Wednesday, July 28th, 2010...9:07 am

One Reason the Post Office is Broke

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The Civil Service Retirement Act created the Civil Service Retirement System (CSRS) in 1920 to “help Postal employees survive retirement.”   With the inability to anticipate the fact that some day they would may want to not work any more, many Postal employees worked until they died.  Which is what they must have meant by not being able to survive retirement.  In 1984 a new program called the Federal Employees Retirement System (FERS) was created to take the place of the CSRS.

The CSRS generally applies to employees who were hired before January 1, 1984 while the FERS applies to employees whose started with the USPS on January 1, 1984 or later, and CSRS employees that elected to transfer to FERS. Both systems have the same purposes, however, Congress decided to create a new set of rules and operating procedures.  USPS Inspector General’s Report.

Now, employees of the USPS receive a conglomeration of retirement money from CSRS, FRES. Thrift Saving Plan (TSP) and Social Security.  It is mentioned many times that the CSRS and FRES retirement plans are not funded by tax money.  The funds come from the employees contribution of around 7% and from the sale of stamps and other postal products.  If you are not convinced that the portion of a stamp price used to pay retired Postal Workers is not tax money, but stamp money, you may need more training – contact a Congressman.

Congress requires that the USPS fund both the retirement program and the health plan at 100%.  The average for the S&P 500 funding is 80%.  Other federal employees is 41%; the military is 24%; and the some government bureau which requires the USPS to fund at 100% does not fund its plans at all.

Due to the usual government accounting standards, requirements and regulations, the USPS believes that they have over-funded the plans by $75 billion and they want it back.  The amount of $75 billion is equal to a year’s income at the USPS.

The is not a current method to pay back over-payments.  The only way the USPS can be paid back is by an act of Congress.

The money paid into these plans is invested in Treasury Notes, Bonds, and Bills – in other words, the federal government “borrows it.”

And then they spend it.

Should the $75 billion be paid back and the funding requirements  be reduced, the USPS would be in better shape.  If they were required to fund the plans at a lesser rate, they would be in better shape.

The big problem with  returning the $75 billion to the USPS is, because of the rules Congress has created, giving the money back would increase the deficit by $75 billion.   Over the years, the Federal Government has made the deficit look better by subtracting the funded pension and health plan money from the deficit numbers. Not many Congressman are willing to add numbers to the deficit right now.

The House postal oversight subcommittee approved H.R. 5746. The bill, which was introduced by Rep. Stephen Lynch (D-MA) on July 15, would alter the methodology for allocating the Postal Service’s share of pension costs for employees whose careers spanned the former Post Office Department and the USPS which created the $75 billion in question.  This is the first step in a long process to make the changes that the USPS wants.

The bill must be considered by the full Oversight and Government Reform Committee before it can be voted on in the House.

H.R. 5746 directs Office of Personnel Management to transfer any surplus to the Postal Service Retiree Health Benefits Fund. This transfer of funds would alleviate a major source of the Postal Service’s recent economic problems.  The funding of 100% of future retiree health care benefits, as required by the Postal Accountability and Enhancement Act of 2006, costs the USPS more than $5 billion annually.

I would expect this bill or one similar to it to pass in some form or another.  I would also expect that the bill will be flawed and the USPS pension and health care funds will be significantly under-funded in about two years.

As a postscript I need to mention that the USPS says that fixing the overpayment and funding issue will not alter their request to increase rates by as much as 23% (http://shipp.in/g/1cf) next year or their request to eliminate Saturday delivery.

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2 Comments

  • The sleight of hand that Congress uses in regards to USPS has been going on for many years. During the 1970′s to 1990′s, when the Post Office rate increases only came every 3-4 years, the Post Office would show a “profit” in the first years of the rate cycle, and Congress would include the USPS in the budget to reduce the apparent deficit.

    In the later years of the rate cycle, when the Post Office was “losing” money (offsetting the earlier profits to be revenue neutral over time), Congress would take USPS “off budget”, again reducing the apparent deficit.

    A few years ago, Congress decided to require the Post Office to pre-fund retiree health benefits, something no other federal agency is required to due, including other government-owned corporations like the Tennessee Valley Authority. In reality, the money is put into the general fund, and is essentially a tax on USPS, simply because Congress has the power to do so. The interesting thing is that probably half of the employees of USPS will never reach retirement age, because they will quit before then. Or become disabled before then, and go out on disability retirement.

  • [...] at 100%.  For more information on how this Federal Government deficit reduction trick works, see One Reason the Post Office is Broke.  Although no real money changes hands, it is unlikely that any money owed to the USPS by the [...]

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