By: Paul Steidler, Lexington Institute
The U.S. Postal Service (USPS) is legally obligated to provide $5 billion in funding for its employees’ pensions by September 30. If it fails to do so, employees’ benefits are at far greater risk, and a terrible precedent has been set that could seriously erode the value of these plans and even what employees receive. It would also send a clear signal that USPS’s finances are again in major trouble.
As such, USPS’s Board of Governors, which meets this Friday, September 8, postal labor unions, and Congress should all demand full funding by September 30 to the U.S. Office of Personnel Management (OPM). This issue goes to the heart of USPS’s credibility and proper financial stewardship.
USPS has faced serious financial hemorrhaging for over a decade. Still, it got enormous assistance when Congress provided $107 billion in financial aid as part of the 2022 Postal Service Reform Act (PSRA). This was on top of $10 billion in assistance via COVID funding and $3 billion to help with electric vehicle purchases.
As of June 30, 2023, USPS had $19.95 billion in cash and other highly liquid assets, a hugely disproportionate amount for an organization of its size, with approximately $78 billion in annual revenues.
The need for the pension contribution is clear.
As USPS states in its fiscal year 2023 third quarter 10-Q report, “Based on preliminary information provided by OPM, we estimate our annual payments due September 30, 2023 will be $3.1 billion and $1.9 billion for the Civil Service Retirement System (CSRS) amortization and Federal Employees Retirement System (FERS) amortization, respectively. We expect to receive the invoice from OPM for the actual amounts due September 30, 2023 during the fourth quarter of 2023.”
As also stated in the 10-Q, from fiscal years 2012-22, USPS defaulted on $18.1 billion of CSRS and FERS obligations. To continue to do so after receiving such massive assistance from PSRA in 2022 would be an affront to many in Congress. And it raises questions of good faith from USPS management towards its employees and taxpayers.
Simply put, postal employees have greater security that their benefits will be paid when they are under lock and key at OPM. While Congress has been exceedingly generous in providing financial assistance to USPS in the past, there is certainly no guarantee of that in the future, especially with avoidable defaults.
There would be even greater security for the benefits, and lower costs to USPS, if USPS could invest these funds as state pension funds do for teachers and government workers, in a mix of stocks and bonds.
Along with making this legally required payment, USPS should place the highest emphasis on securing new postal legislation allowing its pension funds to be invested in stocks and bonds, as states do for other government employees.
USPS’s Inspector General has documented the major benefits from a diversified investment approach. There is widespread support for this, including from the National Association of Letter Carriers, fiscal conservatives, and widely respected postal advocate Congressman Stephen Lynch (D-MA).
Furthermore, USPS employees also contribute to FERS and CSRS plans. Numerous small businesses and independent contractors must make payments to the federal government by September 15 or face potentially severe penalties. There is simply no reason USPS should get a pass.
Less than 18 months after the enactment of PSRA, USPS’s financial credibility is also clearly on the line.
In fiscal year 2023, it will lose approximately $7 billion after projecting that in March 2021, it would nearly break even if PSRA was enacted. In addition, for fiscal year 2023, its budgetary projections are off, as reflected in an August 24 USPS filing with the Postal Regulatory Commission.
For the first 10 months of fiscal year 2023, revenues and volume are short by 2.5 percent and 4.0 percent, respectively. This has happened even though the economy avoided a recession, which was expected. Total expenses, though, are 1.3 percent higher than planned.
While it may seem difficult for USPS to make this $5 billion, legally required payment, it will still have about $14 billion in cash and highly liquid assets. Payment is also appropriate and respectful towards workers who want the assurance of retirement benefits and Congress that wants and expects USPS to be self-supporting without financial gimmicks like defaults.
And without the payment, Congress should launch an immediate and prompt oversight investigation.
About the Author: Paul Steidler is a Senior Fellow with the Lexington Institute, a public policy think tank based in Arlington, Virginia.
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