Desperate to deal with the projected loss and a looming liquidity crisis, the USPS on June 24 suspended its contributions to the Federal Employees Retirement System, Washington, hoping to free up $800 million.
Getting full support from Congress won't be easy. The Postal Service request comes at a time when legislators are squaring off over whether to help it out of fiscal insolvency by easing its benefits burdens, or to let continue a downward spiral that will crash at the end of this fiscal year, when USPS officials say they will not be able to pay their bills.
Rep. Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, introduced a bill on June 23 to create a new authority to radically restructure the Postal Service. His bill does not address the overfunding issue.
Sen. Susan M. Collins, R-Maine, sponsor of a separate postal reform bill introduced Feb. 15 that would let the USPS tap into pension overpayment assets, said unfair benefit calculations, not mismanagement, are a big reason the USPS is in such a deep hole. “For nearly 40 years, the Postal Service has paid too much ratepayer — not taxpayer — dollars into (the Civil Service Retirement System),” Ms. Collins said in an e-mailed response to questions.
“This is the canary-in-the-coal-mine moment for the Postal Service,” said Sen. Tom Carper, D-Del., who chairs the Senate Homeland Security and Governmental Affairs subcommittee on federal financial management, government information, federal services and international security, which oversees the USPS. Mr. Carper on May 17 introduced his own postal reform legislation to remove the pension and retiree health-care prepayment requirement.
As USPS Inspector General David C. Williams told the subcommittee, nearly 90% of the service's $20 billion loss over the past four years was caused by overpayments to the pension plan based on what he describes as “wrongful overcharges” that have been documented by his office as well as by independent studies conducted by the Hay Group, a management consulting group. Those studies concluded that the USPS overpaid between $50 billion and $75 billion to the civil service fund, which was closed to new hires after Jan. 1, 1987, and another $6.9 billion to its successor Federal Employees Retirement System.
Data from an inspector general study released in January 2010 on Postal Service funding in both systems from the Office of Personnel Management, the federal government employee manager, showed 99% funding for the USPS portion of the two systems, while the inspector general-Hay Group analysis put the figure at 126% funded, both by the end of fiscal 2009.
Those funding mandates are unique to the Postal Service, which relies solely on sales revenue, not tax dollars for its operating budget. Also, until 1971, the Postal Service was a government agency and used a different calculation formulated with the Office of Personnel Management. After the USPS became independent, OPM agreed to split the contributions but only at 1971 salary levels, which means that as employees' earnings — and pensions — rose, USPS had to also pick up that difference. The result is that USPS pays its 50% share, plus the increased benefits due to salary increases.
The money from the pension overpayment would let the USPS comply with a 2006 law that requires the USPS to prefund another $5.5 billion in retiree health benefits each year, until the end of 2016, even though it has already paid $20.9 billion into that health benefit trust fund.
In this budget climate, USPS' best advocates are in Congress, including Mr. Carper and Ms. Collins on the Senate side and Rep. Stephen F. Lynch, D-Mass., who counts more than a dozen Republicans among his 150 co-sponsors of a similar postal reform bill with overpayment relief. He hopes they can persuade Mr. Issa to compromise at least on the overpayment issue, Mr. Lynch said in a statement. Correcting that, Mr. Lynch said, can help the Postal Service fix its other financial problems “and regain financial stability.”
Mr. Lynch and other supporters note their approach enjoys the support of numerous postal stakeholders, including the four postal employee unions representing more than 500,000 members.
None of the bills is scheduled for committee review. Ms. Collins expects differences among the various USPS reform proposals to be worked out, because “most people understand that there needs to be reform,” she said in an e-mail. “The timeline needs to be a short one.” n