FY 2001 Performance and Accountability Report Homepage FY 2001 Consolidated Financial Statements Notes to Consolidated Financial Statements Consolidating Financial Statements Required Supplementary Information

Consolidated Financial Statements

Notes to Consolidated Financial Statements

 

September 30, 2001 and 2000

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. REPORTING ENTITY

The U.S. Office of Personnel Management (OPM) is the Federal government's human resources agency. It was created as an independent agency of the Executive Branch of government on January 1, 1979. Many of the functions of the former U.S. Civil Service Commission were transferred to OPM at that time.

The accompanying consolidated financial statements present OPM's financial position, net cost of operations, change in net position, status of budgetary resources, and a reconciliation of the net cost of operations to its budgetary obligations as required by the Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994. The financial statements include all accounts—appropriation, trust, trust revolving and revolving funds—under OPM's control. The financial statements do not include the effect of any centrally-administered assets and liabilities related to the Federal government as a whole, which may in part be attributable to OPM.

The financial statements are comprised of the following major Programs administered by OPM:

Retirement Program.The Program is comprised of two defined-benefit pension plans—the Civil Service Retirement System (CSRS) and the Federal Employees' Retirement System (FERS). Together, the two plans cover substantially all full-time, permanent civilian Federal employees. The CSRS, implemented in 1921 is a stand-alone plan, providing benefits to most Federal employees hired before 1984. The FERS, established in 1986, uses Social Security as its base and provides an additional defined benefit and a voluntary thrift savings plan to most employees entering the Federal service after 1983; OPM does not administer the Thrift Savings Plan. Both plans are operated through the Civil Service Retirement and Disability Fund, a trust fund.

Health Benefits Program. The Program provides hospitalization and major medical protection to Federal employees, retirees, former employees, family members, and former spouses. The Program, implemented in 1960, is operated through two revolving trust funds: the Employees Health Benefits and Retired Employees Health Benefits Funds. To provide benefits, OPM contracts with two types of health benefits carriers: fee-for-service, where participants or their health care providers are reimbursed for the cost of services and health maintenance organizations, which provide or arrange for services on a prepaid basis through designated providers. Most of the contracts of carriers that provide fee-for-service benefits are experience-rated, with the amount contributed by and for participants affected by, among other things, the number and size of claims. Most HMO contracts are community-rated, so that the amount paid by and for participants is essentially the same as that paid by and for participants in similarly-sized subscriber groups.

Life Insurance Program. The Program provides group term life insurance coverage to Federal employees, retirees, former employees, family members, and former spouses. The Program was implemented in 1954 and significantly modified in 1980. It is operated through the Employees Group Life Insurance Fund, a revolving trust fund, and is administered, virtually in its entirety, by the Metropolitan Life Insurance Company under contract with OPM. The Program provides Basic life insurance (which includes accidental death and dismemberment coverage) and three packages of optional coverage.

The Revolving Fund Programs provide a variety of human resource-related services to other Federal agencies, such as pre-employment testing, security investigations, and employee training. Salaries and Expenses are the resources provided to and used by OPM to cover the costs to administer the agency.

B. BASIS OF ACCOUNTING AND PRESENTATION

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and OPM's own accounting policies, as summarized in this note. They have been compiled from OPM's records and presented in accordance with the form and content requirements of Office of Management and Budget (OMB) Bulletins 97-01 (as amended). The statements differ from the reports OPM prepares pursuant to OMB directives to monitor and control the use of its budgetary resources.

On September 25, 2001, OMB issued Bulletin No. 01-09 -- Form and Content of Agency Financial Statements. The provisions of Bulletin No. 01-09 are effective in their entirety for fiscal years beginning after September 30, 2001. Although it is permitted, OPM management has elected not to implement the requirements of Bulletin No. 01-09 that are not mandatory for fiscal year 2001 reporting. The only requirements mandated by Bulletin 01-09 for fiscal year 2001 are the preparation of a comparative Balance Sheet and Statement of Net Cost, which are reflected in the accompanying financial statements. Certain amounts on the prior year's Balance Sheet and Statement of Net Cost have been reclassified to conform with the fiscal year 2001 presentation.

C. USE OF MANAGEMENT'S ESTIMATES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make certain estimates. These estimates affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of earned revenues and costs during the reporting period. Actual results could differ from those estimates.

D. ADOPTION OF NEW ACCOUNTING STANDARD

Effective on October 1, 2001, OPM adopted Statement of Federal Financial Accounting Standards (SFFAS) No. 10 -- Accounting for Internal Use Software. The standard requires the capitalization of the cost of all internal use software, including "commercial off-the-shelf," contractor-developed, and internally-developed. Previously, OPM expensed the cost of all internal use software.

E. CLASSIFICATION OF ASSETS AND LIABILITIES

Federal financial reporting standards require that entity and non-entity assets be disclosed separately on the balance sheet. Entity assets are those that the reporting entity has the legal authority to use in its operations. All of OPM's assets are classified as entity assets.

OPM has no authority to liquidate a liability unless budgetary resources have been made specifically available to do so. Where budgetary resources have been made available to liquidate it, the liability is classified as being "covered by budgetary resources." Since no budgetary resources have been made available to liquidate the Pension, Postretirement Health Benefits, and the Actuarial Life Insurance Liabilities, they are classified as being "not covered by budgetary resources." With minor exception, all of OPM's "non-actuarial liabilities" are classified as being "covered by budgetary resources."

Intragovernmental assets and liabilities arise from transactions between OPM and other Federal entities, including the U.S. Postal Service (USPS). The determining factor in classifying liabilities and assets as intragovernmental is the source of the liability or asset.

F. NET COST OF OPERATIONS

In accordance with Federal accounting standards, OPM deducts earned revenues associated with the gross costs of providing benefits and services on the accompanying Statement of Net Cost to derive its net cost of operations.

Gross Costs of Providing Benefits and Services. OPM's gross costs of providing benefits and services are presented by major output or responsibility segment. All Program costs (including Salaries and Expenses) are directly traced, assigned, or allocated on a reasonable and consistent basis to a responsibility segment.

PROGRAM	RESPONSIBILITY SEGMENT
Retirement Program		Provide CSRS Benefits Provide FERS Benefits
Health Benefits Program		Provide Health Benefits
Life Insurance Program		Provide Life Insurance Benefits
Revolving Fund Programs Salaries and Expense Account		Provide Human Resources Services

Earned Revenue. OPM has two major categories of earned revenues: Earnings on Investments and Employer and Participant Contributions to the Retirement, Health Benefits and Life Insurance Programs. Federal accounting standards require Earnings on Investments to be classified in the same manner as OPM's predominant source of revenues. Since OPM's only other revenues are earned revenues, Earnings on Investments is also classified as earned revenue. Employer and Participant Contributions represent exchanges of money and services in return for current and future benefits and, as such, they are classified as earned or exchange revenues.

The Employer and Participant Contributions by Program are:

Retirement Program. The law fixes the contributions by and for most CSRS participants at a combined 15.51 and 15.91 percent of basic pay for fiscal years 2001 and 2000, respectively. The service cost of providing benefits to most CSRS employees is 24.2 percent, which represents the percentage of basic pay that should be contributed by and for employees over their working careers to meet their projected retirement benefits. Thus, contributions by and for participants do not cover the service cost of the CSRS. The service cost of providing benefits to most FERS employees (11.5 percent of basic pay), however, is generally fully funded by the contributions made by and for participants.

Health Benefits Program. The Health Benefits Program is contributory; both the covered participant and his/her employer or retirement system make contributions at a ratio of approximately one to two, respectively. The "employer" share for participating Retirement Program annuitants is drawn from an appropriation account. Although the Health Benefits Program provides benefits to participating employees after they retire, neither active employees nor their employing agencies make contributions for post-retirement health benefits [see Note 5].

Life Insurance Program. The Life Insurance Program is contributory, with both the covered participant and his/her employer or retirement system required to make contributions. Participant contributions for Basic life insurance are twice that of the non-Postal employing agency or retirement system. For participating annuitants, the "employer" contribution for Basic life insurance is drawn from an appropriation account. For optional coverages, the entire contribution is borne by the participant.

G. FINANCING SOURCES OTHER THAN REVENUE

Certain OPMs inflows of assets are from financing sources other than revenue. As such, OPM has not deducted these inflows from its gross cost to provide benefits and services on the Statement of Net Cost. Rather, they are deducted from net cost of operations on the Statement of Changes in Net Position to derive OPM's net results of operations. OPM's principle financing sources other than earned revenue are:

Transfer from the General Fund. The contributions by and for participants do not cover the service cost of the CSRS. To partially subsidize this under-funding, the law mandates that the Retirement Program receive an annual transfer from the General Fund of the U.S. Government. This inflow of resources is classified as a financing source other than revenue, since it does not require reimbursement from OPM.

Appropriations Used. OPM recognizes a financing source other than revenue at the time it incurs expenses against its appropriated funds.

H. BUDGETARY RESOURCES

The Statement of Budgetary Resources presents the total budgetary resources available to OPM for obligation during the fiscal year. In addition to the unobligated balances at the beginning of the period, most of OPM's budgetary resources derive from the following:

Appropriated Receipts. The collections of the Retirement Program generate budgetary resources in the form of "appropriated receipts." During the fiscal year, the Program's appropriated receipts are available to cover all of its obligations, up to the amount apportioned by OMB. At year-end, the excess of the Program's appropriated receipts over the obligations it has incurred increase the balance of appropriated receipts that are precluded from obligation. Should, in a future fiscal year, appropriated receipts be insufficient to cover the Program's obligations, OPM may draw on its balance of appropriated receipts precluded from obligation to cover them.

Spending Authority from Offsetting Collections. The collections of the Health Benefits, Life Insurance and Revolving Fund Programs generate budgetary resources in the form of "spending authority from offsetting collections" (SAOC). During the fiscal year, The Programs' incurred obligations may not exceed their SAOC or the amounts apportioned by OMB, whichever is less. At year-end, the amount of SAOC in excess of the obligations incurred during the current year is carried forward into the subsequent year, but is unavailable for obligation.

Appropriated Authority. OPM receives appropriations from the Congress to cover the administrative costs of agency ("Salaries and Expenses") and the Government's contributions to the cost of health and life insurance benefits for Retirement Program annuitants. This authority is available for incurring new obligations for a single fiscal year.

I. FUND BALANCE WITH TREASURY

Fund Balance with Treasury represents OPM's balances in its trust, trust revolving, revolving, and appropriation accounts that are available for immediate expenditure. The Fund Balance with Treasury increases when OPM deposits collections and when investments mature or are redeemed. It decreases when the Treasury makes expenditures on behalf of OPM and when OPM invests amounts not immediately needed for expenditure.

J. INVESTMENTS

OPM invests all Retirement, Health Benefits, and Life Insurance Program collections that are not immediately needed for expenditure in interest-bearing securities guaranteed by the United States as to principal and interest.

Retirement Program monies are invested initially in Certificates of Indebtedness ("Certificates"), which are issued at par value and mature on the following June 30. The Certificates are routinely redeemed at face value to pay for authorized Program expenditures. Each June 30, all outstanding Certificates are "rolled over" into special government account series (GAS) securities that are issued at par-value, with a yield equaling the average of all marketable Public Debt securities with four or more years to maturity. The Retirement Program also carries, but does not routinely invest in, securities issued by the Federal Financing Bank (FFB) and the U.S. Postal Service (USPS), as well as marketable Treasury securities.

The investments of the Health Benefits and Life Insurance Programs are in "market-based" securities that mirror the terms of marketable Treasury bills, fixed-principal notes and bonds, and inflation-indexed notes and bonds. In addition, OPM invests Health Benefits and Life Insurance Program monies that are immediately needed for expenditure in overnight market-based securities, whose interest rate is equal to an overnight repurchase agreement rate that is calculated by the Federal Reserve Bank of New York.

Investments are stated at original acquisition cost net of amortized premium and discount. Premium and discount are amortized into interest income over the term of the investment, using the interest method. The market-based securities and valued by the market prices quoted for the securities upon which they are based. Quoted market prices are used to value the marketable Treasury securities. There are no quoted market prices for the remaining investments. The market value of the special government account series securities, Certificates, and FFB securities is equal to their par values; the USPS securities are based on yields currently available on comparable securities.

K. ACCOUNTS RECEIVABLE

Accounts receivable consist of amounts owed to OPM by Federal entities ("intragovernmental") and by the public. Most of the balance of intragovernmental accounts receivable represent accrued interest on investments and accrued Government contributions for participants in the Retirement, Health Benefits and Life Insurance Programs. Accounts receivable from the public derive, for the most part, from three sources: (1) accrued participant contributions due to the Retirement, Health Benefits and Life Insurance Programs; (2) amounts due to the Retirement Program by recipients of benefits, who have been subsequently determined to be ineligible for them; and (3) amounts due to Health Benefits Program by participating carriers for disallowed charges to their contracts. The balance of accounts receivable from the public is stated net of an allowance for uncollectible amounts, based on past collection experience and an analysis of outstanding amounts due.

L. ASSETS HELD BY INSURANCE CARRIERS

Assets Held by Insurance Carriers represents the balance of assets held by the experience-rated carriers participating in the Health Benefits Program and by the Life Insurance Program carriers, pending expenditure for Program purposes.

M. PROPERTY AND EQUIPMENT

OPM capitalizes major long-lived software and equipment. Software costing over $10,000 is capitalized at the cost of either purchase or development, and is amortized using a straight-line method over a useful life of five years. Equipment worth $10,000 or more is capitalized at purchase cost and depreciated via a straight-line method over five years. The cost of minor purchases, repairs and maintenance is charged to expense as it is incurred.

N. ACCRUED BENEFITS AND PREMIUMS

A liability is accrued for claims for benefits filed by participants in the Retirement, Health Benefits and Life Insurance Programs that are unpaid in the current reporting period. For the Health Benefits and Life Insurance Programs, accrued benefits include an estimate of claims incurred but not yet reported. A liability is also accrued for the amount OPM owes as premiums to community-rated carriers participating in the Health Benefits Program that are unpaid in the current reporting period.

O. ACTUARIAL LIABILITIES AND ASSOCIATED EXPENSES

OPM reports three "actuarial liabilities" and associated expenses in accordance with SFFAS No. 5 —Accounting for Liabilities of the Federal Government. They are measured as of the first day of the year, with a "roll-forward" or projection to the end of the year, in accordance with SFFAS Interpretation Number 3—Measurement Date for Pension and Retirement Health Care Liabilities. The "roll-forward" considers all major factors that affect the measurement that occurred during the reporting year, including pay raises, cost of living allowances, and material changes in the number of participants.

NOTE 2—FUND BALANCE WITH TREASURY

The following table provides OPM's Fund Balance with Treasury by type of fund for fiscal years 2001 and 2000; all balances have been obligated and are available for expenditure.

	2001	2000
Revolving fund	$34	$61
Trust revolving funds	572	455
Trust fund	31	11
Appropriated funds	21	17
Total	$658	$544

 

NOTE 3—INVESTMENTS

The following tables summarize OPM's investments by Program for fiscal years 2001 and 2000:

As of September 30, 2001
	Cost	Amortized/ Discount/ (Premium)	Investments, Net	Market Value
Retirement Program
Par-value GAS securities	$500,742	0	$500,742	$500,742
Certificates of Indebtedness	26,447	0	26,447	26,447
FFB securities	15,000	0	15,000	15,000
Other	419	0	419	472
Total Retirement Program	542,608	0	542,608	542,661
Health Benefits Program	6,655	($3)	6,652	6,843
Life Insurance Program	23,694	(142)	23,552	25,062
Total Investments	$ 572,957	($145)	$ 572,812	$ 574,566

 

As of September 30, 2000
	Cost	Amortized/ Discount/ (Premium)	Investments, Net	Market Value
Retirement Program
Par-valued GAS securities	$470,235	0	$470,235	$470,235
Certificates of Indebtedness	26,332	0	26,332	26,332
FFB securities	15,000	0	15,000	15,000
Other	470	0	470	513
Total Retirement Program	512,037	0	512,037	512,080
Health Benefits Program	5,984	$7	5,991	5,997
Life Insurance Program	22,426	(157)	22,269	22,547
Total Investments	$ 540,447	($150)	$ 540,297	$ 540,624

 

NOTE 4—PENSION LIABILITY AND EXPENSE

In computing the Pension Liability and Expense, OPM's actuary applies economic assumptions to historical cost information to estimate the government's future cost to provide CSRS and FERS benefits to current and future retirees. The estimate is adjusted by the time value of money and the probability of having to pay benefits due to assumed decrements for mortality, morbidity, and terminations. Actuarial gains or losses occur to the extent that actual experience differs from these assumptions.

The following table presents the significant economic assumptions used to compute the Pension Liability and Expense:

	2001	2000
Interest rate (%)	6.75	7.00
Rate of inflation (%)	3.75	4.00
Rate of increases in salary (%)	4.25	4.25

 

The following tables present OPM's Pension Expense for fiscal years 2001 and 2000:

2001
	CSRS	FERS	TOTAL
Service cost	$ 12,545	$  9,329	$ 21,874
Interest cost	62,695	8,579	71,274
Actuarial gain	(4,125)	(3,388)	(7,513)
Pension Expense	$ 71,115	$ 14,520	$ 85,635

 

2000
	CSRS	FERS	TOTAL
Service cost	$ 12,700	$ 8,700	$ 21,400
Interest cost	60,900	7,400	68,300
Actuarial gain	(3,183)	1,889	(1,294)
Pension Expense	$ 70,417	$ 17,989	$ 88,406

 

The following tables present OPM's Pension Liability as of the September 30 measurement date:

2001
	CSRS	FERS	TOTAL
Pension Liability at October 1, 2000	$  912,500	$  118,600	$1,031,100
Plus: Pension Expense	71,115	14,520	85,635
Less: Costs applied to Pension Liability	45,815	1,420	47,235
Pension Liability at September 30, 2001	$ 937,800	$ 131,700	$1,069,500

 

2000
	CSRS	FERS	TOTAL
Pension Liability at October 1, 2000	$ 886,200	$ 101,800	$ 988,000
Plus: Pension Expense	70,417	17,989	88,406
Less: Costs applied to Pension Liability	44,117	1,189	45,306
Pension Liability at September 30, 2001	$ 912,500	$118,600	$1,031,100

In accordance with Federal accounting standards, the Pension Liability is reduced by the total operating costs incurred by the Retirement Program. The following table presents the costs applied to the Pension Liability:

	2001	2000
Annuities	$ 46,791	$ 44,849
Refunds of contributions	310	333
Administrative and other expenses	134	124
Costs applied to the Pension Liability	$ 47,235	$ 45,306

Federal accounting standards require employing agencies to recognize the excess of the service cost of a CSRS benefit over the amount contributed by and for their participating employees as an imputed cost.

NOTE 5—POSTRETIREMENT HEALTH BENEFITS LIABILITY AND EXPENSE

In computing the Postretirement Health Benefits (PRHB) Liability and associated expense, OPM's actuary applies economic assumptions to historical cost information to estimate the government's future cost of providing postretirement health benefits to current employees and retirees. The estimate is adjusted by the time value of money and the probability of having to pay benefits due to assumed decrements for mortality, morbidity, and terminations. Actuarial gains or losses will occur to the extent that actual experience differs from the assumptions used to compute the PRHB Liability and associated expense.

The following table presents the significant economic assumptions used to compute the PRHB Liability and associated expense:

	2001	2000
Interest rate (%)	6.75	7.00
Increase in per capita cost of covered benefits (%)	7.00	7.00

The following table presents OPM's PRHB Expense for fiscal years 2001 and 2000:

	2001	2000
Service cost	$ 7,316	$ 6,370
Interest cost	12,111	12,610
Actuarial (gain) or loss	(12,783)	4,781
Total PRHB Expense	$6,644	$ 23,761

The following table presents OPM's PRHB Liability at the September 30 measurement date:

	2001	2000
PRHB Liability at beginning of year	$ 192,217	$ 175,365
Plus: PRHB Expense	6,644	23,761
Less: Costs applied to the PRHB Liability	7,354	6,909
PRHB Liability at end of year	$191,507	$ 192,217

In accordance with Federal accounting standards, the PRHB Liability is reduced by certain operating costs incurred by the Health Benefits Program. The following table presents the costs that have been applied to the PRHB Liability:

	2001	2000
Current benefits	$5,425	$ 5,158
Premiums	1,277	1,171
Administrative and other expenses	652	580
Total Costs applied to the PRHB Liability	$7,354	$ 6,909

 

The assumed health care cost trend rates have a significant effect on the amounts reported as the PRHB Liability and associated expense. A one percentage point change in the assumed health care cost trend rates would have the following effects:

	2001			2002
	8.0% [One Percent Increase]	6.0% [One Percent Decrease]		8.0% [One Percent Increase]	6.0% [One Percent Decrease]
Interest cost component	$13,828	$10,694		$14,422	$11,087
Service cost component	$ 9,102	$ 5,912		$ 8,078	$ 5,046
PRHB Liability	$220,391	$167,728		$221,577	$167,665

Since neither the employing agency nor active employee participants make contributions to PRHB, Federal accounting standards require employing agencies to recognize the entire PRHB service cost as an imputed cost. OPM's actuaries have computed the cost factor to be $3,246 and $2,803 per employee enrolled in the Program for fiscal years 2001 and 2000, respectively.

NOTE 6—ACTUARIAL LIFE INSURANCE LIABILITY AND ASSOCIATED EXPENSE

The Actuarial Life Insurance Liability is the expected present value (PV) of future benefits to be paid to, or on behalf of, existing Life Insurance Program participants, less the expected PV of future contributions to be collected from those participants. In calculating the Actuarial Life Insurance Liability, OPM's actuary uses assumptions that are consistent with those used in computing the Pension Liability [Note 4].

The following table presents OPM's Actuarial Life Insurance Liability, as of the September 30 measurement date:

	2001	2000
Expected PV of future benefits	$53,461	$49,979
Less: Expected PV of future contributions by participants	27,312	25,317
Actuarial Life Insurance Liability	$26,149	$24,662

 

The following table presents OPM's Future Life Insurance Benefits Expense, which equals the change in the Actuarial Life Insurance Liability from the beginning of the year:

	2001	2000
Actuarial Life Insurance Liability at end of year	$26,149	$24,662
Less: Actuarial Life Insurance Liability at beginning of year	24,662	23,575
Future Life Insurance Benefits Expense	$ 1,487	$ 1,087

The Life Insurance Program is funded by means of the "level premium" method — that is, the contributions paid by and for enrollees remains fixed until age 65. Contributions are set at a level that overcharges during early years of coverage to compensate for higher rates of benefit outflows at later years of coverage. The contributions to the Program, when accumulated over the years with interest, are expected to be sufficient to provide for the net outflows during the later years of coverage.

The Future Life Insurance Benefits Expense reflects the accrued cost of both pre-retirement and post-retirement benefits. The portion of the Future Benefits Expense that relates to post-retirement benefits is 0.02 percent of the basic pay of participating employees for both fiscal years 2001 and 2000. Federal accounting standards require employing agencies to recognize this amount as an imputed cost.

NOTE 7—BALANCE OF APPROPRIATED RECEIPTS TEMPORARILY PRECLUDED FROM OBLIGATION

OPM may use its appropriated receipts [see Note 1] in the amount necessary to cover Retirement Program obligations. Should appropriated receipts be insufficient to cover the Program's obligations, OPM may draw on its balance of appropriated receipts that have been precluded from obligation to cover them.

The following table presents OPM's balance of appropriated receipts that are temporarily precluded from obligation:

Total appropriated receipts during fiscal year 2001	$ 77,948
Less: Appropriated receipts used to cover obligations incurred	47,533
Excess of appropriated receipts over obligations incurred at September 30, 2001	30,415
Balance of appropriated receipts precluded from obligation at October 1, 2000	508,103
Balance of appropriated receipts precluded from obligation at September 30, 2001	$538,518

NOTE 8—GROSS COST AND EARNED REVENUES BY BUDGET FUNCTION

Federal reporting standards require that OPM disclose its gross cost and associated earned revenues by the functional classifications used in the President's budget. The gross cost and associated earned revenues of the Retirement and Life Insurance Programs are classified in the President's budget as an "Employee Retirement and Disability" function; the Heath Benefits Program as "Health Care Services;" and the Revolving Fund Programs and Salaries and Expenses as "General Government." Substantially OPM's entire gross cost is classified as being "with the public" The principal intragovernmental earned revenues are Earnings and Investments and Employer Contributions. The following table presents OPM's gross cost and associated earned revenue by budget function:

		2001				2000 Restated
Budget Function	Budget Function Code	Gross Cost	Earned Revenues	Cost Net		Gross Cost	Earned Revenues	Net Cost
Employee Retirement and Disability	602	$89,030	$59,573	$29,457		$ 91,343	$ 57,807	$33,536
Health Care Services	551	20,283	15,982	4,301		36,553	14,643	21,910
General Government	805	481	330	151		504	242	262
Total		$109,794	$75,885	$33,909		$ 128,400	$ 72,692	$ 55,708

 

NOTE 9—CONCENTRATIONS IN HEALTH BENEFITS AND LIFE INSURANCE PROGRAMS

During fiscal years 2001 and 2000, approximately half of the Health Benefits Program's benefits were administered by the Blue Cross and Blue Shield Association, an experience-rated plan. Virtually all of the Life Insurance Program's benefits were administered by the principal life insurance carrier, Metropolitan Life Insurance Company

NOTE 10—RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS

The Consolidated Balance Sheet as of September 30, 2000 and the Consolidated Statement of Net Cost for the year ended September 30, 2000 have been restated. The purpose of the restatement is to recognize retroactively the incurrence of a contingent liability of $100 million in the case of NTEU vs. OPM [see Note 11].

Concurrently, other adjustments totaling $45 million to corect previously reported understatements of expenses were applied. The total effect of the restatement is as follows:

Balance Sheet:	As Originally Reported	As Restated	Net Change Increase (Decrease)
Contingent Liability	0	$  100	$  100
Intragovernmental Liabilities	$  149	$  194	$  45
Total Liabilities	$1,255,549	$1,255,694	$     145
Net Position	($ 703,428)	($ 703,573)	($  145)
Statement of Net Cost:
Cost to Provide Benefits and Services	$128,255	$128,400	$  145
Net Cost of Operations	$55,563	$55,708	$  145

NOTE 11—CONTINGENCIES

NTEU v. OPM. On January 3, 2002, counsel for the plaintiffs and the Federal government signed a proposed settlement agreement to resolve all remaining issues in the case of the National Treasury Employees Union (NTEU) v. Kay Cole James, Director, OPM ["OPM"]. In NTEU v. OPM, the plaintiffs, a class of present and former Federal employees, sued OPM regarding the process by which annual pay increases were applied to certain "special rate" employees. The U.S. Court of Appeals for the Federal Circuit ruled that for several years, OPM had erroneously applied those pay raises and ordered OPM to calculate appropriate damages. Should the proposed settlement be approved by the Court, OPM estimates that approximately $174 million will be paid for relief to the class.

Since any settlement in this case will be paid from the Treasury Judgment Fund (TJF), OPM has recorded $174 million as a contingent liability as of September 30, 2001. In addition, the financial statements as of September 30, 2000 have been restated [see Note 10] to reflect the incurrence of a contingent liability of $100 million, OPM's best estimate at that time of the probable loss arising from the case. As a result, OPM has recognized future funded expenses of $74 million and $174 million in the Statement of Net Cost for the years ended September 30, 2001 and 2000, respectively. If a settlement is ultimately made, OPM will recognize an imputed financing source to reflect the actual amount paid from the TJF.

Health Benefits Program Carriers. OPM is currently a defendant in lawsuits in which carriers participating in the Health Benefits Program are seeking relief for alleged underpayments of premiums. The amount of any probable loss as a consequence of these actions has been determined to be immaterial to the financial statements as of September 30, 2001 and 2000. If settlements are reached in these cases, such settlements will be paid from the TJF. Any ultimate reimbursement to the Treasury Judgement Fund will be made by the affected employing agencies and retirement systems, where enrollment records can provide the basis for premium payments remitted to the carriers by OPM on behalf of those agencies.

Other Litigation. OPM is often involved in other legal and administrative proceedings that arise in the ordinary course of business. OPM management, based upon the opinion of its General Counsel, believes that the combined outcome of all such proceedings, both pending or known to be threatened, will not have a material adverse effect on OPM's financial position or results of operations.

NOTE 12—SUBSEQUENT EVENTS

Long Term Care Security Act. Public Law 106-265, the Long Term Care Security Act, was signed into law on September 19, 2000. The law requires that OPM implement the Federal Long Term Care Insurance Program (FLTCIP) by October 1, 2002. When implemented, the entire FLTCIP premium will be borne by the participant, who will pay them directly to the carrier. There will be no employer contribution nor will a separate Federal account be established with which to operate the FLTCIP. The expenses incurred by OPM in developing, implementing, and administering the FLTCIP are paid from the Employees Group Life Insurance Fund. The law requires the carrier to reimburse the Employees Group Life Insurance Fund for these expenses once the FLTCIP is implemented. OPM management expects that these costs will not have a material adverse effect on OPM's financial position or results of operations.

 

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