COST OF CREDIT FOR MILITARY SERVICE FOR MOST OF ITS EMPLOYEES, BECAUSE THEY ARE UNDER FERS. IN CONCLUSION, MR. CHAIRMAN, I THANK YOU FOR INVITING THE OFFICE OF PERSONNEL MANAGEMENT TO TESTIFY ON THIS MATTER. WE APPRECIATE YOUR INTEREST IN ADDRESSING THIS IMPORTANT ISSUE, AND WE LOOK FORWARD TO WORKING WITH THE CONGRESS TO PERFECT A SOLUTION. I WILL BE GLAD TO ANSWER ANY QUESTIONS YOU MAY HAVE.