From the USPS Office Of Inspector General:
July 25, 2012
MEMORANDUM FOR: PATRICK R. DONAHOE – POSTMASTER GENERAL
David C. Williams – Inspector General
This memorandum provides the U.S. Postal Service Office of Inspector General’s (OIG) review of U.S. Postal Service liquidity projections as of June 2012 (Project Number 12BD016FI000). Without legislation to eliminate or defer prefunding payments into the Retiree Health Benefits Fund, the U.S. Postal Service will likely default on the $11.1 billion in payments due in fiscal year (FY) 20121 and the $5.6 billion payment due in FY 2013. In addition to these defaults, the Postal Service projects an estimated $100 million cash shortfall on October 15, 2012, with a slow increase in liquidity from October through December 2012. Liquidity risks and shortfalls are projected to return in spring 2013 through October 2013, with the Postal Service projecting an estimated $1.2 billion cash shortfall in mid-October 2013.
These liquidity concerns exist even with the expected Postal Service default on the Retiree Health Benefits prefunding payments. To preserve its liquidity, the Postal Service presented the following additional measures for consideration: withhold employer contributions to the overfunded Federal Employees Retirement System (FERS) pension fund, and consider three different options for reimbursement of the U.S. Department of Labor (DOL) workers’ compensation claims and administration costs.
As a result of our review, we believe the projected cash flow and liquidity figures, based on projected revenues and expenses, appear reasonable. Based on that analysis, we concur with the Postal Service’s projections that it might not have sufficient cash to fund its operations in October 2012 and at other times during FY 2013.
In addition, we noted the following regarding areas the Postal Service is considering for preserving cash in order to continue delivering mail:
The Postal Service is unable to make required payments to the Retiree Health Benefits Fund and is considering suspending payments to the FERS pension fund. Although the FERS pension fund payments are legally required, the U.S. Department of Justice has determined that suspending the FERS payments would have no impact on Postal Service employees. The Postal Service has overfunded FERS by $11.4 billion, and it has funded its health benefit fund at a level much greater than the private sector and federal government.
The Postal Service described three potential options for reimbursing the DOL for workers’ compensation expenses. The Postal Service is legally required to make an annual lump sum payment due in mid-October 2012 (and 2013). Not paying the amount due or paying installments for several months would assist the Postal Service in retaining cash for operational needs; however, this method could potentially put the DOL in a position in which it could not fulfill its operational needs. We suggest the Postal Service work closely with the DOL to identify a mutual solution.
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