The Case Against S. 1789

Inadequate financial provisions:
Pensions and retiree health pre-funding

Retiree health pre-funding. The bill maintains the unique and unfair burden to pre-fund retiree health, though it attempts to reduce the level of this burden somewhat. No other provision in the bill would have a larger impact on the Postal Service’s finances and future viability. By retaining the Bush pre-funding policy as the top postal policy priority, it would doom the Postal Service to decline and would deny it the resources it needs to innovate and properly restructure itself for the 21st century.

Details: The bill would repeal the current retiree health pre-funding schedule mandated by the PAEA, which requires $5.5 billion annual payments into the Postal Service Retiree Health Benefit Fund (PSRHBF) through 2016, after which the USPS is required to amortize any unfunded liability for retiree health over 40 years. It would replace this $5.5 billion/year payment schedule with a two-part payment that requires the USPS to pre-fund each year the “normal cost” of future retiree health associated with that year of service provided by postal employees, plus an “amortization payment” that would be reduced by lowering the pre-funding target from 100 percent to 80 percent over 40 years.

This change modestly reduces the pre-funding burden for the Postal Service, though Senators were never given actual numbers on the new pre-funding payments before they voted. Several weeks after the vote, no official estimates are available, so NALC asked the Towers Watson actuarial accounting firm to analyze the proposed change. It found that S. 1789 would reduce the current $5.5 billion per-year cost of pre-funding (which USPS cannot afford) to between $4.7 billion and $5.3 billion per year over the next 10 years (which USPS still cannot afford).

If the USPS were a private company, it would be allowed to pay its retiree health premiums on a pay-as-you-go basis because it participates in a multi-employer health plan. This was how it financed retiree health before the 2006 pre-funding mandate was enacted.

The bill would give USPS immediate access to the PSRHBF to pay current retirees’ health premiums. Under current law, the access is denied until 2017. In a sense, this change would “save” USPS $2.5 billion per year by letting it pay these premiums out of the PSRHBF instead of out of postage revenues, but this provision is simply giving the USPS access to its own funds.

FERS pension surplus.  The bill would return the current $11.7 billion in the postal FERS account within the Civil Service Retirement and Disability Fund (CSRDF) and direct the USPS to use the freed- up funds to finance employee buy-outs and to meet the cost of retiree health pre-funding payments, workers’ compensation costs, and debt repayments to the Treasury’s Federal Finance Bank. This short-term relief is welcome, but since up to 25 percent is to be used to eliminate jobs through buy-outs, the relief will damage the long-term viability of the Postal Service by forcing service cuts that are likely to drive away business mailers.

CSRS pension surplus.  S. 1789 dropped provisions contained in its predecessor bills (S. 1010 and S. 353) that would have implemented the recommendations of an independent audit done for the Postal Regulatory Commission by the Segal Company. It found that measured with the use of modern, private-sector actuarial methods, the surplus in the postal CSRS account within the CSRSDF stood between $50 billion and $55 billion. The predecessor bills would have mandated these methods and allowed the USPS to use the resulting postal CSRS surplus to fully fund the unfunded liability of the PSRHBF.  

Unfortunately, the authors of S. 1789 dropped the CSRS fix—and with it, the best solution to the postal financial crisis. This was done even though a 2011 GAO review of the issue concluded that both the OPM and PRC methods for pension allocation were “reasonable” and that the choice of methods was a “policy decision.” That policy decision should be made by Congress, not the OPM.

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Ending Saturday delivery:
degrading the last-mile network, weakening privacy protections