The magnitude of the U.S. Postal Service's unfunded liabilities for its retiree pensions and health benefits imperils the agency and its workforce. Now a Congressional proposal seeks to brighten the agency's future finances – by shifting these liabilities onto federal taxpayers through the Medicare system.
A May audit report by the Postal Service's Office of Inspector General projected total retirement liabilities for the agency to be $401.6 billion, against total assets projected at just $338.4 billion, leaving a gap of $63 billion.
The audit explains that the Postal Service lost $62.4 billion between FY 2007 and FY 2017, with $54.8 billion of these losses relating to retiree health care prefunding that it had been required to pay down as part of Postal Accountability and Enhancement Act of 2006. This law required the agency to prefund its looming liabilities by contributing between $5.4 billion to $5.8 billion annually from 2007 and 2016 to the Postal Service Retirement Health Benefits Fund. Instead, it has defaulted on required payments since 2011.
Postal legislation passed by the House Oversight and Government Reform Committee in March would make major changes to the current system and effectively transfer large shares of the gaping liabilities to U.S. taxpayers. The proposed changes are aligned with the recommendations of Postal Service leadership, which sees them as their best bet to improve their agency's desperate financial outlook.
Among the provisions in H.R.756, the proposed Postal Service Reform Act of 2017, is a requirement that Medicare-eligible USPS retirees and their families be automatically enrolled in Medicare Parts A and B. It would make the Postal Service responsible for 75 percent of their Part B premiums in the first year, 50 percent in the second year and 25 percent in the third year, after which it would not be required to provide funding. The Congressional Budget Office's cost estimate for the proposal published last week only addressed a 10-year budget impact, so did not reflect some of the longer-term costs identified by the inspector general's audit.
Although with committee Chairman Jason Chaffetz, one of the bill's primary authors, retiring from Congress at the end of June, its path forward is uncertain.
The inspector general's audit projected this would save the agency $49.7 billion, by shifting it from the Postal Services' liabilities to the responsibility of taxpayers by enrolling Postal Service retirees in Medicare Parts A and B and the Employee Group Waiver Program for prescription drug benefits. Assets currently in the Retiree Health Benefits Fund would continue to be managed by the Office of Personnel Management for additional retiree health benefit expenses.
Postal Service management affirmed the intent of its legislative strategy by describing the legislation as improving "the affordability of our retiree health benefits system by virtually eliminating the unfunded [retirement health benefits] obligations," in the agency's latest quarterly 10-Q report.
A recent article by the Postal Service elaborated further, declaring that if its retiree health plans were "fully integrated with Medicare," it would be relieved of its prepayment requirements under current law, allowing it to reallocate these funds in hopes of restoring financial stability.
The Postal Service has reported cumulative operating losses of over $62 billion since 2007, while ignoring $33 billion in mandatory prepayments for retiree benefits since 2011. Its business model is badly broken, with first class mail, its most profitable product, continuing to see accelerated declines in volume.
The 2018 budget released by the White House included language that would permit the Postal Service to end Saturday mail delivery – a measure the agency's independent regulator estimated in 2010 would likely save $2 billion per year.
Postal Service leadership has aggressively encouraged Congress to adopt the changes to retiree benefits as a solution, not only for what the OIG estimates as $63 billion in unfunded retirement liabilities, but tens of billions in mounting operating deficits as well.
Americans value a government post office, and do not want to see the agency fail. But it is important that decision-makers look beyond the postal system and consider the risks for taxpayers, and other federal retirees, in shifting liabilities this massive to the U.S. Treasury in the name of preserving the institution.
Don Soifer is executive vice president of the Lexington Institute in Arlington, VA. He can be reached at soifer@lexingtoninstitute.org.
