Saturday, October 1, 2011

What Does H.R. 1351 Mean to USPS?

H.R. 1351, the United States Postal Service Pension Obligation Recalculation and Restoration Act of 2011 was introduced on April 5, 2011. The measure would address two crucial areas:

-- It orders the Office of Personnel Management (OPM), within six months from the date of enactment, to recalculate the USPS’ past, present and future Civil Service Retirement System (CSRS) pension obligation for those employees that served as both federal workers prior to 1971 and as postal employees post-1971, using an updated methodology. Any resulting surplus from the recalculation is then transferred to the Postal Service Retiree Health Benefits fund (PSRHBF).

-- The bill calls for the immediate repayment of the USPS’s Federal Employees’ Retirement System (FERS) surplus of $6.9 billion, by applying $5.5 billion towards USPS FY 2011 Retiree Health Benefits Payment, $1.2 billion towards USPS upcoming Workers’ Compensation Payment and the remaining $200 million or so to be applied to the Postal Service’s existing debt.

The USPS appreciates the introduction of H.R. 1351 and its recognition of this long-standing inequity related to the calculation of USPS CSRS obligations.

However, the bill does not modify the statutory requirement for the USPS to pre-fund health benefits for future retirees; that issue still must be addressed by Congress.

Additional details on H.R. 1351:

CSRS Methodology:

The measure directs the OPM to change the methodology used to calculate the USPS’s past, present and future pension obligations for specific employees. These calculations would be made for employees who served as both federal employees under the Post Office Department (POD), prior to 1971 and as postal employees for the U.S. Postal Service, post-1971.

OPM must complete the new pension obligation calculations within six months from date of enactment of H.R. 1351. If a surplus is found to exist, the amount of the surplus would be transferred to the PSRHBF.

H.R. 1351 implements recommendations made by an independent actuary, hired by the Postal Regulatory Commission (PRC) to review the division of the CSRS liability between the former Post Office Department and the USPS. The PRC report estimates that using the recommended methodology would yield a surplus of $40 to 50 billion. In January 2010, the USPS OIG issued a report on CSRS overfunding, estimating a $75 billion overpayment amount and recommending the methodology be changed.

FERS Overpayment:

The bill also addresses the overpayment by the USPS into the FERS; an amount estimated to be $6.9 billion. H.R. 1351 calls for the immediate repayment of this surplus, applying $5.5 billion of the amount to the FY 2011 RHB payment, due on September 30, 2011. An additional amount of $1.2 billion would be put towards the USPS Workers’ Compensation payment, due in October 2011, with the remaining $200 million to be applied to pay down the USPS’s existing debt.

Retiree Health Benefits (RHB) Changes Still Needed:

H.R. 1351, while it goes a long way toward assisting the USPS and solving pension system issues, does not address the statutorily mandated annual $5.5 billion prepayment to pre-fund health benefits for future retirees.

The Postal Accountability and Enhancement Act (PAEA) requires the pre-funding of future USPS retiree health benefits on an extremely aggressive ten-year schedule. This pre-funding obligation is one borne by no other entity, public or private and is a payment we make annually, in addition to paying annual health benefit premiums of $2.2 billion for current retirees.

The cumulative effect of almost five years of making these payments has stretched USPS finances to the limit. By statute, the USPS is limited to an annual net increase in debt of $3 billion, for a total outstanding debt of $15 billion. At the close of the current fiscal year, the USPS will be faced with two substantial cash payments; $5.5 billion for RHB, due on September 30, and another approximately $1.2 billion for the annual payment on workers’ compensation liability, due in October 2011.

An examination of our current cash balance and the remaining borrowing capacity we have, coupled with projected revenue for FY 2011, shows that the Postal Service will have insufficient cash available to fund these financial obligations, falling short by $2 to $3 billion. The consequences of a failure to make these payments are not known.

Legislative action is still needed to address the onerous burden for pre-funding RHB.

We appreciate the interest of Congress and look forward to finding solutions to address these issues, even as the USPS continues to create and execute strategies to increase efficiencies, manage costs, generate revenue, and ensure the viability and future of our nation’s mail system.

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