department of defense agency financial report fiscal year 2012

Department of Defense Agency Financial Report for FY 2012
present value of projected plan benefits rolls forward from the prior year’s valuation results.
The actuaries used the following assumptions to calculate the FY 2012 roll-forward amount:
Military Retirement Pensions Inflation Salary Interest
Fiscal Year 2012 3.6% (actual) 1.6% (actual) 4.8%
Fiscal Year 2013 1.6% (estimated) 1.7% (estimated) 4.6%
Long Term 2.6% 3.0% 4.6%
Actuarial Cost Method Used: Aggregate Entry-Age Normal Method
Market Value of Investments in Market-Based and Marketable Securities: $540.2 billion
Assumed Interest Rate: 4.8 percent
Historically, the initial unfunded liability of the program was amortized over a 50-year
period. Effective FY 2008, the initial unfunded liability is amortized over a 42-year period to
ensure the annual payments cover the interest on the unfunded actuarial liability, with the
last payment expected October 1, 2025. All subsequent gains and losses experienced are
amortized over a 30-year period.
MILITARY RETIREMENT HEALTH BENEFITS (MRHB)
The MRHB are post-retirement benefits the Department provides to non-Medicare-eligible
military retirees and other eligible beneficiaries through private sector health care providers
and the Department’s medical treatment facilities. The actuaries calculate the actuarial
liabilities annually using assumptions and actual experience. For the FY 2012 actuarial
liability calculation, the actuaries used the following assumptions:
MHRB Medical Trend
115
FY 2011 –
FY 2012
Ultimate Rate
FY 2036
Medicare Inpatient (Direct Care) 1.60% 5.35%
Medicare Outpatient (Direct Care) 2.26% 5.35%
Medicare Prescriptions (Direct Care) 0.00% 5.35%
Non-Medicare Inpatient (Direct Care) 2.00% 5.35%
Non-Medicare Outpatient (Direct Care) 5.00% 5.35%
Non-Medicare Prescriptions (Direct Care) 1.70% 5.35%
Non-Medicare Inpatient (Purchased Care) 4.57% 5.35%
Non-Medicare Outpatient (Purchased Care) 5.34% 5.35%
Non-Medicare Prescriptions (Purchased Care) 5.25% 5.35%
U.S. Family Health Plan (USFHP) (Purchased Care)
Actuarial Cost Method Used: Aggregate Entry-Age Normal Method
Assumed Interest Rate: 4.6 percent
4.75% 5.35%
Medicare-Eligible Retiree Health Care Fund (MERHCF) Benefits
In accordance with PL 106-398, MERHCF accumulates funds to finance the health care
program liabilities of Medicare-eligible retirees for all the Uniformed Services and specific
Medicare-eligible beneficiaries. The DoD Board of Actuaries approves the long-term
assumptions for medical trends and interest. The actuaries calculate the actuarial liabilities
annually using actual experience (e.g., mortality and retirement rates, direct care costs,
purchased care). Due to reporting deadlines, the current year actuarial present value of
projected plan benefits rolls forward from the prior year’s results. The actuaries used the
Financial Information