Challenge
Significant financial losses result from a legislative requirement that the Postal Service pre-fund its retiree health benefits.
SOLUTION
Adopting a traditional “pay-as-you-go” method would produce an average of $5.65 billion in additional cash flow per year through 2016.
Unlike any other public or private entity, under a 2006 law, the U.S. Postal Service must pre-fund retiree health benefits. We must pay today for benefits that will not be paid out until some future date. Other federal agencies and most private sector companies use a “pay-as-you-go” system, by which the entity pays premiums as they are billed. Shifting to such a system would equate to an average of $5.65 billion in additional cash flow per year through 2016, and save the Postal Service an estimated $50 billion over the next ten years. With the announcement of our Action Plan in March, we began laying the foundation for change, requesting that Congress restructure this obligation.
The pre-funding requirement, as it currently stands, contributes significantly to postal losses. Under current law, the Postal Service must follow a mandated pre-funding schedule of $5.5 billion to $5.8 billion per year through 2016. In 2009, Congress granted a much needed deferral, allowing us to pay $4.0 billion less than the orignally required $5.4 billion payment. This year, Congress opted not to provide this deferral.
In the absence of legislative relief, the Postal Service was required to make — and made — this year’s $5.5 billion payment to the Retiree Health Benefit Fund. We had sought a deferral of this payment to minimize the risk of defaulting on financial obligations in fiscal year 2011. This risk remains. Even with the careful stewardship of resources we are committed to in the coming year, current forecasts anticipate insufficient cash to enable the similar $5.5 billion payment in September 2011.
Given the severity of our financial situation and the fact that we already have implemented aggressive cost-cutting and productivity-improving measures, we continue to seek approval from Congress to shift away from our unique retiree health benefits pre-funding mandate. We are committed to upholding our obligation to current and former employees but wish to do so in a way that does not constrain cash flow during difficult financial periods of declining volume.
Ensuring that the Postal Service remains a viable business depends upon elimination of legislatively-imposed constraints that impede our efficient and profitable operation. Congressional action, both to restructure our obligation to pre-fund retiree health benefits and to address overpayment to our Civil Service Retirement System pension fund, is still urgently needed.
USPS is experiencing unprecedented losses
POSTAL SERVICE NET PROFIT/LOSS (dollars in billions)
1 Includes one-time reduction of $4 billion
Note: All years refer to fiscal years ending on September 30
Addressing our Retiree Health Benefit pre-funding obligations will improve our long-term financial strength and ensure a viable Postal Service for the future.
