Watchdog: Postal Service proposals could undermine funding of retiree benefits

U.S. Postal Service proposals to change how retiree benefits are funded could adversely affect those programs and would not help the agency out of the red, according to a new report from the Office of Personnel Management's inspector general.

The study, which is expected to be discussed during a Wednesday hearing on Capitol Hill, warned USPS against "using the federal retirement program as a vehicle through which to implement policy objectives unrelated to the federal retiree benefit programs," OPM said in a statement. The IG report recommended that "OPM strongly oppose any legislative action that would permit the USPS to fund its [Federal Employees Retirement System] responsibilities at 80 percent."

The OPM IG also said the proposals would shift the costs from USPS ratepayers to American taxpayers. In response, the USPS Office of Inspector General said the benefit funds "are funded entirely by postal employees and postage from American citizens and businesses."

"They seek to alter the fundamental policy regarding the relationship between the USPS and the federal government," the OPM IG report stated. "These proposals would cause the government to assume responsibility for USPS retiree benefits expenses without a corresponding increase in government oversight of the USPS."

OPM's IG also disagreed with how USPS calculated some of the savings it estimates it would achieve through restructuring its funding obligations as well as its methodology regarding other costs. The Postal Service IG's office took issue with some of those criticisms. "Our reports concerning the mischarges and overfunding of Postal Service benefits relied on the work of an actuarial firm that was under contract to the OIG. That firm had previously done work for OPM in the benefits fund area. Our work was independently reviewed by a second actuary employed by the Postal Regulatory Commission. In contrast the OPM characterizes their study as an analysis based on the work of others, but without independent actuarial assistance."

As for the potential impact on retiree health benefits, the OPM IG was blunt: "The integrity of the Federal Employees Health Benefits Program would be seriously compromised, absent emergency appropriations from Congress, if the USPS were to cease contributing the employer's share of premiums."

OPM generally agreed with the proposal to reimburse overpayments made to the Civil Service Retirement and Disability Fund under FERS, or excuse agencies - in this case the Postal Service - from making contributions until the excess pot of money has been spent.

The Postal Service inspector general has issued a series of reports in which it estimated the agency has overpaid retiree annuity and health benefits' accounts by as much as $142 billion. "This is not about the financial condition of the Postal Service, but that the Postal Service was overcharged and subsequently overpaid into benefit funds," the agency's OIG said in a statement. "This issue is fundamentally about righting an inequity."

USPS has posted significant losses recently, including $329 million in the first quarter of fiscal 2011 because of a $1.4 billion prefunding obligation to retiree health benefits and a $700 million workers' compensation liability. In addition, the agency has overpaid its Civil Service Retirement System account by $75 billion and contributed nearly $7 billion in excess of its FERS obligations.

President Obama's fiscal 2012 budget proposal would return about $6.9 billion in FERS overpayments to the Postal Service over 30 years, including $550 million in fiscal 2011. USPS also would receive short-term relief from a 2006 requirement to prefund its retiree health benefits at about $5 billion annually. It is the only federal agency with that obligation.

Last month, USPS announced that it would trim its workforce, starting with senior executives, to save $750 million and boost efficiency.