Notes to the Financial Statements
Note 13. Federal Employee and Veteran Benefits Payable
The Government offers its employees life and health insurance, as well as retirement and other benefits. The liabilities for these benefits, which include both actuarial amounts and amounts due and payable to beneficiaries and health care carriers, apply to current and former civilian and military employees. Large fluctuations in actuarial amounts can result from changes in estimates to future outflows for benefits based on complex assumptions and cost models. veterans life insurance.
OPM administers the largest civilian plan. DOD and VA administer the largest military plans. Other significant pension plans with more than $10 billion in accrued benefits payable include those of the Coast Guard (DHS), Foreign Service (Department of State), TVA, and HHS's Public Health Service Commissioned Corps Retirement System. Please refer to the financial statements of the agencies listed for further details regarding their pension plans and other benefits.
With the implementation of SFFAS No. 33, Pension, Other Retirement Benefits, and Other Postemployment Benefits: Reporting the Gains and Losses from Changes in Assumptions and Selecting Discount Rates and Valuation Dates, agencies are required to separately present gains and losses from changes in long-term assumptions used to estimate liabilities associated with pensions, ORB, and OPEB on the Statement of Net Cost. SFFAS No. 33 also provides a standard for selecting the discount rate assumption for present value estimates of federal employee pension, ORB, and OPEB liabilities. In addition, SFFAS No. 33 provides a standard for selecting the valuation date for estimates of federal employee pension, ORB, and OPEB liabilities that will establish a consistent method for such measurements. The SFFAS 33 standard for selecting discount rate assumption requires it be based on a historical average of interest rates on marketable Treasury securities consistent with the cash flows being discounted.
In fiscal year 2014, Treasury developed a new model and methodology for developing these rates to provide a sustainable, justifiable data resource for the affected agencies. As of July 2014, Treasury began releasing interest rate yield curve data using this new Yield Curve for Treasury Nominal Coupon Issues (TNC yield curve), which is derived from Treasury notes and bonds. The TNC yield curve provides information on Treasury nominal coupon issues and the methodology extrapolates yields beyond 30 years’ through 100 years’ maturity. The TNC yield curve is used to produce a Treasury spot yield curve (a zero coupon curve), which provides the basis for discounting future cash flows. The new method is based on methodology used to produce the High Quality Market (HQM) Yield Curve pursuant to the Pension Protection Act of 2006.
Generally, for FY 2014, the data from the new yield curve was implemented in full in one single year (i.e., replace the historical rate series used under the legacy method with those produced under the new TNC method).
OPM administers the largest civilian pension plan, which covers substantially all full-time, permanent civilian federal employees. This plan includes two components of defined benefits, the Civil Service Retirement System (CSRS) and the Federal Employees’ Retirement System (FERS). The basic benefit components of the CSRS and the FERS are financed and operated through the Civil Service Retirement and Disability Fund (CSRDF), a trust fund.
CSRDF monies are generated primarily from employees’ contributions, agency contributions, payments from the General Fund, and interest on investments in Treasury securities. See Note 22 —Funds from Dedicated Collections.
The Federal Retirement Thrift Investment Board administers the TSP Fund. The TSP Fund investment options include two fixed income funds (the G and F Funds), three stock funds (the C, S, and I Funds) and five lifecycle funds (L 2050, L 2040, L 2030, L 2020, and L Income). The L Funds diversify participant accounts among the G, F, C, S, and I Funds, using professionally determined investment mixes (allocations) that are tailored to different time horizons. Treasury securities held in the G Fund are included in federal debt securities held by the public and accrued interest on the Balance Sheet. The G Fund held $183.7 billion and $52.5 billion in nonmarketable Treasury securities as of September 30, 2014, and 2013, respectively. The increase in nonmarketable Treasury securities held in the G Fund relates to the delay in raising the debt limit that was ongoing as of September 30, 2013. The Secretary of the Treasury has authority to take extraordinary measures to stay within the statutory debt limit imposed by Congress.
One such measure involves the suspension of the issuance of securities to the G Fund if the issuance cannot be made without causing the debt limit to be exceeded. Please see Note 17 —Other Liabilities for additional information.
The post-retirement civilian health benefit liability is an estimate of the Government’s future cost of providing post-retirement health benefits to current employees and retirees. Although active and retired employees pay insurance premiums under the Federal Employees Health Benefits Program (FEHB), these premiums cover only a portion of the costs. The OPM actuary applies economic assumptions to historical cost information to estimate the liability. The Postal Accountability and Enhancement Act of 2006 (Postal Act of 2006) (Public Law No 109-435, Title VIII), made significant changes in the funding of future retiree health benefits for employees of the USPS, including the requirement for the USPS to make scheduled payments to the third Health Benefits Program (HBP) fund, the Postal Service Retiree Health Benefits (PSRHB) Fund. Public Law No. 109-435 requires the USPS to make scheduled payment contributions to the PSRHB Fund ranging from $5.4 billion to $5.8 billion per year from fiscal year 2007 through fiscal year 2016. (The fiscal year 2009 payment was subsequently reduced to $1.4 billion.) Thereafter, the USPS will make annual payments in the amount of the normal cost payment, plus or minus an amount to amortize the unfunded liability or surplus. The payment, originally due by September 30, 2011, was deferred by Public Law No. 112-74, resulting in two payments due in fiscal year 2012, one for $5.5 billion due by August 1, 2012, and a second payment of $5.6 billion due by September 30, 2012, a total of $11.1 billion. Both were defaulted upon by USPS. In addition, there was a $5.6 billion and a $5.7 billion payment due by September 30, 2013 and September 30, 2014, respectively, which USPS also did not make. At this time, Congress has not taken further action on these payments due to the PSRHB from USPS. The cost for these annual payments, including any defaulted payments, along with all its other benefit program costs, are included in USPS' net cost in the consolidated Statements of Net Cost.
One of the largest other employee benefits is the Federal Employee Group Life Insurance (FEGLI) Program. Employee and annuitant contributions and interest on investments fund a portion of this liability. The actuarial life insurance liability is the expected present value of future benefits to pay to, or on behalf of, existing FEGLI participants, less the expected present value of future contributions to be collected from those participants. The OPM actuary uses salary increase and interest rate yield curve assumptions that are generally consistent with the pension liability.
is veterans life insurance taxable
Workers’ Compensation Benefits
The DOL determines both civilian and military agencies’ liabilities for future workers’ compensation benefits for civilian federal employees as mandated by the Federal Employees’ Compensation Act (FECA), for death, disability, medical, and miscellaneous costs for approved compensation cases, and a component for incurred, but not reported, claims. The FECA liability is determined annually using historical benefit payment patterns related to injury years to predict the future payments.
DOL refined the approach for selecting the interest rate assumptions used to discount projected future payments. For FY 2014, projected annual payments were discounted to present value based on interest rate assumptions from the Treasury’s Yield Curve for Treasury Nominal Coupon Issues to reflect the average duration for income payments of 15.1 years and medical payments of 9.9 years. For 2014, a 3.46 percent interest rate was assumed in years one, two, and thereafter for income payments and 2.86 percent for years one, two, and thereafter for medical payments.
For FY 2013, projected annual payments were discounted to present value based on OMB’s interest rate assumptions which were interpolated to reflect the average duration for income payments of 14.7 years and medical payments of 9.6 years. For FY 2013, interest rate assumptions were 2.73 percent in year one and 3.13 percent in year two and thereafter for income payments, and 2.33 percent in year one and 2.87 percent in year two and thereafter for medical payments.
The actuarial methodology provides for the effects of inflation and adjusts historical payments to current year constant dollars by applying wage inflation factors (cost-of-living adjustments or COLA) and medical inflation factors (consumer price index-medical or CPIM) to the calculation of projected benefits. The COLAs and CPIMs used in the projections for FY 2014 were as follows. (For the COLAs and CPIMs used in the projections for FY 2013, refer to the Fiscal Year 2013 Financial Report of the U.S. Government.)
Military Employees (Including Veterans)
The DOD Military Retirement Fund accumulates funds to finance, on an accrual basis, the liabilities of DOD military retirement and survivor benefit programs. The increase in the Military Retirement Pension liability is due to additional benefit accruals (normal cost), interest on the pension liability, and assumption changes, offset somewhat by reductions due to experience gains and benefits paid out. Liabilities in the future will depend on expected changes due to interest and benefit accruals, future benefit changes, assumption changes, and actuarial experience.
This Fund receives income from three sources: monthly normal cost payments from the Services and Treasury to pay for the current years' service cost; annual payments from the Treasury to amortize the unfunded liability and pay for the increase in the normal cost attributable to concurrent receipt per Public Law 108-136; and investment income.
The military retirement system consists of a funded, noncontributory, defined benefit plan. It applies to military personnel (Departments of Army, Navy, Air Force, and the Marine Corps). This system includes non-disability retired pay, disability retired pay, survivor annuity programs, and Combat-Related Special Compensation. The Service Secretaries may approve immediate non-disability retired pay at any age with credit of at least 20 years of active duty service. Reserve retirees must be at least 60 years old and have at least 20 qualifying years of service before retired pay commences; however, in some cases, the age can be less than 60 if the reservist performs certain types of active service. There are three distinct non-disability benefit formulas related to three populations within the Military Retirement System: Final Pay, High-3, and Career Status Bonus/Redux. The date an individual enters the military determines which retirement system they would fall under and if they have the option to pick their retirement system. For more information on these benefits, see DOD's website http://www.dfas.mil/retiredmilitary/plan/estimate/csbredux.html.
Military retirees and their dependents are entitled to health care in military medical facilities if a facility can provide the needed care. Prior to becoming Medicare eligible, military retirees and other eligible beneficiaries are entitled to participate in TRICARE (now managed by the Defense Health Agency,)
which reimburses (net of beneficiary copay and deductible requirements) for the cost of health care from civilian providers. TRICARE options are available in indemnity, preferred provider organization, and health maintenance organization (HMO) designs.
Since fiscal year 2002, TRICARE, as second payer to Medicare, covers military retirees and other eligible beneficiaries after they become Medicare eligible. This TRICARE coverage for Medicare eligible beneficiaries requires that the beneficiary enroll in Medicare Part B (unless the beneficiary that is Medicare eligible is the spouse of an Active Duty Service Member) and is referred to as TRICARE for Life (TFL). Health care under TFL can be obtained from military medical facilities on an "as available" basis or from civilian providers. Military retiree health care actuarial liabilities are calculated annually using assumptions and actual experience. Military retiree health care liability figures include costs incurred in military medical facilities, as well as claims paid to civilian providers and certain administrative costs. Costs paid to civilian providers are net of Medicare’s portion of the cost.
10 U.S.C., Chapter 56 created the DOD Medicare-Eligible Retiree Health Care Fund, which became operative on October 1, 2002. The purpose of this fund is to account for the health benefits of Medicare-eligible military retirees, their dependents, and survivors who are Medicare eligible. The Fund receives contributions from the Uniformed Services and Treasury, as well as interest earnings on its investments, and pays costs incurred in military medical facilities, as well as claims for care provided by civilian providers under TFL, administration costs associated with processing the TFL claims, and capitated payments for coverage provided by U.S. Family Health Plans. The actuaries calculate the actuarial liabilities annually using assumptions and actual experience (e.g., mortality and retirement rates, direct care costs, purchased care). The current year actuarial present value of projected plan benefits rolls forward from the prior year's results.
In addition to the health care benefits for civilian and military retirees and their dependents, the VA also provides medical care to veterans on an "as available" basis, subject to the limits of the annual appropriations. In accordance with 38 CFR 17.36 (c), VA's Secretary makes an annual enrollment decision that defines the veterans, by priority, who will be treated for that fiscal year subject to change based on funds appropriated, estimated collections, usage, the severity index of enrolled veterans, and changes in cost. While VA expects to continue to provide medical care to veterans in future years, an estimate of such future benefits cannot be reasonably made. Accordingly, VA recognizes the medical care expenses in the period the medical care services are provided. For the fiscal years 2010 through 2014, the average medical care cost per year was $41.0 billion.
Veterans Compensation and Burial Benefits
The Government compensates disabled veterans and their survivors. Veterans compensation is payable as a disability benefit or a survivor's benefit. Entitlement to compensation depends on the veteran’s disabilities having been incurred in, or aggravated during, active military service; death while on duty; or death resulting from service-connected disabilities, if not on active duty.
Eligible veterans who die or are disabled from military service-related causes, as well as their dependents, receive compensation benefits. Also, veterans are provided with burial flags, headstones/markers, and grave liners for burial in a VA national cemetery, or are provided a burial flag, headstone/marker and a plot allowance for burial in a private cemetery. These benefits are provided under 38 U.S.C., Part 2, Chapter 23 in recognition of a veteran’s military service and are recorded as a liability in the period the requirements are met.
Several significant actuarial assumptions were used in the valuation of compensation and burial benefits to calculate the present value of the liability. A liability was recognized for the projected benefit payments to: 1) those beneficiaries, including veterans and survivors, currently receiving benefit payments; 2) current veterans who will in the future become beneficiaries of the compensation program; and 3) a proportional share of those in active military service as of the valuation date who will become veterans in the future. Future benefits payments to survivors of those veterans in classes 1, 2, and 3 above are also incorporated into the projection. The projected liability does not include any administrative costs.
The veterans compensation and burial benefits liability is developed on an actuarial basis. It is impacted by interest on the liability balance, changes in experience, changes in actuarial assumptions, prior service costs, and amounts paid for costs included in the liability balance.
The largest veterans' life insurance programs consist of the following:
National Service Life Insurance (NSLI) covers policyholders who served during World War II.
Veterans' Special Life Insurance (VSLI) was established in 1951 to meet the insurance needs of veterans who served during the Korean Conflict and through the period ending January 1, 1957.
veterans group life insurance eligibility
Service-Disabled Veterans Insurance (S-DVI) program was established in 1951 to meet the insurance needs of veterans who received a service-connected disability rating.
The components of veteran life insurance liability for future policy benefits are presented below.
Insurance dividends payable consists of dividends left on a deposit with VA, related interest payable, and dividends payable to policyholders.
The VA also provides certain veterans and/or their dependents with pension benefits, based on annual eligibility reviews, if the veteran died or was disabled for nonservice-related causes. VA pension benefits are recognized as a nonexchange transaction due to the nature of the VA pension plan. Therefore, the actuarial present value of these future benefits is not required to be recorded on the Balance Sheet. The projected amounts of future payments for pension benefits (presented for informational purposes only) as of September 30, 2014, and 2013, was $102.8 billion and $97.5 billion, respectively.
On October 1, 2013, the Department of Defense established the Defense Health Agency (DHA) to manage the activities of the Military Health System. These activities include those previously managed by TRICARE Management Activity (TMA), which was disestablished on the same date. ( Back to Content )