Postal Service wants out of paying military pension benefits

Postal Service officials asked Congress Wednesday to overturn a provision requiring the agency to pay employees' military service pension benefits.

Lawmakers should change a section of the 2003 Postal Civil Service Retirement System Funding Reform Act obligating the Postal Service to pay such benefits, Postmaster General John Potter said in testimony before the House Government Reform Special Panel on Postal Reform and Oversight. Previously, the Treasury Department paid those benefits.

"These military retirement costs have no connection to the operation of the Postal Service or to the services rendered to our customers now and in the future," Potter said.

The legislation that included the pension provision relieved the Postal Service's financial burdens by adjusting the amount the agency owes the Civil Service Retirement System. Without the adjustment, the Postal Service would have paid $105 billion too much for employee pension benefits, Potter said. Such costs, he argued, would have been "borne by every user of the mail" through postage rate increases.

The 2003 law will help the Postal Service avoid rate hikes until 2006, Potter said. In addition, the relief in CSRS obligations has helped the Postal Service lower its outstanding debt from $11.1 billion to $7.3 billion.

"The same legislation, however, presents very definite challenges," Potter cautioned.

Obligations to pay military service pension benefits place a financial burden of more than $27 billion on the Postal Service, Potter testified. Of this amount, $17 billion would go toward retroactive payment of benefits covering the past 30 years or so.

Unlike other agencies that pay their employees' military service pension benefits, the Postal Service funds itself through revenue generated from the sale of mail services and products, Potter said. He asked lawmakers to transfer the military pension obligation back to the Treasury, since all taxpayers, and not merely postal customers, benefit from the military services rendered by Postal Service employees.

Such a move would "relieve the Postal Service of an unnecessary burden and give [it] a source of funds to deal with its unfunded health care liabilities," said Rep. Henry Waxman, D-Calif., at the hearing.

Comptroller General David Walker refrained from taking a stand on the military pension issue, but recommended in his testimony that lawmakers establish a consistent policy across self-funding agencies.

The 2003 pension law also requires the Postal Service to hold savings generated by the adjustment in CSRS payments in an escrow account beginning in fiscal 2006. Under the law, the Postal Service must seek approval from Congress before using the funds in the account.

This escrow mandate will likely force the Postal Service to raise rates in 2006, Potter testified. Rates might increase that year regardless, he said, but they will "rise even more than is necessary to reflect inflation" if the escrow requirement remains in place.

Potter urged lawmakers to strike this mandate and allow the Postal Service to use savings that would have been placed in the escrow account to pay for employee health benefits.