Federal Deposit
Insurance Corporation

1. Legislative History and Operations of the FSLIC Resolution Fund

Legislative History

The U.S. Congress created the Federal Savings and Loan Insurance Corporation (FSLIC) through the enactment of the National Housing Act of 1934.

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) abolished the insolvent FSLIC, created the FSLIC Resolution Fund (FRF), and transferred the assets and liabilities of the FSLIC to the FRF (except those assets and liabilities transferred to the Resolution Trust Corporation (RTC)), effective on August 9, 1989. The FRF is responsible for winding up the affairs of the former FSLIC.

FIRREA was enacted to reform, recapitalize, and consolidate the federal deposit insurance system. In addition to the FRF, FIRREA created the RTC, the Bank Insurance Fund (BIF), and the Savings Association Insurance Fund (SAIF). FIRREA also designated the Federal Deposit Insurance Corporation (FDIC) as the administrator of these three funds. All three funds are maintained separately to carry out their respective mandates.

The RTC was created to manage and resolve all thrifts previously insured by the FSLIC for which a conservator or receiver was appointed during the period January 1, 1989, through August 8, 1992. In order to provide funds to the RTC for use in thrift resolutions, FIRREA established the Resolution Funding Corporation (REFCORP).

The RTC’s resolution responsibility was extended through subsequent legislation from the original termination date of August 8, 1992. Resolution responsibility transferred from the RTC to the SAIF on July 1, 1995.

The RTC Completion Act of 1993 (RTC Completion Act) terminated the RTC as of December 31, 1995. All remaining assets and liabilities of the RTC were transferred to the FRF on January 1, 1996. Today the FRF consists of two distinct pools of assets and liabilities: one composed of the assets and liabilities of the FSLIC transferred to the FRF upon the dissolution of the FSLIC on August 9, 1989 (FRF-FSLIC), and the other composed of the RTC assets and liabilities transferred to the FRF on January 1, 1996 (FRF-RTC).

The RTC Completion Act requires the FDIC to deposit in the general fund of the Treasury any funds transferred to the RTC pursuant to the Completion Act but not needed by the RTC. The RTC Completion Act made available approximately $18 billion worth of additional funding. The RTC actually drew down approximately $4.55 billion.

The FDIC must transfer to the REFCORP the net proceeds from the FRF’s sale of RTC assets, after providing for all outstanding RTC liabilities. Any such funds transferred to the REFCORP pay the interest on the REFCORP bonds issued to fund the early RTC resolutions. Any such payments benefit the U.S. Treasury, which would otherwise be obligated to pay the interest on the bonds.

Operations of the FRF

The FRF will continue until all of its assets are sold or otherwise liquidated and all of its liabilities are satisfied. Upon the dissolution of the FRF, any funds remaining (after repayments of RTC Completion Act appropriations and payments to REFCORP, if any, from the proceeds of the FRF-RTC) will be paid to the U.S. Treasury.

The FRF has been primarily funded from the following sources: 1) U.S. Treasury appropriations; 2) amounts borrowed by the RTC from the Federal Financing Bank (FFB); 3) funds received from the management and disposition of assets of the FRF; 4) the FRF’s portion of liquidating dividends paid by FRF receiverships; and 5) interest earned on one-day U.S. Treasury investments purchased with proceeds of 3) and 4). If these sources are insufficient to satisfy the liabilities of the FRF, payments will be made from the U.S. Treasury in amounts necessary, as are appropriated by Congress, to carry out the objectives of the FRF.

To facilitate efforts to wind up the resolution activity of the FRF, Public Law 103-327 provides $827 million in funding to be available until expended. The FRF received $165 million under this appropriation on November 2, 1995. In addition, Public Law 104-208 and Public Law 105-61 authorized the use by the Department of Justice of $26.1 million and $33.7 million, respectively, of the original $827 million in funding, thus reducing the amount available to be expended to $602.2 million.

Effective on August 9, 1989, FIRREA established an Inspector General for the RTC and authorized appropriations necessary for the operation of the RTC Office of Inspector General (OIG). The RTC’s OIG received $152.3 million of appropriated funds from the U.S. Treasury since it was established. The RTC OIG’s final appropriation expired on September 30, 1996. The VA, HUD and Independent Agencies Appropriations Act, 1998, Public Law 105-65 appropriated $34 million for fiscal year 1998 (October 1, 1997, through September 30, 1998) for operating expenses incurred by the OIG. The Act mandates that the funds are to be derived from the FRF, the BIF, and the SAIF.

2. Summary of Significant Accounting Policies

General

These financial statements pertain to the financial position, results of operations, and cash flows of the FRF and are presented in accordance with generally accepted accounting principles (GAAP). These statements do not include reporting for assets and liabilities of closed insured thrift institutions for which the FDIC acts as receiver or liquidating agent. Periodic and final accountability reports of the FDIC’s activities as receiver or liquidating agent are furnished to courts, supervisory authorities, and others as required.

Use of Estimates

FDIC management makes estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Where it is reasonably possible that changes in estimates will cause a material change in the financial statements in the near term, the nature and extent of such changes in estimates have been disclosed.

Cash Equivalents

The FRF considers cash equivalents to be short-term, highly liquid investments with original maturities of three months or less.

Allowance for Losses on Receivables From Thrift Resolutions
and Assets Acquired From Assisted Thrifts and Terminated Receiverships

The FRF records as a receivable the amounts advanced and/or obligations incurred for resolving troubled and failed thrifts. The FRF also records as an asset the amounts paid for assets acquired from assisted thrifts and terminated receiverships. Any related allowance for loss represents the difference between the funds advanced and/or obligations incurred and the expected repayment. The latter is based on estimates of discounted cash recoveries from the assets of assisted or failed thrift institutions, net of all estimated liquidation costs. Estimated cash recoveries also include dividends and gains on sales from equity instruments acquired in resolution transactions.

Receivership Operations

The FDIC is responsible for managing and disposing of the assets of failed institutions in an orderly and efficient manner. The assets, and the claims against them, are accounted for separately to ensure that liquidation proceeds are distributed in accordance with applicable laws and regulations. Also, the income and expenses attributable to receiverships are accounted for as transactions of those receiverships. Liquidation expenses incurred by the FRF on behalf of the receiverships are recovered from those receiverships.

Cost Allocations Among Funds

Certain operating expenses (including personnel, administrative, and other indirect expenses) not directly charged to each fund under the FDIC’s management are allocated based on percentages developed during the business planning process. The cost of furniture, fixtures, and equipment purchased by the FDIC on behalf of the three funds under its administration is allocated among these funds on a similar basis. The FRF expenses its share of these allocated costs at the time of acquisition because of their immaterial amounts. The FDIC includes the cost of buildings used in operations in the BIF’s financial statements. The BIF charges the FRF a rental fee representing an allocated share of its annual depreciation.

Postretirement Benefits Other Than Pensions

The FDIC established an entity to provide the accounting and administration of postretirement benefits on behalf of the FRF, the BIF, and the SAIF. Each fund pays its liabilities for these benefits directly to the entity. The FRF’s remaining net postretirement benefits liability for the plan is recognized in FRF’s Statement of Financial Position.

Disclosure About Recent Financial Accounting
Standards Board Pronouncements

In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." Comprehensive income includes net income as well as certain types of unrealized gain or loss. The FRF does not have any items of unrealized gain or loss and, therefore, SFAS No. 130 is not applicable.

In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The FDIC intends to adopt SFAS No. 131 effective on January 1, 1998; however, management anticipates that the FRF, as a non-publicly held enterprise, will not be affected by SFAS No. 131.

Other recent pronouncements issued by the FASB are not applicable to the financial statements.

Wholly Owned Subsidiary

The Federal Asset Disposition Association (FADA) is a wholly owned subsidiary of the FRF. The FADA was placed in receivership on February 5, 1990. However, due to outstanding litigation, a final liquidating dividend to the FRF will not be made until the FADA’s litigation is settled or dismissed. The investment in the FADA is accounted for using the equity method and is included in "Other assets, net" (Note 6).

Related Parties

National Judgments, Deficiencies, and Charge-offs Joint Venture Program. The former RTC purchased assets from receiverships, conservatorships, and their subsidiaries to facilitate the sale and/or transfer of selected assets to several joint ventures in which the former RTC retained a financial interest.

Limited Partnership Equity Interests. Former RTC receiverships were holders of limited partnership equity interests as a result of various RTC sales programs that included the National Land Fund, Multiple Investor Fund, N-Series, and S-Series programs. In 1997, the majority of the limited partnership equity interests were transferred from the receiverships to the FRF.

The nature of related parties and a description of related party transactions are disclosed throughout the financial statements and footnotes.

Reclassifications

3. Receivables From Thrift Resolutions, Net

The FDIC resolution process takes different forms depending on the unique facts and circumstances surrounding each failing or failed institution. Payments to prevent a failure were made to operating institutions when cost and other criteria were met. These payments resulted in acquiring "Assets from open thrift assistance," which are various types of financial instruments from the assisted institutions.

As of December 31, 1997 and 1996, the FDIC, in its receivership capacity for FSLIC-insured institutions, held assets with a book value of $3.6 billion and $7.3 billion, respectively (including cash and miscellaneous receivables of $1.4 billion and $2.9 billion at December 31, 1997 and 1996, respectively). These assets represent a significant source of repayment of the FRF’s receivables from thrift resolutions. The estimated cash recoveries from the management and disposition of these assets that are used to derive the allowance for losses are based in part on a statistical sampling of receivership assets. The sample was constructed to produce a statistically valid result. These estimated recoveries are regularly evaluated, but remain subject to uncertainties because of potential changes in economic conditions. These factors could affect the FRF’s and other claimants’ actual recoveries from the level currently estimated.

The FRF estimated Corporate losses related to the receiverships’ representation and warranties as part of the FRF’s allowance for loss valuation. The allowance for these losses was $90 million and $494 million as of December 31, 1997 and 1996, respectively. There are additional amounts of representation and warranty claims that are considered reasonably possible. As of December 31, 1997, the amount is estimated at $298 million. There were no additional amounts deemed reasonably possible as of December 31, 1996. The RTC provided guarantees, representations, and warranties on approximately $114 billion in unpaid principal balance of loans sold and approximately $148 billion in unpaid principal balance of loans under servicing right contracts that had been sold. In general, the guarantees, representations and warranties on loans sold related to the completeness and accuracy of loan documentation, the quality of the underwriting standards used, the accuracy of the delinquency status when sold, and the conformity of the loans with characteristics of the pool in which they were sold. The representations and warranties made in connection with the sale of servicing rights were limited to the responsibilities of acting as a servicer of the loans. Future losses on representations and warranties could significantly increase or decrease over the remaining life of the loans that were sold, which could be as long as 20 years.

The estimated liability for representations and warranties associated with loan sales that involved assets acquired from assisted thrifts and terminated receiverships are included in "Accounts payable and other liabilities" ($18 million and $57 million for 1997 and 1996, respectively).

Receivables From Thrift Resolutions, Net at December 31

4. Securitization Reserve Fund, Net

In order to maximize the return from the sale or disposition of assets, the RTC engaged in numerous securitization transactions. The RTC sold $42.4 billion of receivership, conservatorship, and corporate loans to various trusts that issued regular pass-through certificates through its mortgage-backed securities program.

To increase the likelihood of full and timely distributions of interest and principal to the holders of the regular pass-through certificates, and thus the marketability of such certificates, a portion of the proceeds from the sale of the certificates was placed in credit enhancement reserve funds (reserve funds) to cover future credit losses with respect to the loans underlying the certificates. The reserve funds’ structure limits the receivership exposure from credit losses on loans sold through the RTC securitization program to the balance of the reserve funds. The initial balances of the reserve funds are reduced for claims paid and recovered reserves.

In October 1996, the reserve funds and related allowance to cover future estimated losses on the reserve were transferred from the receiverships to FRF. The $5.4 billion transferred to the FRF was offset by amounts owed by the receiverships to the FRF; thus, there was no change in the FRF’s net assets as a result of this transaction.

Through December 1997, the amount of claims paid was approximately 18 percent of the initial reserve funds. At December 31, 1997 and 1996, reserve funds related to the RTC securitization program totaled $5.2 billion and $6.3 billion, respectively. At December 31, 1997 and 1996, the allowance for estimated future losses which would be paid from the securitization fund totaled $0.3 billion and $0.5 billion, respectively.

The FRF earns and receives interest income from the securitization reserve fund.

5. Assets Acquired From Assisted Thrifts and Terminated Receiverships, Net

The FRF’s assets acquired from assisted thrifts and terminated receiverships includes assets that: 1) the former FSLIC and the former RTC purchased from troubled or failed thrifts and 2) the FRF acquired from receiverships, and purchased under assistance agreements. The methodology used to derive the allowance for losses for assets acquired from assisted thrifts and terminated receiverships is the same as that for receivables from thrift resolutions.

The FRF recognizes income and expenses on these assets. Income consists primarily of interest on mortgage loans and proceeds from professional liability claims. Expenses are recognized for administering the management and liquidation of these assets.

Assets Acquired From Assisted Thrifts and Terminated Receiverships, Net at December 31

6. Other Assets, Net

Other Assets, Net at December 31

7. Notes Payable - Federal Financing Bank Borrowings

Working capital was made available to the RTC under an agreement with the FFB to fund the resolution of thrifts and for use in the RTC’s high-cost funds replacement and emergency liquidity programs. The outstanding note matures on January 1, 2010; however, all or any portion of the outstanding principal amount may be repaid anytime as excess funds become available. The note payable carries a floating rate of interest that is adjusted quarterly. The FFB establishes the interest rate and during 1997 these rates ranged between 5.478 percent and 5.187 percent. As of December 31, 1997 and 1996, there were $0.8 billion and $4.6 billion, respectively, in borrowings and accrued interest outstanding. The FFB borrowing authority ceased upon the termination of the RTC.

8. Liabilities Incurred From Thrift Resolutions

The FSLIC issued promissory notes and entered into assistance agreements to prevent the default and subsequent liquidation of certain insured thrift institutions. These notes and agreements required the FSLIC to provide financial assistance over time. Under the FIRREA, the FRF assumed these obligations. Notes payable and obligations for assistance agreement payments incurred but not yet paid are in "Liabilities incurred from thrift resolutions." Estimated future assistance payments are included in "Estimated liabilities for: Assistance agreements" (see Note 9).

Liabilities Incurred From Thrift Resolutions at December 31

The total liablities will mature according to the terms of the assistance agreements on Septemeber 23, 1998.

9. Estimated Liablities for:

Assistance Agreements

The number of assistance agreements outstanding as of December 31, 1997 and 1996, were 33 and 36, respectively. The last agreement is scheduled to expire in July 2000.

Litigation Losses

Additional Contingency

The FDIC believes that under FIRREA the FRF should not be considered a dedicated source of funds for payment of goodwill judgments against the United States. However, the Department of Treasury has not yet determined the source of payment of any goodwill judgments and therefore whether the FRF will be responsible for the payment of any goodwill judgments is uncertain.

If it is determined that the FRF can be called upon for payment of possible goodwill judgments, the amount of additional liabilities of the FRF cannot be reasonably estimated. The FDIC is not the defendant in any of the goodwill cases and there has been no final decision in any of them. The Court of Federal Claims has indicated that the dollar damages sought in the goodwill cases are in the "tens of billions of dollars." Damages sought by the plaintiff, Glendale Federal Bank, FSB, in the first of the goodwill cases to be tried in the Court of Federal Claims exceed one billion dollars.

If substantial final judgments were entered against the United States in the goodwill cases and if the FRF were determined by Treasury to be responsible for payment of those judgments, the effect on the FRF’s financial condition would be material and adverse. In the event the FRF has insufficient funds to satisfy FRF liabilities, as would likely be the case were Treasury to make such determination, 12 U.S.C. 1821a(c) provides: "the Secretary of the Treasury shall pay to the Fund such amounts as may be necessary, as determined by the [FDIC] and the Secretary, for FSLIC Resolution Fund purposes." Congress would need to appropriate funds to carry out this provision.

10. Provision for Losses

The provision for losses was a negative $1.7 billion and a negative $2.4 billion for 1997 and 1996, respectively. Reductions to various allowance for losses and estimated liabilities account for the negative loss provision. The following chart lists the major components of the reduction in provision for losses.

Provision for Losses

11. Resolution Equity

Contributed Capital

The former RTC and the FRF-FSLIC received $60.1 billion and $43.5 billion from the U.S. Treasury, respectively. These payments were used to fund losses from thrift resolutions prior to July 1, 1995. Additionally, the RTC issued $31.3 billion in capital certificates to REFCORP and the FRF-FSLIC issued $670 million of these instruments to the FICO. FIRREA prohibited the payment of dividends on any of these capital certificates.

Accumulated Deficit

12. Pension Benefits, Savings Plans and Accrued Annual Leave

Eligible FDIC employees (all permanent and temporary employees with appointments exceeding one year) are covered by either the Civil Service Retirement System (CSRS) or the Federal Employee Retirement System (FERS). The CSRS is a defined benefit plan, which is offset with the Social Security System in certain cases. Plan benefits are determined on the basis of years of creditable service and compensation levels. The CSRS-covered employees also can contribute to the tax-deferred Federal Thrift Savings Plan (TSP).

The FERS is a three-part plan consisting of a basic defined benefit plan that provides benefits based on years of creditable service and compensation levels, Social Security benefits, and the TSP. Automatic and matching employer contributions to the TSP are provided up to specified amounts under the FERS.

Although the FRF contributes a portion of pension benefits for eligible employees, it does not account for the assets of either retirement system. The FRF also does not have actuarial data for accumulated plan benefits or the unfunded liability relative to eligible employees. These amounts are reported on and accounted for by the Office of Personnel Management (OPM).

Eligible FDIC employees also may participate in an FDIC-sponsored tax-deferred savings plan with matching contributions. The FRF pays its share of the employer’s portion of all related costs.

The FRF’s pro rata share of the Corporation’s liability to employees for accrued annual leave is approximately $11.2 million and $13.7 million at December 31, 1997 and 1996, respectively.

Pension Benefits and Savings Plans Expenses

13. Postretirement Benefits Other Than Pensions

The FDIC provides certain health, dental, and life insurance coverage for its eligible retirees, the retirees’ beneficiaries and covered dependents. Retirees eligible for health and/or life insurance coverage are those who have qualified due to: 1) immediate enrollment upon appointment or five years of participation in the plan and 2) eligibility for an immediate annuity. Dental coverage is provided to all retirees eligible for an immediate annuity.

The FDIC is self-insured for hospital/medical, prescription drug, mental health and chemical dependency coverage. Additional risk protection was purchased through stop-loss and fiduciary liability insurance. All claims are administered on an administrative services only basis with the hospital/medical claims administered by Aetna Life Insurance Company, the mental health and chemical dependency claims administered by OHS Foundation Health Psychcare Inc., and the prescription drug claims administered by Caremark.

The life insurance program, underwritten by Metropolitan Life Insurance Company, provides basic coverage at no cost to retirees and allows converting optional coverages to direct-pay plans. Dental care is underwritten by Connecticut General Life Insurance Company and provides coverage at no cost to retirees.

The FRF expensed $1.2 million and $3.1 million for net periodic postretirement benefit costs for the years ended December 31, 1997 and 1996, respectively. For measurement purposes for 1997, the FDIC assumed the following: 1) a discount rate of 5.75 percent; 2) an average long-term rate of return on plan assets of 5.75 percent; 3) an increase in health costs in 1997 of 9.75 percent (inclusive of general inflation of 2.5 percent), decreasing to an ultimate rate in the year 2000 and thereafter of 7.75 percent; and 4) an increase in dental costs for 1997 and thereafter of 4.5 percent (in addition to general inflation). Both the assumed discount rate and health care cost rate have a significant effect on the amount of the obligation and periodic cost reported.

If the health care cost rate was increased one percent, the accumulated postretirement benefit obligation as of December 31, 1997, would have increased by 20.2 percent. The effect of this change on the aggregate of service and interest cost for 1997 would be an increase of 23.5 percent.

Net Periodic Postretirement Benefit Cost

As stated in Note 2, the FDIC established an entity to provide accounting and administration on behalf of the FRF, the BIF, and SAIF. The FRF funds its liability and these funds are being managed as "plan assets."

Accumulated Postretirement Benefit Obligation and Funded Status at December 31

14. Commitments and Concentration of Credit Risk

Commitments

Letters of Credit

The RTC had adopted special policies for outstanding conservatorship and receivership collateralized letters of credit. These policies enabled the RTC to minimize the impact of its actions on capital markets. In most cases, these letters of credit were used to guarantee tax exempt bonds issued by state and local housing authorities or other public agencies to finance housing projects for low and moderate income individuals or families. As of December 31, 1997 and 1996, there were pledged securities as collateral of $17 million and $84 million, respectively, to honor these letters of credit. The FRF estimated Corporate losses related to the receiverships’ letters of credit as part of the FRF’s allowance for loss valuation. The allowance for these losses was $7 million and $32 million as of December 31, 1997 and 1996, respectively.

Leases

Lease Commitments

Concentration of Credit Risk

As of December 31, 1997, the FRF had $77 billion in gross receivables from thrift resolutions and $278 million in assets acquired from assisted thrifts and terminated receiverships. An allowance for loss of $75 billion and $205 million, respectively, has been recorded against these assets. The liquidating entities’ ability to make repayments to FRF is largely influenced by the economy of the area in which they are located. The FRF’s maximum exposure to possible accounting loss for these assets is shown in the table below.

Concentration of Credit Risk at December 31, 1997

15. Disclosures About the Fair Value of Financial Instruments

Cash equivalents are short-term, highly liquid investments and are shown at current value. The carrying amount of short-term receivables and accounts payable and other liabilities approximates their fair market value. This is due to their short maturities or comparisons with current interest rates.

The net receivable from thrift resolutions primarily involves the FRF’s subrogated claim arising from payments to insured depositors. The receivership assets that will ultimately be used to pay the corporate subrogated claim are valued using discount rates that include consideration of market risk. These discounts ultimately affect the FRF’s allowance for loss against the net receivable from thrift resolutions. Therefore, the corporate subrogated claim indirectly includes the effect of discounting and should not be viewed as being stated in terms of nominal cash flows.

Although the value of the corporate subrogated claim is influenced by valuation of receivership assets, such receivership valuation is not equivalent to the valuation of the corporate claim. Since the corporate claim is unique, not intended for sale to the private sector, and has no established market, it is not practicable to estimate its fair market value.

The FDIC believes that a sale to the private sector of the corporate claim would require indeterminate, but substantial discounts for an interested party to profit from these assets because of credit and other risks. In addition, the timing of receivership payments to the FRF on the subrogated claim do not necessarily correspond with the timing of collections on receivership assets. Therefore, the effect of discounting used by receiverships should not necessarily be viewed as producing an estimate of market value for the net receivables from thrift resolutions.

Like the corporate subrogated claim, the securitization credit reserves involve an asset that is unique, not intended for sale to the private sector, and has no established market. Therefore, it is not practicable to estimate the fair market value of the securitization credit reserves. These reserves are carried at net realizable value, which is the book value of the reserves less the related allowance for loss. (see Note 4.)

The majority of the net assets acquired from assisted thrifts and terminated receiverships (except real estate) is comprised of various types of financial instruments (investments, loans, accounts receivable, etc.) acquired from failed thrifts. Like receivership assets, assets acquired from assisted thrifts and terminated receiverships are valued using discount rates that include consideration of market risk. However, assets acquired from assisted thrifts and terminated receiverships do not involve the unique aspects of the corporate subrogated claim, and therefore the discounting can be viewed as producing a reasonable estimate of fair market value.

16. Supplementary Information Relating to the Statements of Cash Flows

Reconciliation of Net Income to Net Cash Provided by Operating Activities

17. Year 2000 Compliance Expenses

As part of its operations, the FDIC as administrator of  the FRF is assessing, testing, modifying or replacing as necessary its automated systems to ensure that these systems are Year 2000 compliant.

As of December 31, 1997, the FRF has not incurred, nor does management anticipate that the FRF will incur, a material charge to earnings to ensure that its systems are Year 2000 compliant.

18. Subsequent Events

Effective on January 4, 1998, all employees with five or more years until retirement were converted from the FDIC health plan to the Federal Employees Health Benefits (FEHB) program. This conversion resulted in a gain to the FRF. Assuming enabling legislation is passed in the future, this conversion will also affect all retirees and employees within five years of retirement.

As part of this conversion, the OPM will become responsible for postretirement health benefits for employees with five or more years until retirement at no cost to the FRF. If retirees and employees within five years of retirement are also converted in the future, the OPM will assume the FRF’s obligation for postretirement health benefits for those individuals at a fee to be negotiated between the FDIC and the OPM.