Is Postal Service Doomed to be Broke?

The Postal Service has a money problem. A big one. And there aren’t simple solutions. The Government Accountability Office has looked at the problem and has made recommendations to Congress.

Frank Todisco is the GAO’s Chief Actuary. He told Chris Dorobek on the DorobekINSIDER program what the real issue is for USPS.

“USPS provides retirees health benefits the way the rest of government does. But they are required by law to pre-fund those benefits, which is different,” said Todisco, “Right now they have to fund $94 billion but last year they only brought in $65 billion. That means the liability is only about half funded right now.”

The GAO Report Focused On:

1. The current status of the pre-funding effort.
2. The impact of alternative funding approaches.
3. Key considerations for Congress to consider when talking new legislation.

Why Does USPS Have to Pre-Fund?

1. “It is generally true that other entities don’t have to pre-fund heath-care retirement benefits. However the Postal Service is unique. When it was established in 1971 as a successor to the Post Office Department (a Cabinet Agency) it was made to be self-sustaining. The USPS would get its revenue from postal rate payers. Other federal agencies don’t have to do that, it’s expected that they will be financed by tax payers in appropriations bills. So that make it different because there is an unfunded liability for these benefits if it turns out they can’t pay. The question then becomes where will the money come from,” said Todisco.
2. “In the private sector they don’t pre-fund these benefits either. However benefits in the private sector are much less secure and steadily diminishing,” said Todisco.
3. “In the end pre-funding comes down to the basic intent for the Postal Service to be self-sustaining and the issue of fairness because it is funded by the postal rate payers. Pre-funding is a way of pay for them while they are working. It protects liability, security for retirees and there is no 3rd party that is left to pick up the tab,” said Todisco.

Quickness of Pre-Funds?

Right now the pre-funded mandate schedule is broken up into two parts. The current Postal Service bill was signed into law in 2006.

1. The first 10 years (2007-2016), USPS has to make pre-funded payments of about $5.5 billion a year on top of paying the premium payments of those who have already retired.
2. From 2017-2056 the pre-funding switches to actuarial calculating of what will be needed to get up to full funding. It is very front loaded.

“Payments in the 1st 10 years are much higher. It is a major point of contention,” said Todisco.

Concerns

“People are not using the mail as much. Electronic alternatives are taking over. So there is concern that if revenue continues to go down and there is a big unfunded liability, will the money be there to pay for it,” said Todisco.

Politics

“Right now they say they don’t have the cash to pre-fund any of the alternatives. It’s a political and economical sensitive issue. Because if you close post offices or change hours it becomes a very serious political issue,” said Todisco.