Subject:

Fiscal Year 2002 Cost Factors for CSRS, FERS, FEHB and FEGLI

As required by Statement of Federal Financial Standards No. 5 -- Liabilities of the Federal Government - this letter provides the fiscal year 2002 "costs factors" for the Federal civilian benefit programs. Agencies will use these cost factors to calculate their imputed costs relating to the "pensions" (the Civil Service Retirement and Federal Employees' Retirement Systems), the Federal Employees Health Benefits Program and the Federal Employees Group Life Insurance Program.

The cost factors for the Civil Service Retirement System (CSRS) and the Federal Employees' Retirement System (FERS) are expressed as percentages of "basic pay." Basic pay is the portion of gross pay from which agencies withhold CSRS and FERS deductions; it, generally, excludes bonuses, allowances, overtime, and holiday pay. The cost factor represents the percentage of basic pay that would have to be remitted by and for covered employees to pay fully the Government's cost to provide a CSRS or FERS benefit.

CSRS. For most or "regular" CSRS employees, the fiscal year 2002 cost factor remains 24.2 percent of basic pay, the same as for fiscal years 2001 and 2000. Since the percentage of basic pay actually remitted to OPM by and for CSRS-covered employees is less than 24.2 percent, agencies must recognize an imputed cost for the shortfall. The cost factors for other categories of CSRS coverage are attached. Although the CSRS normal cost and, thus, the cost factors will change in fiscal year 2003, this should not impact upon the fiscal year 2002 imputed cost calculation.

FERS. For regular FERS employees, the fiscal year 2002 cost factor remains 11.5 per cent of basic pay, the same as that for fiscal years 2001 and 2000. Unlike for the CSRS, the Government's cost to provide a FERS benefit is fully funded by the contributions remitted by and for covered employees. The cost factors for other categories of FERS coverage are also on the attachment.

Calculating Imputed Cost for Pensions:

Step 1	Sort all employees covered by the CSRS or FERS by their coverage category.
Step 2:	Aggregate the annual basic pay of all employees in each CSRS and FERS coverage category.
Step 3:	Multiply the aggregated annual basic pay for each coverage category computed in Step 2 by the applicable cost factor.
Step 4:	Compute the grand total of each of the individual calculations in Step 3 - this is total cost to provide CSRS and FERS benefits to agency employees or the "service cost".
Step 5:	Determine the total employee withholdings and agency contributions for all CSRS and FERS-covered employees.
Step 6:	From the service cost derived in Step 4, subtract the total contributions (agency and employee) for all employees covered by the CSRS and FERS - this is the imputed cost for the CSRS and FERS.
Step 7:	Record the imputed cost computed in Step 5 as a charge to SGL account 6730F.24 - Imputed Cost -- and a credit to SGL account 5780F.24 - Imputed Financing Sources.

Illustration: Calculating Imputed Cost for Pensions:

Step 1:	Agency XYZ has 10 employees who are regular CSRS-covered employees,10 who are regular FERS-covered employees, and 5 who are CSRS covered law-enforcement officers.
Step 2:	The annual basic pay for each category of covered employee is:

Step 3:

	A	B	[A * B]
	Aggregate Annual Basic Pay	Cost Factor
CSRS Regular	$500,000	24.2%	$121,000
FERS Regular	$250,000	11.5%	$28,750
CSRS Law-enforcement	$375,000	40.0%	$150,000

Step 4:

Step 5:

Withholdings and Contributions
	Employee Withholdings	Agency Contributions	Total
CSRS Regular	$35,0500	42,550	$77,550
FERS Regular	2,000	26,750	28,750
CSRS Law-enforcement	28,125	33,788	61,913
Total			$168,213

Step 6:

Step 7: Agency XYZ posts its imputed costthe following entry to record its Imputed Cost for CSRS and FERS:

6730F.24		Imputed Cost		131,537
	5780F.24		Imputed Financing Sources		131,537

Although the Government provides health benefits to Federal employees after they retire, no contributions are made by or for employees during their active working careers. Thus, agencies must recognize the Government's entire cost to provide post-retirement health benefits to their employees as an imputed cost. The cost factor for post-retirement health benefits is expressed as an amount per employee currently enrolled in the FEHB Program; for fiscal year 2002, the factor is $3,473 per enrolled employee.

Calculating Imputed Cost for Employees Enrolled in the FEHB Program:

Step 1:	Ascertain actual enrollment in the FEHB Program at three points in time: October 1, 2001; March 31, 2002; and September 30, 2002; include ALL enrolled employees, both full-time and less than full-time.
Step 2:	Multiply the October 1 enrollment by one; the March 31 enrollment by two; and the September 30 enrollment by one.
Step 3:	Calculate the grand total of each of the individual calculations in Step 2.
Step 4:	Divide the grand total in Step 3 by four to derive the "constructed FEHB enrollment."
Step 5:	Multiply the constructed FEHB Program enrollment, computed in Step 4, by the fiscal year 2002 cost factor of $3,473 - this is the imputed FEHB cost.
Step 6:	Record the imputed cost as a charge to SGL account 6730F.24, with a corresponding credit to SGL account 5780F.24.

Illustration: Calculating Imputed Cost for Employees Enrolled in the FEHB Program:

	10/1/010	3/31/021	9/30/021
Step 1: Actual enrollment	72	66	60
Step 2: Multiplier	72 x 1 = 72	66 x 2 = 132	60 x 1 = 60
Step 3: Grand Total			264
Step 4: Constructed Enrollment [Grand Total Divided by Four]			66
Step 5: Imputed Cost [Constructed Enrollment Times Cost Factor]			$229,218

Step 6: Agency XYZ posts the following entry:

The FEGLI Program provides life insurance benefits to eligible Federal retirees. The contributions remitted by and for covered employees do not fully cover the cost to provide post-retirement FEGLI Program benefits. Thus, agencies must recognize the unfunded portion of this cost as an imputed cost. The fiscal year 2002 cost factor for the FEGLI Program is 0.02 percent of basic pay, the same as in previous years.

Calculating the Imputed Cost for Employees Enrolled in the FEGLI Program:

1.	Determine the aggregate annual basic pay of ALL employees covered by Basic life insurance.
2.	Multiply the amount determined in Step 1 by the cost factor [.02 per cent of basic pay] to determine imputed cost.
3.	Record imputed cost computed in Step 2 as a charge to SGL account 6730F.24, with a corresponding credit to SGL account 5780F.24.

Illustration: Calculating Imputed Cost for Employees Enrolled in the FEGLI Program:

Agency XYZ has determined the aggregate annual basic pay of its employees covered by Basic life insurance to be $1,125,000. It determines its fiscal year 2002 imputed cost for the FEGLI Program, as follows:

Agency XYZ posts the following entry:

6730F.24		Imputed Cost		225
	5780F.24		Imputed Financing Sources		225

Robert A. Yuran, Chief Financial Policy Staff

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