Rep. Dennis Ross misfires on the myths and the facts
Congressman Dennis Ross (R-FL), who chairs the House Subcommittee on the Federal Workforce, Postal Service and District of Columbia, has posted a floor statement on his website entitled Postal Service "Overpayment"—Myth v. Fact, where he tried to dispel three alleged myths about the Postal Service's pensions and retiree health pre-funding burden. Unfortunately, his "facts" are far from factual and will do more to confuse and mislead Members of Congress than to clarify the issues as the current debate on postal reform unfolds. As a public service, NALC is happy to clear up the confusion.
Alleged Myth 1: "The Postal Service has overpaid by $50 billion to $75 billion into the Civil Service Retirement System and Congress owes this money back."
The Real Facts: Ironically, this alleged myth is a myth itself—although virtually every business in the $1.3 trillion mailing industry (with their 7.5 million employees) agrees that the Postal Service has overpaid into the CSRS pension fund, none of them or the organizations that represent them are asking "Congress to pay the money back." We are emphatically not asking Congress for a taxpayer bailout. Rather, we are asking the Office of Personnel Management to recognize the true postal surplus in CSRS. And we are asking Congress to let us use these surplus funds to cover the cost of funding future retiree health benefits—a use that is considered a corporate best practice in the private sector under ERISA guidelines. This is what H.R. 1351, a bill co-sponsored by at least 170 members of Congress from both parties, would accomplish.
In any case, Ross makes three claims to refute this alleged myth. One, he claims a deal made in 1974 between the USPS and the now-defunct Civil Service Commission should be binding, apparently no matter how unfair to postage rate-payers and postal employees. Two, he claims the formula was part of the trade-offs made at the time the Post Office Department was reorganized and became the U.S. Postal Service. And three, he points out that had a different (and fairer) formula been used to allocate pension costs between the taxpayers and ratepayers in 1974, postage rates would have been lower between the 1970s and 2006. This means, we surmise, that mailers are owed the money, not the Postal Service. All three claims are misleading or incomplete.
Consider the "deal's a deal" defense. Rather than address the evidence, outlined by two separate audits performed by respected private sector benefits consultants (The Hay Group and the Segal Company) in 2010, Rep. Ross reaches back to ancient history to defend the unfair method adopted in 1974. This method shifts a huge amount of the cost of pre-1971 service to the Postal Service. That the Postal Service mistakenly agreed to the method in 1974 does not make it right—though one wonders about the quality of information that was shared at the time since the OPM has refused to share any evidence of how it acquired the USPS's agreement. Moreover, postal employees who paid into the CSRS fund for 40 years, and the millions of businesses that paid the postage that financed the Service's CSRS contributions, were not parties to the OPM-USPS deal—we were never consulted. But our pension funds are being charged to cover the pension costs of POD service.
We don't understand why Rep. Ross supports OPM in this dispute. The agency has demonstrated repeatedly over the past 40 years that it cannot be trusted to treat the Postal Service fairly—a fact that was recognized in 2003 when P.L. 108-18 was enacted to stop the USPS from massively over-funding its CSRS costs, and again in 2006 when the PAEA reversed an OPM decision to unfairly saddle the Postal Service with $27 billion in military pension costs. Sadly, the onerous pre-funding schedule adopted in 2006 was itself grossly inflated by OPM errors—since it was based on faulty assumptions about future medical inflation and inaccurate projections of future postal employment. In any case, the PAEA repealed the 1974 provision that Rep. Ross relies on; the new law gives the OPM the authority to adopt fair methods for allocating pension costs. Sen. Susan Collins (R-ME) has repeatedly confirmed this fact in correspondence with the OPM. But to no avail. The OPM is protecting its bureaucratic interests. It wants to keep our money.
Let's examine Ross' second claim that the lousy pension deal was among the trade-offs made when the Postal Service was created in 1970, claiming that the "original formula was instituted as part of a broader set of decisions concerning the creation of the Postal Service." Talk about rewriting history—a law passed in 1974 is magically back-dated to be part of a 1970 legislative deal to create the Postal Service.
We agree with Ross' third claim, that postage rates would have been lower if a fairer method for allocating pension costs had been adopted. And we agree, under this scenario, that postage ratepayers were effectively overcharged for pension costs. However, by the same logic, they were also under-charged because retiree health benefits were not pre-funded until 2007, at which point Congress adopted an unrealistically accelerated schedule for pre-paying about 80 percent of future costs in just 10 years' time. Indeed, most if not all mailers support the financial provisions of H.R. 1351 precisely because they have been over-charged for pension costs—and they want the over-charged amounts applied to the cost of future retiree health benefits.
OPM's self-serving decision to stick it to the Postal Service on the allocation of pension costs may be understandable from a bureaucratic point of view. Again, it wants to keep our money to cover the size of the federal unfunded liability. No surprise there. Sadly, in this dispute the OPM gets to be judge and jury, even though it is one of the parties to the dispute. That does not excuse Congress from buying into the OPM's biased methodology. And it does not change the fact that the Postal Service's methodology would have been entirely consistent with the 1974 statute—it was known in 1974 that the cost or pre-1971 service would rise as wages rose with inflation, and it would have been reasonable to fairly build that cost into the federal government's responsibility.
Alleged Myth 2: "The Postal Service is unfairly saddled with an annual $5.5 billion retiree health care prefunding payment that is required of no other federal agency. If only the prefunding requirement were eliminated the Postal Service would be profitable again."
The Real Facts: Once again, Rep. Ross twists the myth before addressing it. Supporters of H.R. 1351 are not saying that its passage will necessarily restore the Postal Service to profitability forever. What we are saying is that, without this unfair burden, we would have been profitable over the past four years (2007-2010) since pre-funding costs of $21 billion explain 100 percent of the $20 billion losses recorded over this period. We are also saying that enacting H.R. 1351 is essential to give the Postal Service a fair chance to adapt and adjust to the evolving postal needs of the country, which certainly will involve fewer letters and more packages in the future.
In fact, Ross never addresses the fairness of the 10-year schedule of pre-funding schedule. No other agency pre-funds retiree health benefits—over any length of time. Nor do the legislative and judicial branches. Nor do most private companies. According to an annual survey of Fortune 1000 companies conducted by Towers Watson, only about a third of companies have pre-funded retiree health benefits at all. Of those that do, the median level of funding (33 percent) is far below the 48 percent of benefits funded by USPS.
Ross argues that should Congress allow the Postal Service to "immediately cease prefunding of its retiree health obligations, it would have an unfunded liability of nearly $100 billion by 2017." But supporters of H.R. 1351 are not trying to stop pre-funding. We want to transfer the $55 billion surplus in the CSRS postal account (using fair methods endorsed by the Postal Regulatory Commission) into the Postal Service Retiree Health Benefits Fund, which already has $42.7 billion in it. That would be enough to totally pre-fund the Postal Service's future retiree health obligations. Any unfunded liability remaining would pale in comparison to those facing the rest of the government and the vast majority of large American corporations.
Rep. Ross argues that "the annual deficit of the Postal Service now easily exceeds its entire pre-funding payment… ." This was true in 2010 when the loss was $8.5 billion and the pre-funding payment was $5.5 billion. But the additional loss— beyond the pre-funding payment—was largely driven by the same interest rate development the congressman cites in response to the alleged myth of the FERS surplus (see below). Falling interest rates resulting from a weak economy (which also depresses mail volume) led to a temporary spike in the unfunded liability for future workers' compensations costs—and a huge non-cash expense of $2.5 billion. In the absence of this charge and the pre-funding payment, the Postal Service would have nearly broken even in 2010.
NALC does not deny that the Postal Service faces significant challenges in the future; like many private industries, the USPS must adapt to the Internet economy. But the USPS has been unfairly weighed down by the pre-funding burden—a burden that has virtually exhausted its cash reserves and borrowing authority. These reserves and this authority would otherwise be available to help the agency restructure and endure the severe recession.
Alleged Myth 3: "The USPS has a FERS surplus of $6.9 billion that should be immediately returned."
The Real Facts: Rep. Ross makes a good point: The surplus in the Postal FERS account may be a function of temporarily low interest rates. However, that does not mean that it would be inappropriate to allow the USPS to use the surplus in its FERS account to address its short term financial challenges. In the private sector, a pension fund that is 80 percent funded for liabilities stretching over several decades into the future is considered extremely healthy. The Postal Service's FERS account is now 110 percent funded. A private company in this circumstance would be encouraged under ERISA guidelines to use the surplus pension funds to boost the funding of other post-retirement obligations such as retiree health benefits. That is what we want to do.
Rep. Ross compares the USPS to other federal agencies. He says "other federal agencies with temporary surpluses are not being granted refunds for 'overpayments' as a result of these fluctuating balances." That is true. But other federal agencies are not choking on a grossly unfair burden to pre-fund 75 years' worth of retiree health benefits over a 10-year period. In fact, those agencies don't prefund at all. And those agencies haven't fully funded their CSRS obligations either.
Perhaps Rep. Ross could take a break from his relentless bashing of the Postal Service and think about how to help a very well run agency with hundreds of thousands of hard-working Americans recover its financial footing. Working with its unions, the USPS has eliminated more than 110,000 jobs to cut costs as mail volume dropped during the Great Recession, all the while providing high-quality service at the most affordable rates in the world to a mailing industry that employs nearly 7.5 million other Americans. The Postal Service and its employees will continue to do our part to adapt to serve the changing needs of the American economy. Would it be too much to ask Congress to do the same?