Policy: Entitlements

Op-Ed: Unjust pre-funding of benefits is killing the postal service


The Washington Examiner has spilled considerable ink in recent weeks (Sean Higgins, "Postal unions peddling pension funding myth," March 12) seeking to downplay the impact of the 2006 congressional mandate that the United States Postal Service pre-fund future retiree health benefits.

With the fate of this venerable institution -- which is based in the Constitution, was first led by Benjamin Franklin and today plays a key role in our national economy -- likely to be determined by the current Congress, your assertions must be addressed and the facts made clear.

First, some perspective on the problematic pre-funding mandate, which applies to no other agency or company and which accounts for most of the red ink facing the Postal Service.

The recent USPS financial report for the first three months of fiscal 2013, for example, said that in operational terms the Postal Service had a $100 million profit delivering the mail -- six days a week, I might add. It earned revenues of $17.7 billion selling stamps and services (remember, the self-funded USPS doesn't get a dime of taxpayer money) and had expenses of $17.6 billion.

But the quarter's $1.4 billion pre-funding cost led to a reported "loss" of $1.3 billion.

There is much support for rectifying this situation, including from the postmaster general, the postal unions, many industry observers and, most importantly, from hundreds of members of Congress from both parties.

The Washington Examiner has entered this discussion -- in a curious way. You don't deny that the mandate accounts for 80 percent of all the red ink. You don't deny that it singles out the Postal Service. You don't deny that the USPS has to pay $5.5 billion a year over 10 years, or that it's already paid $32 billion. You don't deny that all this has diverted the attention of the Postal Service from developing a forward-looking business plan to meet the needs of an evolving society, as it's done for 200 years.

Instead, you've focused on exactly how far into the future the pre-funding payments cover future retirees. Sean Higgins has penned several pieces aimed at "unraveling" the 75-year "myth." Rather, he says, it's "a much-more reasonable" 50 years.

Just because something is repeated often doesn't make it true, he states. That's true, of course, just as it's true -- and more pertinent here -- that just because a columnist writes something over and over doesn't mean he's right. Or, for that matter, that the point is relevant.

Higgins has made a serious effort to look into the matter. But he confuses the amortization period over which the liability is to be prefunded with the projection period used by the Office of Personnel Management to calculate the liability.

The Postal Service reported to us in 2006 that OPM used a 75-year time horizon to calculate the post-retirement health care costs. OPM recently confirmed to us that applying actuarial methods to current postal workforce life expectancies, the actual liability coverage period is 92 years.

As the legislative language Higgins cited indicates, Congress set out a 40-year amortization period beginning in 2017 -- 50 years from the mandate's effective date -- for any new unfunded liability arising in the future.

In any case, whether the annual payments cover future retiree health benefits 50 years into the future, 75 years or 300 years doesn't change the point: No other entity is required to pre-fund at all, the USPS is being charged $5.5 billion annually to pre-fund, this accounts for 80 percent of postal red ink, and it's leading the agency toward financial ruin while creating an atmosphere that precludes normal future planning.

These are the facts, and this is the situation that lawmakers need to address as the first step toward setting the Postal Service on a financially sustainable course.

Fredric Rolando is president of the National Association of Letter Carriers.

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