{"id":12649,"date":"2016-08-23T17:41:00","date_gmt":"2016-08-23T21:41:00","guid":{"rendered":"https:\/\/lexingtoninstitute.org\/?p=12649"},"modified":"2016-08-24T08:57:19","modified_gmt":"2016-08-24T12:57:19","slug":"collect-delivery-54-billion-retiree","status":"publish","type":"post","link":"https:\/\/www.lexingtoninstitute.org\/collect-delivery-54-billion-retiree\/","title":{"rendered":"Collect on Delivery: $54 Billion in Unfunded Postal Retiree Health Benefits?"},"content":{"rendered":"

The U.S. Postal Service earned $68.9 billion in total revenue last year – -that\u2019s the good news.\u00a0 The less-good news, unfortunately, was that it reported $73.8 billion in operating expenses for the year.<\/p>\n

But the really bad news is that it also had $54.8 billion in unfunded retiree health benefit liabilities, according to the Office of Personnel Management (pensions comprise a separate unfunded liability, at $24.1 billion).<\/p>\n

As described in a new analysis by postal economics expert Michael Schuyler<\/a> published by the Tax Foundation, the Postal Service has defaulted on every payment to its retirement health benefits fund since 2010, even when it had cash which it could have used to make partial payments.<\/p>\n

While one might expect Postal Service management to seek to renegotiate the expensive benefits it offers its career employees, this is just one of many potential steps to control its own costs that remains blocked by Congress.\u00a0 Schuyler observes that since its 1970 round of postal legislation, Postal Service executives have been prohibited by law from making any substantive changes that would result in a reduction to employees\u2019 benefits, so \u201cfundamental restructuring of fringe benefits is basically off the table in labor negotiations.\u201d<\/p>\n

The most recent major Congressional postal legislation, the Postal Accountability and Enhancement Act of 2006, specifically addressed the process by which the Postal Service funds its retiree health benefits.\u00a0 It directed ten annual payments of $5.6 billion each, a dollar amount largely offset by funds the Service would save from pension payment requirements also as a result of the law.<\/p>\n

Unfortunately, in the years immediately following that legislation\u2019s passage, the bottom fell out on demand for its most profitable products, first-class letters, and\u00a0 subsequently of the Postal Service\u2019s overall business model.\u00a0 The contribution schedule was set in a business climate of growing mail volume and increasing revenue.\u00a0 A downhill spiral in first-class letter mail volume \u2013 long the agency\u2019s cash cow \u2013 deeply imperiled its ability to make this front-loaded required contribution schedule.<\/p>\n

As Schuyler points out, the Postal Service has defaulted on every payment to its retirement health benefits fund since 2010, even when it had cash it could have used to make partial payments.\u00a0 If it had made all of those payments, the obligated benefits for current and former postal employees would now be close to fully funded, making whole their contractual promises from by postal management.<\/p>\n

This requirement does not include liabilities that may be promised to future employees, and Schuyler rightly points out that there is a good deal of confusion on this point. In fact, on its federal Form 10-K filing for 2015, the Postal Service incorrectly asserted that the 2006 legislation required it to fund retiree health benefits promised to \u201ccurrent retirees and future Postal Service employees.\u201d<\/p>\n

So what implications does this hold for the future?\u00a0 Schuyler highlights three possible scenarios:<\/p>\n

First, legislation authored earlier this year by House of Representatives Oversight and Government Reform Chairman Jason Chaffetz, with support from the committee\u2019s ranking Democrats, would mandate that postal retirees be automatically enrolled in Medicare to remain eligible for federal health care in retirement.<\/p>\n

The proposal calls for the Postal Service to pay a decreasing portion of their Part B premium for four transition years.\u00a0 Schuyler notes that approximately 9 percent of eligible postal retirees and dependents do not enroll in Medicare Part A (hospital insurance) and 27 percent do not participate in Medicare Part B (medical insurance).\u00a0 The proposal, HR 5714, was passed by the committee in July with strong bipartisan support, and awaits action by the full House.<\/p>\n

Second, postal retirees could potentially be simply denied benefits promised them over their careers, a scenario preferred by nobody.<\/p>\n

The third scenario is hardly less bleak, however: if current trends hold or escalate, Congress may at some point see no alternative but forcing taxpayers to bail out the Postal Service\u2019s unfunded retiree health care liability.\u00a0 This sobering possibility serves to point out the perils in these treacherous waters, and perhaps to suggest that the heightened exposure for taxpayers means that\u00a0 financial transparency for the Postal Service\u2019s notoriously opaque expenses becomes more imperative now than ever in its past.<\/p>\n

Postal Service management faces many difficult decisions moving forward under the new postal economics.\u00a0 It has already begun planning to replace its aging fleet of 163,000 delivery trucks with new, larger, more-package-friendly vehicles, at an estimated cost of $4.5 billion.\u00a0 Its officials also describe a need for new package-sorting infrastructure and technology, which reportedly could double that cost.<\/p>\n

Postal executives describe forays into the intensely-competitive package delivery and e-commerce industries as their major growth opportunity, and have focused their new product development, and advertising budget, in this direction.\u00a0 As this latest analysis discusses, they face an operating environment where demand for their historically most profitable product, first-class mail, is in steep decline, while its future health care costs for its retirees looms as a binding, and vast, unfunded liability.<\/p>\n

\u201cIt would be nice,\u201d Schuyler asserts, \u201cif legacy costs could be wished away.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

But the really bad news is that the Postal Service also had $54.8 billion in unfunded retiree health benefit liabilities, according to the Office of Personnel Management (pensions comprise a separate unfunded liability, at $24.1 billion). <\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"yoast_head":"\nCollect on Delivery: $54 Billion in Unfunded Postal Retiree Health Benefits? - Lexington Institute<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.lexingtoninstitute.org\/collect-delivery-54-billion-retiree\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Collect on Delivery: $54 Billion in Unfunded Postal Retiree Health Benefits? 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