department of defense agency financial report fiscal year 2012

Department of Defense Agency Financial Report for FY 2012
FEDERAL EMPLOYEES’ COMPENSATION ACT (FECA)
Actuarial Cost Method Used and Assumptions:
The DSCA FMS Trust Fund actuarial liability for workers’ compensation benefits is developed
by the Department of Labor and provided to the FMS Trust Fund at the end of each fiscal
year. The liability for future workers’ compensation benefits includes 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 is determined using a
method that utilizes historical benefit payment patterns related to a specific incurred period
to predict the ultimate payments related to that 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 were as follows:
Discount Rates
2.3% in Year 1
3.1% in Year 2 and thereafter
To provide more specifically for the effects of inflation on the liability for future workers’
compensation benefits, wage inflation factors (cost of living adjustments, or COLAs) and
medical inflation factors (consumer price index medical, or CPIMs) were applied to the
calculation of projected future benefits. The actual rates for these factors for the charge
back year (CBY) 2012 were also used to adjust the methodology’s historical payments to
current year constant dollars.
Federal Employees – Compensation Act (FECA)
CBY COLA CPIM
2013 2.83% 3.65%
2014 2.03% 3.66%
2015 1.93% 3.72%
2016 2.00% 3.73%
2017+ 2.03% 3.80%
ADDENDUM B Unaudited Financial Statements – DSCA
B-24