June 22, 2011 — The Postal Service announced on June 22 that it is suspending its bi-weekly contributions to the Office of Personnel Management (OPM) for Federal Employees Retirement System (FERS) benefits (11.7% of basic pay), because its FERS account within the government-wide pension plan has a large surplus, and because it would like to preserve its cash reserves in the face of worsening economic conditions. Earlier this year, the Postmaster General announced that the USPS would not be able to make the $5.5 billion retiree health pre-funding payment scheduled for Sept. 30, 2011, and called on Congress to enact postal reform to avert a funding crisis that will occur when the USPS exhausts its $15 billion debt limit early next year.
The Postal Service has informed the NALC that employee contributions to FERS (0.8 percent of pay) will continue. However, it also told the union that the USPS and OPM disagree about whether the Postal Service can satisfy its bi-weekly FERS obligations with the surplus pension funds. The two agencies have agreed to ask the Department of Justice to decide the matter, and to continue to award service credit under FERS.
In response, NALC President Fredric Rolando said, “This action by the Postal Service to use the postal surplus in FERS to meet its payroll obligations to FERS does not directly affect our members, because OPM has agreed to continue to award service credit under FERS until the Department of Justice resolves the issue.” But he added, “The Postal Service action drives home the need for Congress to resolve the problems caused by its 2006 mandate that the USPS pre-fund future retiree health benefits.”
The mandate requires the USPS to pre-fund most of the retiree health benefits payable over the next 75 years within a decade – something no other public agency or private firm does. The resulting annual payments run $5.5 billion a year.
Without that unique burden, the Postal Service would have been profitable over the past four and a half years. Even with the worst recession in 80 years, even with Internet diversion, the USPS has taken in more money from its postal operations than it has spent. Since 2007, revenues derived from delivering the mail exceeded costs by $837 million; last quarter’s net operating profit alone was $226 million. The pre-funding requirement is the difference between a positive and a negative balance sheet. And without the pre-funding payments, the USPS would have cash reserves and would not have exhausted its $15 billion borrowing authority.
“This decision by the USPS reinforces the absolute necessity for Congress to do what we’ve been asking it to do for years, which is to address the Postal Service’s pension surpluses in CSRS and FERS and thereby resolve the postal financial crisis by giving the Postal Service access to its own money,” Rolando said.
What USPS management, the unions, the Postal Regulatory Commission, key Republican and Democratic legislators on postal issues and other stakeholders are asking is simply this: Allow the Postal Service to stop depleting its operating funds to make these payments, and instead permit an internal transfer of funds from its pension surpluses – as any responsible business would do.
This is Postal Service money earned by the sale of products and services, with zero taxpayer involvement. Making such a transfer would still leave both funds – pensions and retiree health benefits – generously funded well into the future, while putting the USPS operational budget back on sound financial footing on paper – as it’s been all along in practice.
As Sen. Tom Carper (D-DE), chairman of the Senate subcommittee with jurisdiction over the USPS, said following the USPS announcement on June 22, “One of the reasons why the Postal Service finds itself in this precarious financial state is that for decades it’s overpaid into not only FERS, but also to the older Civil Service Retirement System (CSRS), totaling between $50 billion and $75 billion. Currently, it is unlawful for the Postal Service to use these overpayments to meet other overall Postal Service expenses.”