Health and pension burdens freeze USPS in its tracks

The U.S. Postal Service is pushing ahead with plans to reverse billions of dollars in anticipated losses during the next decade, but a significant overpayment to its pension fund and excessive obligations for health benefits are hindering progress, officials said on Thursday.

"The overfunding of the [Civil Service Retirement System] account is getting lots of attention," Board of Governors Chairman Louis Giuliano said. "No one wants to move forward on other things until we determine what the impact will be."

According to USPS Inspector General David Williams, the $75 billion overpayment was the result of a misinterpretation of a 1974 law regulating pension funding. The Office of Personnel Management incorrectly made USPS fund a higher portion of the pensions than it owed, he said, adding the agency could use the $75 billion to pay off its Treasury debt and its obligations to pension and health care accounts.

"Even if [the overfunding] is solved, it doesn't solve the problem," Giuliano said. "There needs to be movement along all fronts."

The IG's office also found the Postal Service's obligation to fully prefund its employee pensions and retiree health benefit payments to be excessive. For example, the government prefunds a separate federal retiree account at 41 percent and does not fund health benefits in advance, Williams said. The Postal Service is asking Congress to reconsider its $5.6 billion annual health benefits prefunding requirement.

USPS posted a net loss of $1.8 billion for the first six months of fiscal 2010, less than the $2.3 billion lost in the first half of fiscal 2009. The agency was able to reduce cost faster than its revenue declined, through measures such as significantly cutting employees' hours, USPS Chief Financial Officer Joe Corbett said. Processing hours declined nearly 13 percent, customer service hours went down 11 percent and delivery hours fell by more than 4 percent.

"We simply have to make changes that bring our costs in line with revenue projections," Postmaster General John Potter said. As part of its 10-year strategic plan introduced in March, the Postal Service is focusing on reducing mail delivery days from six to five and adjusting its retiree health benefits funding structure.

Despite this progress, the Postal Service will stay in the red in 2011 unless legislative changes are made, including the elimination of Saturday delivery, Potter said.

Several board members highlighted the need to work closely with congressional committees to draft legislation that addresses the Postal Service's concerns. Potter said his team already is in contact with the appropriate committee staffs.

According to a Senate aide familiar with the issues, staffers will be working closely with House committees and the Postal Service on language to address concerns raised during a recent Senate Homeland Security and Governmental Affairs Subcommittee on Federal Financial Management hearing about pension and retiree health benefits payments.