At least 100,000 employees of the U.S. Postal Service could be offered early retirement buyouts under a Senate plan that lets the agency take back $6.9 billion in pension overpayments to finance the incentives and to pay other debts that have pushed it to the brink of insolvency.
The announcement represents a turning point in congressional attempts to restructure the postal service, where labor costs account for 80% of expenses. Unlike more contentious issues over reduced services and facility closings, “USPS pension overfunding appears to be one postal issue that has some bipartisan support,” said Rep. Stephen Lynch, D-Mass., co-sponsor of a separate postal reform bill. “Whatever compromise is ultimately agreed upon, I am hopeful that there will be enough support for it to include this solution,” he said in an e-mailed statement.
The buyout plan unveiled Nov. 2 by a bipartisan group of senators was part of a broader package of reforms for the financially strapped postal service. It would allow the USPS to spend one-fourth of the $6.9 billion estimated payments already made to the $376.7 billion Federal Employees Retirement System on incentives to get as many as 125,000 employees to retire early.
Sponsors of the legislation — all members of the Senate Committee on Homeland Security and Governmental Affairs, including Chairman Joseph Lieberman, I-Conn., Susan Collins, R-Maine; Thomas Carper, D-Del.; and Scott Brown, R-Mass. — estimate it would save roughly $8 billion each year. On Nov. 9, the full committee approved the plan by a vote of 9-1, underscoring the bipartisan support.
In the House, the Oversight and Government Reform committee has approved legislation by Chairman Darrell Issa, R-Calif., that seeks sizable workforce reductions and operational reforms but does not directly address pension surpluses. In a statement, Mr. Issa applauded the senators' recognition that the USPS needs “a fundamental restructuring” that would be achieved by a number of workforce reforms in the senators' “21st century Postal Service Act” proposal. “We're going toward the same place,” said a House aide.
USPS officials estimate that buyouts for as many as 125,000 eligible employees would cost $1.7 billion, based on an existing cap of $25,000 per employee for federal workers. The Senate proposal would also allow USPS to offer up to one-service-year credit for employees in the Civil Service Retirement System, and up to two years for FERS participants.
That would leave the cash-strapped agency more than $6 billion, which the Senate proposal would allow to be spent on other employee costs such as workers' compensation payments and retiree health benefits.
USPS officials would like to go even further in controlling retirement costs. In 2011, their FERS costs increased by $200 million, due to a 0.5% jump in the employer contribution followed by another 0.2% hike in employer contributions in October that were mandated by the Office of Personnel Management.
In September, Postmaster General Patrick R. Donahoe told the Senate oversight panel that he wants to create a separate defined contribution system similar to the Thrift Savings Plan for new hires, among other reforms. He also wants to stop making FERS payments, in light of the $6.9 billion surplus. The postal service, which relies solely on sales revenue, is the only federal agency legally required to prefund 10 years worth of pension benefits regardless of account balance. “The big picture goal is to be able to operate more like a private sector, and to be able to adapt more quickly to changes in the marketplace,” USPS spokesman David Partenheimer said in an interview.
Some of those workforce changes put the USPS squarely in contention with the four large unions representing 543,000 of the agency's 554,000 employees, which are on guard against drastic downsizing. The largest union, the National Association of Letter Carriers, retained Lazard Group LLC, New York, to help come up with long-term ideas for greater efficiencies that would allow the postal service to retrench and focus on growth areas.
While the bigger postal reform ideas remain controversial, there is more agreement on the pension overpayment and the workforce reduction tied to early retirement incentives, with the White House Office of Personnel Management supporting a one-time “reset” to return the $6.9 billion to USPS over two years.
“The administration has been quite helpful,” Mr. Carper said in an interview. “This is a pretty good example of leveraging to be able to reduce postal service costs.”