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Thanks to the hard work of letter carriers nationwide, four of the resolutions have reached a majority of support in the House of Representatives. NALC urges all letter carriers to contact their representatives and senators to urge them to co-sponsor these resolutions. To repeal the requirement that the United States Postal Service prepay future retirement benefits. House Resolution 23 H.

Expressing the sense of the House of Representatives that the United States Postal Service should take all appropriate measures to ensure the continuation of door delivery for all business and residential customers. House Resolution 33 H. Expressing the sense of the House of Representatives that Congress should take all appropriate measures to ensure that the United States Postal Service remains an independent establishment of the Federal Government and is not subject to privatization.

The federal fiscal year begins Oct. Another congressional report found Postal Service operating costs may be the largest reason for its financial troubles. The Postal Service has cut expenses through a hiring freeze, offering early retirement to longtime employees and closing some district offices.

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In , the Postal Service began borrowing money from the U. Treasury Department to deal with its troubles. Sally Davidow, a spokeswoman for the union, said the Postal Service had to borrow the money to offset the health benefit changes. The agency attributed about 70 percent of that net loss to the health care requirement.

The Postal Service has borrowed money from the government in recent years, primarily it says, to cover the cost to pre-fund employee health benefits. The first part of the statement is on target. The second part, however, gets a return to sender.

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It passed the House under a suspension of the rules on a voice vote, and the Senate approved it by unanimous consent. Although the Service is now sharply critical of the fund, the opposite was once the case. How much is the Postal Service supposed to contribute to the retiree health fund and over what time frame? How are the premiums due each year being paid for under PAEA? Congress decided to have a transition period between the new and old financing systems. During the 10 years , while the assets in the RHBF are building up, the Service has continued paying the employer portion of the FEHB premiums that come due each year.

Starting in , the retiree health care premiums that arrive each year are to be paid using the assets in the RHBF.

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In , however, mail demand was sharply lower due to the Great Recession, intensified use of e-mail, computer bill-paying, and other electronic diversions. Mail volume was down In , Congress allowed the contribution to be delayed to after the Service informed key members of Congress it was dangerously short of cash. Having set a precedent, the Postal Service also defaulted on its , , and payments, and has said it will default again in Defaulting on legal obligations normally has severe consequences.

What have been the consequences for the U. Postal Service? If the Postal Service were a private company, we would be engaged in Chapter 11 bankruptcy proceedings. The Service does not have enough cash to make its full RHBF contributions, but could it make partial contributions? In , the first year it defaulted, the Postal Service truly had very little liquidity. By then, however, defaults had come to seem almost routine, and the Service was unwilling to pay any of its statutory RHBF obligation.

The U. Because the Postal Service has defaulted on all subsequent contributions, however, fund assets have risen slowly since then, with interest earnings on prior contributions the only source of growth. Yes, it is more than twice as big as the next largest. Are estimated liabilities too high because of demographic differences between postal workers and other federal workers? Unobjective, self-serving assumptions could easily skew the results. In contrast, pay-as-you-go means putting aside nothing when future benefits are promised and, instead, dealing with the costs only when they come due.

For example, if an employer hopes to finance pension commitments as they come due in the future solely out of future earnings, that would be a percent pay-as-you-go approach. A rough analogy may also be helpful in distinguishing between the approaches. If a couple saves in anticipation of retirement, that is similar to the funded or pre-funded approach.

Congress can fix the Postal Service's financial problems

If a couple decides not to worry about post-retirement-age expenses during their normal working years, but wait until after they have reached retirement age, that is similar to the pay-as-you-go approach, which may require them to keep working. It sounds like the RHBF shifts retiree health care financing away from the pay-as-you-go i. Is that correct? If the Postal Service had made all its RHBF contributions, the retiree health benefits of current and former postal employees would now be close to fully funded.

As it is, retiree health benefits promises, at 48 percent funded, are about halfway between pay-as-you-go and funded. The pay-as-you-go method allows an employer to make expensive promises that temporarily appear inexpensive because there is little or no negative impact in the short run on reported income and cash flow. This causes short-term financial statements to understate true costs and may lead to a false sense of confidence. Eventually the bills come due. At that point, they can produce significant financial strains if the employer was not careful when making the commitments.

Yes, it may be reasonable in three cases. Second, if the future obligations are small, it may not be worth the administrative expense of setting up a dedicated funding source. None of these conditions apply to the Postal Service. It cannot expect rapid future income growth when demand for its most profitable product, First-Class Mail, continues to decline; its future costs for retiree health care are huge; and its promise to provide retiree health benefits is binding.

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The funded approach more accurately shows the costs of current operations on financial statements, which motivates employers to better manage costs and be more careful about what they promise. The most basic advantage, though, is that if employers put aside money as they promise benefits, the odds increase that they can make good on their promises. For government employers, the funded approach reduces the hazards that unfunded obligations will eventually require large tax increases, such as those being felt now by Chicago property owners as the city tries to shore up dangerously underfunded pensions, [42] drastic cuts in government services, and, in extreme cases like Detroit and Puerto Rico, contribute to bankruptcy or its equivalent.

For a government-owned enterprise with a large monopoly market, such as the Postal Service, the risks due to not funding deferred compensation are cutbacks in service quality for monopoly-market customers, higher postal rates within the monopoly, shifting costs to other government programs, and perhaps a taxpayer bailout. Critics of the RHBF often level this charge. However, the present liability does not include any benefits that may be promised in the future to future workers; it only includes benefits that have already been earned.

There is still much confusion on this point. This is true. For example, state governments, on average, have funded less than 10 percent of their retiree health care liabilities. It might be added that the Postal Service is not the only organization where large unfunded retiree health care costs are a threat. It clearly was. Congress and the Administration told the Postal Service to eliminate within a decade 80 or 85 percent of an unfunded liability that had built up over several decades of pay-as-you-go financing, with the remainder to be eliminated more gradually over a longer time frame.

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Not at all. In retrospect, of course, we know that vision was too optimistic. Is their cost built into the postal rate base? To a large degree it is. The explanation requires revisiting the rate-setting process that existed before PAEA became law. Under old law, rates were set on a cost-of-service basis. Accordingly, rates were set sufficiently high to cover costs, including the large amounts the Postal Service spent to fund its pension promises.

The escrow payments, which the Service could not then touch, counted as an expense. In , the Service sought a 5. In early , the PRC approved this second request, with rate increases averaging 7. In other words, postal rates were increased to give the Service enough revenue to cover the escrow expense, as well as its other costs. When PAEA eliminated the escrow account in favor of RHBF contributions, the dollar amount of expenses stayed roughly the same, even though the nature of the expenses changed.

Accordingly, postal rates had been set high enough to cover the new RHBF contributions. The answer is that, under the old system, rates were set to generate enough sales revenue to cover costs — based on expectations of mail demand. When demand suddenly and unexpectedly crashed, revenue plummeted and deficits resulted.

The U.S. Postal Services Financial Condition: Overview And Issues For Congress

Under the old rate-setting regime, the Service would probably have asked for very large rate increases, similar to those seen in countries like Canada and the U. Under the current rate-setting process, however, price increases for market dominant products are generally limited to the inflation rate. The Postal Service can raise the prices of competitive products at a faster clip, but it appears to be more interested in volume growth for those products than in profit maximization.

However, Congress made the wrong call in later years when it failed to permit further adjustments, except for a one-year delay in When it became clear that mail usage had shifted from growth to decline, Congress should have replaced the front-loaded RHBF contribution schedule with a much more gradual schedule. By not approving a midcourse correction, Congress forced the default and emboldened the Service to refuse, since then, to contribute even a cent to the RHBF.

Was it initially expected the Service would have its retiree health care obligations well in hand by ? Yes, it was thought the Service would have mostly funded its retiree health care obligations by and could then gradually amortize any small remaining unfunded liability based on the post contribution schedule. No, the numbers are sobering. There have been warnings but they went mostly unheeded. Some of the clearest and most accurate came from GAO. However, GAO also recognized failing to make the contributions would mean greater burdens later on.