OIG Calls for Reduced Prefunding Requirements

The USPS Office of Inspector General (OIG) concluded in a recent report that the Postal Service prefunds its pension and retiree healthcare benefits at levels that are substantially higher than other government agencies, the military, and private-sector businesses. Reducing the required funding levels would result in projected USPS savings of more than $60 billion, the OIG found, and would allow the USPS to meet its obligation while conserving cash and improving its financial position.

In the report issued on Nov. 23, the OIG recommended that the Postal Service pursue legislative changes that would permit the agency to pre-fund employee pensions at 80 percent, and retiree healthcare benefits at 30 percent. Currently, the USPS is required to pay 100 percent of these costs.

The OIG’s summary supports the union’s claim that were it not for the massive pre-funding mandate of the Postal Accountability and Enhancement Act (PAEA) of 2006 — which requires the Postal Service to pay more than $5 billion annually for future retiree healthcare benefits — the USPS would have experienced a surplus of $3.7 billion in fiscal years 2007-2009.

Reduced Payments, Billions in Savings

The OIG found that reducing the Postal Service’s pension prefunding requirement to 80 percent and its retiree healthcare prefunding requirement to 30 percent “represents a reasonable level in addressing retirees’ needs, yet also provides the Postal Service with a means of halting its current financial slide.”

According to the report, the Postal Service has overfunded its pension plans and its retiree healthcare fund by a total of $60.6 billion. If corrected, reduced prefunding would provide the Postal Service with “significant financial relief.”

The report stated that the federal government and many private companies do not prefund retiree healthcare at all; among the private companies that do, the average prefunding level is 28 percent. The military prefunds retiree healthcare at 29 percent, and state governments prefund at an average 30 percent, the report noted.

“Under these circumstances, we can make a strong case for the Postal Service to prefund at reduced levels, such as those found in the private and public sectors,” the OIG stated.

A Call for Congressional Action

Despite the OIG’s finding, the Postal Service does not have the power to change its prefunding requirements without corrective legislation.

In response to the OIG’s findings, postal management said, “The recommendation requires a significant change in public policy that must ultimately be decided by Congress and the Administration.”

Currently, two bills are pending in the House and Senate that would require the Office of Personnel Management (OPM) to recalculate the Postal Service’s CSRS liability, and would allow the USPS to use the overfunded amount to fund the annual retiree healthcare pre-payments: H.R. 5746 and S. 3831. It is unclear whether these bills will be voted on before Congress ends its “lame duck” session later this month.