Observers are leery of Postal Service plan to opt out of federal health and retirement programs

The U.S. Postal Service's proposed break with federal health and retirement plans would weaken benefits for postal employee and possibly other government workers as well, observers caution. USPS earlier this month announced plans to seek legislative changes that would allow the agency to create its own health and retiree benefits programs. Postal workers currently are covered under the Federal Employees Health Benefits program, Civil Service Retirement System or Federal Employees Retirement System.

The agency also wants to cut 120,000 jobs by 2015, a move that will require changes in several labor provisions.

According to draft documents summarizing the changes, government-run benefit programs do not address the Postal Service's "unique demographic and program needs," nor do they allow the agency to control costs and provide compensation and benefits comparable to the private sector.

Under the proposal, postal retirees would continue to receive health insurance benefits comparable to those offered under FEHBP at equal or lower cost in addition to Medicare coverage. Active employees initially would be covered under simplified plan with benefits similar in value and cost to FEHBP, though the agency going forward would shift to a private sector model. The Postal Service would establish a separate program following private sector best practices to cover all new hires.

Without oversight from the Office of Personnel Management, which administers FEHBP, the Postal Service's board of governors would set plan benefits, eligibility criteria and premium costs. A management group composed of agency leaders, union representatives and Treasury Department employees would administer the program.

A separate postal retirement plan would have a similar structure, according to USPS. Current annuitants would continue to receive benefits equal to those under FERS and CSRS. Active employees covered under CSRS would be eligible for existing benefit levels but would be subject to congressionally mandated changes -- including CSRS cost-of-living and contribution adjustments. FERS beneficiaries close to retirement would receive existing benefit levels, while younger employees could see adjustments going forward. New hires would fall immediately into a separate defined contribution plan.

Concerns

Walton Francis, author of Consumers' Checkbook Guide to Health Plans for Federal Employees, called the proposal to leave FEHBP "nonsensical," explaining that a number of the 200 existing plans are designed specifically to meet the needs of postal workers.

According to Francis, FEHBP has been shown to offer better benefits and hold down costs, including prescription drug prices, compared to many private sector plans, Medicare and the military's TRICARE program. Plans available to federal workers already offer benefits common in the private sector, including chronic condition and disease management programs and health promotion incentives, he said. The notion that the Postal Service can design a health insurance program that will outperform FEHBP isn't credible, he added.

"This proposal is not an indicator of anything except the desperate financial status of the USPS," Francis said. "It is certainly not an indicator of either FEHBP problems or employer health coverage trends in general. It is sad that the USPS has to resort to such nonsense to get the attention of the Congress to the genuine problems it faces and the authority it needs to get rid of expensive and unneeded post offices, and the ridiculously large payments it makes to prefund retiree health care."

John Grobe, president of consulting firm Federal Career Experts, questioned the impact of the proposal on other federal workers. If USPS pulls out of the government's retirement plans, for example, "down the line does this mean massive changes for everyone else?" he asked.

OPM declined to comment on how the proposal would affect other federal workers covered under the government's benefit programs.

The Postal Service already is asking for legislative changes such as the flexibility to cut Saturday delivery, adjust the size of the workforce and end an obligation to prefund retiree health benefits. According to several agency spokesmen, the new proposal to administer separate retiree and health benefits programs is just the starting point for discussion on future legislation and will continue to evolve. They indicated that no firm decisions have been made.

Unions and Lawmakers

Still, leaders of unions and management associations representing postal employees are apprehensive about the future of workers' benefits.

USPS' plan "to deny its employees and retirees access to a stable, affordable and time-tested earned health and retirement recklessly endangers the health and retirement security of all postal employees," National Association of Postmasters of the United States National President Robert Rapoza said.

Lawmakers familiar with postal issues acknowledged that USPS must address its financial challenges but differed over the best approach.

Rep. Stephen Lynch, D-Mass., said USPS has other "common-sense solutions" to address its fiscal crisis without putting the burden on its employees and retirees. He pointed to legislative proposals already in play, several of which would refund the agency's reported overpayment to its retirement systems accounts.

Rep. Dennis Ross, R-Fla., who chairs the House subcommittee responsible for postal oversight, said USPS leaders know they must dramatically adapt and change to keep pace with a changing market.

"The rightsizing and pension changes suggested are dramatic and are encouraging," he said. "I remain hopeful that any USPS transformation will serve as a model for other government agencies in how to adapt to the 21st century."

Correction: The original story misstated the chairmanship of Rep. Dennis Ross, R-Fla. He chairs the House subcommittee responsible for postal oversight.