Postal Mythbusting: Overpayments, Surpluses, and Prefunding

Myth: The Postal Service has overpaid by $50-$75 billion into the Civil Service Retirement System and Congress owes this money back. Fact: There is no Postal Service overpayment.
The United States Postal Service was created in 1971 from the old Post Office Department in order to provide better mail delivery and let it act more like a business. In 1974, the Postal Service agreed to a formula to share the retiree costs of individuals who worked for both the Post Office Department and the Postal Service, calling it proper, as a matter of principle. Now, with revenues declining, the Postal Service argues that that formula is unfair. The Postal Service argues that if a formula it considers to be fair had been used instead, then it would be owed $50-$75 billion by the US Treasury. This is an attempt to rewrite history. The original formula was instituted as part of a broader set of decisions concerning the creation of USPS. For instance, those decisions included not charging any fee to USPS in return for the postal monopoly it was granted. Another reason why it makes little sense to speak of an overpayment due to USPS is that the Postal Service had a clear requirement from 1971 until 2006 to raise postage rates to cover all costs, including its cost of retirement funding. If a different formula had been used all these years that had resulted in lower annual payments by USPS for its federal employee retirement costs, those savings would have been used to lower the cost of postage rates.

Myth: The Postal Service has a FERS surplus of $6.9 billion that should be immediately returned. Fact: There is only a projected surplus, and spending it is a bad idea.
The Postal Service, in addition to a number of other federal agencies, has a temporary, projected surplus in one of their two retirement accounts. Projected surpluses happen when your projected liabilities are lower than the amount of money you have paid. Any projection is only as good as the assumptions that underlie it. One obvious factor is historically low inflation rates. When the

projection changes, the surplus may melt away leaving the Postal Service with a deficit it cannot afford to pay back. Other federal agencies with temporary surpluses are not being allowed to spend it as a result of these fluctuating balances. Furthermore, the $6.9 billion number is based on a 22 month old projection, and that same projection showed a $7 billion dollar shortfall in the other retirement account, meaning that overall, the Postal Service is still behind on its obligations to retirees.

Myth: The Postal Service is unfairly required to fully fund 75 years of retiree health care benefits in 10 years with an annual $5.5 billion payment. If only the prefunding requirement were eliminated the Postal Service would be on a path to prosperity. Fact: USPS has to save now, or it will not be able to afford retiree health care later. If they cant, taxpayers will be on the hook for billions of dollars.
To protect taxpayers from covering USPS large unfunded liability on retiree health care benefits, Congress mandated that USPS make a series of catch-up payments, often called prefunding, starting in 2007 and going through 2017. These catch-up payments will ensure USPS has saved enough money now to meet these obligations later. Within the next few years, the annual costs of paying current benefits will dwarf current costs. Saving now is the only way to make this affordable later, and prevent a taxpayer funded bailout. Though the Postal Service was created to be a self-sustaining entity- taxpayers stand behind this large and growing liability. If the Postal Service were allowed to immediately cease making these catch-up payments, it would have an unfunded liability of nearly $100 billion by 2017. This would clearly be an unaffordable burden for an entity whose core business and revenue is steadily shrinking. It would likely result in a taxpayer funded bailout of postal workers retiree health care payments. The annual deficit of the Postal Service now easily exceeds its entire annual catch-up payment, illustrating its fiscal problems run much deeper.

More Information at http://SavingThePostalService.com