IG: Postal Service paid $6.8 billion extra to pension fund

The U.S. Postal Service could use at least $5.5 billion in pension fund overpayments to address its financial concerns, according to a new audit.

In an Aug. 16 report, USPS Deputy Assistant Inspector General for Financial Accountability John Cihota found that a $6.8 billion surplus in Federal Employees Retirement System contributions is affecting the Postal Service's financial stability and operational efficiency. The agency's burden to its pension funds is unfair, he wrote.

"The Postal Service's overfunding issue is even larger than we previously reported," he noted in the audit. "It is important that the trend of overpayments does not continue. The Postal Service faces a challenging future and its responsibilities and the true cost of funding postal operations needs to be absolutely clear."

The FERS findings are the latest in a series of concerns about the Postal Service's retiree benefits funds. USPS Inspector General David Williams reported earlier this year that USPS overpaid its Civil Service Retirement System account by $75 billion, the result of a misinterpretation of a 1974 law regulating pension funding. The Office of Personnel Management incorrectly made the Postal Service fund a higher portion of the pensions than it owed, the report said. A 2009 audit found a $13.2 billion overpayment for retiree health benefits.

According to the Aug. 16 report, variables such as sick leave credit, mortality estimates and future return rates are critical to calculating FERS funding obligations and determining how much of the $6.8 billion surplus could be used to address other financial issues.

The 2010 Defense Authorization Act provides a credit for unused sick leave at retirement, which would boost the average annual retirement benefit by $150 per FERS employee. This 30-year liability would reduce the Postal Service's surplus by $680 million. The report also found the contribution rate for the federal government will increase from 11.2 percent to 11.5 percent in fiscal 2011, but it might not be necessary for USPS to contribute to the fund at the same rate based on the current surplus. Finally, changes in inflation rates could reduce the surplus by $620 million. The remaining $5.5 billion could be used to help meet the agency's financial obligations, the report found.

The Postal Service has more than 500,000 employees enrolled in FERS and has contributed $3 billion to the fund in fiscal 2009. The agency met 99 percent of its contribution requirement last year, while the federal government paid just 41 percent of its share.

The report recommended the Postal Service pursue legislative action to adjust its funding requirements until the FERS surplus is reduced. In addition, the Office of Personnel Management should establish a subaccount for USPS' retiree benefits contributions to increase transparency. Such changes would increase cash flow, help the agency cover its expenses and bring its pension funds in line with the private sector.

In comments on the report, Postal Service Chief Financial Officer and Executive Vice President Joseph Corbett and Government Relations and Public Policy Vice President Marie Therese Dominguez agreed with auditors' findings, but cautioned that legislative action won't be easy.

"It will take a comprehensive educational effort to inform Congress regarding this development," they wrote. "It should be noted that any legislative changes will be challenging due to the crowded congressional calendar and the potential federal budget scoring issues this may trigger."

USPS has said it will address these concerns by Sept. 30, 2011.