Note 12. Federal Employee and Veterans’ Benefits

The HHS’ Federal Employee and Veterans’ Benefits at September 30, 2007 and 2006, are summarized below.  These liabilities are not covered by budgetary resources.

Public Health Service (PHS) Commissioned Corps: The HHS administers the PHS Commissioned Corps Retirement System for approximately 5,913 active duty officers and 5,441 retiree annuitants and survivors. Authorized by Public Law 78-410, it is a defined noncontributory benefit plan. At September 30, 2007, the actuarial present value of accumulated plan pension benefits was $7,575 million, of which $578 million was not vested, and the liability for medical benefits was actuarially determined to be $697 million.

Significant assumptions used by the actuary in its reports on the pension and medical programs as of September 30, 2007, were as follows:

Interest on Federal securities              6.00 percent

Annual basic pay scale increase          3.75 percent

Annual inflation                                  3.00 percent

Withdrawal and retirement rates are based on the historical trends of officers in the PHS retirement system. The HHS applies the aggregate entry age normal actuarial cost method to both programs to determine its liabilities.

The following shows key valuation results as of September 30, 2007 and 2006, in conformance with the actuarial reporting standards set forth in the Statement of Federal Financial Accounting Standards No. 5, Accounting for Liabilities of the Federal Government.

Workers’ Compensation Benefits: The actuarial liability for future workers’ compensation benefits include the expected liability for death, disability, medical, and miscellaneous costs for approved compensation cases, plus a component for incurred but not reported claims.

The liability utilizes historical benefit payment patterns to predict the ultimate payment related to a period. Consistent with past practice, these projected annual benefit payments have been discounted to present value using the OMB’s economic assumptions for 10-year Treasury notes and bonds. Interest rate assumptions utilized for discounting in FY 2007 and 2006 appear below.

To provide specifically for the effects of inflation on the liability for future workers’ compensation benefits, wage inflation factors (cost of living adjustments (COLAs)) and medical inflation factors (consumer price index medical (CPIMs)) are applied to the calculations for projected future benefits. These factors are also used to adjust historical payments to current year dollars. The anticipated percentages for COLAs and CPIMs used in projections are:

AFR Section II Links:

• Message from the Chief Financial Officer
• Office of Inspector General Transmittal
• Independent Auditor's Reports
• Financial Statements and Notes
• Required Supplementary Stewardship Information
• Required Supplementary Information