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Postal unions still peddling pension funding myth

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Politics,Beltway Confidential,Sean Higgins

Earlier today, National Rural Letter Carriers Association President Jeanette Dwyer gave a speech denouncing the cuts in the budget sequester. The speech tried to connect the sequester to budget problems inside the Postal Service that recently caused it to act to suspend Saturday delivery.

According to the prepared text, which was emailed to me from the NRLCA, (It doesn’t appear to be online) she said:

Roughly 80% of the Postal Service’s losses over the past six years stem from burdensome pre-funding requirements to the Future Retiree Health Benefits Fund, a requirement placed on no other government or private institution. While we can all agree that the Postal Service should provide for its retirees, we should also agree that paying for 75 years of benefits over 10 years in simply unreasonable. Allowing the Postal Service more flexibility to make these payments would bring it back from the brink of destruction and allow it to thrive in the 21st century. (Emphasis in original)

Put aside for a minute the simple fact that Dwyer is arguing against ensuring a retiree health program for her own members is fully funded in the long run. Is this so? That is, is the Postal Service really required to be “paying for 75 years of benefits over ten years?” The union and its allies use this to claim that the Postal Service is facing a “manufactured crisis“ and therefore doesn’t really need to make cuts. The claim has been widely cited as fact, including in major news outlets. But does that make it so?

No, it doesn’t, I argued last month. Although the two main postal unions, the NRLCA and National Association of Letter Carriers, have been making this claim for a while now, there is no such passage in the 2006 Postal Accountability and Enhancement Act, the law that supposedly created the requirement.

Instead, it quite explicitly states the requirement is a not insubstantial but  much more reasonable 50 year period. Here is the language under section 8909a of the law, titled:  “Postal Service Retiree Health Benefit Fund”:

Not later than June 30, 2017, the Office shall compute,  and by June 30 of each succeeding year shall recompute, a schedule including a series of annual installments which provide for the  liquidation of any liability or surplus by September 30, 2056, or  within 15 years, whichever is later, of the net present value determined under subparagraph (A), including interest at the rate used in that computation. (Emphasis added)

Spokesmen for both the Postal Service and the House Oversight and Government Reform Committee (which has jurisdiction over the Service) told me last month I was reading the law correctly: It was 50 years, not 75. A Government Accountability Office report also said the 75 year claim was false.

So I contacted both the NRLCA and the NALC to see what they had to back up the claim. The NRLCA spokesman brushed off the question at the time, merely noting the 75 year claim was “widely cited.” The NALC did not even respond to my request. So I reported that the 75 year claim was “a myth“.

A few days after the post went up, NALC spokesman Phil Dine called me and argued — at great length — that I had it all wrong. Fine, I said, send me what you’ve got to back that up and I will write a follow-up post exploring the issue further. I never got anything. A few days later, he contacted my editor and asked if the Washington Examiner would run an op-ed column by the NALC president on the issue. Fine, my editor said, send it along. It has yet to arrive.

So when, I saw Dwyer’s speech and the highlighted section again making the 75 year claim, I figured I’d give this issue one more try. I emailed NRLCA spokesman Mike Uehlein and asked what evidence he had to back up the claim. He responded by emailing me this CNBC story on the issue. He highlighted the following  passage, which is an email from the Congressional Research Service to Rep. Darrell Issa, R-Calif., chairman of the Oversight Committee:

The confusion over 75 years may be due to an “accounting” and not an “actuarial or funding” issue. They only have to fund the future liability of their current or former workforce. This would include some actuarial estimate about the mortality rates of their current workers (I.e. how long they live). So a 25 year old worker would have an average life expectancy (from birth) of 78.7 years. Thus, they would have to project future retiree health benefits for this individual up to about 54 years in the future.

But for accounting purposes they must estimate the future liability over a 75 year period (according to OPM financial accounting guidelines). In this case, they would make some assumptions about new entrants into the workforce and addresses your second question.

Theoretically, these new entrants could include someone who is not born yet. While they have to account for these future liabilities on their financial statements they do not have to fund them if they are not related to their current or former workforce.

Uehlein presumably thought the middle paragraph would settle the issue — that is, the section that says the Postal Service must “estimate the future liability over a 75 year period.”

This was interesting to me because last month Issa’s spokesman had sent me the exact same CNBC column to make the case that the 75 year claim wasn’t true. Note the final sentence in the CRS email above: “While they have to account for these future liabilities on their financial statements they do not have to fund them if they are not related to their current or former workforce.” (Emphasis added.)

I pointed this out to Uehlein. He responded: “But they still have to account for it, which contributes to the ‘deficits’ and gives the implication that the Postal Service is in a worse financial situation than it actually is.”

But as I noted to Uehlein that his boss Dwyer said, “paying for 75 years of benefits” today not “accounting for.” He never responded to my email.

There’s a significant difference between paying for a liability and accounting for it. It is the difference between paying a debt and having a debt. The unions’ claim is that the supposed requirement is draining the Postal Service of funding needed to meet current levels of service — such as six-day delivery — because it paying down 75 years’ worth of retiree health funds now, not merely showing 75 years’ worth of future liabilities on its balance sheets. They have made this claim repeatedly, including in a Washington Examiner op-ed. In reality, the Service only has to pay 50 years’ worth of liabilities.

To clarify, I once again put the question to the Postal Service. “The answer is no,” spokesman David Partenheimer told me via email, “there is no separate 75 year payment.”

Incidentally, the CNBC  story Uehlein pointed me to also features this QnA between reporter Lori Ann LaRocco and Issa:

LL: So bottom line, the unions claim of the postal service pre-funding pensions for future workers is false?

Chairman Issa: Absolutely false. The non-partisan Congressional Research Service recently found that pre-funding requirements match Congress’ intent when they were enacted in 2006. The intent is to ensure that the growing unfunded liability for retiree health care for current employees is covered. These employees negotiated for and earned these benefits with their work, so USPS should pay for them.

Likewise, USPS must be self-sustaining, and not funded by the taxpayers. Prefunding is a prudent measure to protect employee’s earned benefits and taxpayer money.

And this was the best evidence the NRLCA had?

To be fair, is there at least something to Uehlein’s claim that the Postal Service must show these future liabilities and that that is resulting in making its financial situation appear worse than it is? Staffers at the Oversight Committee told me no, that is mixing apples and oranges. Again, the service may have to estimate the future liabilities 75 years out but they still have to pay into the fund on a 50-year plan. And the 75 year estimates don’t figure into the current woes.

So the bottomline is I am going to stick by my original declaration that the postal unions’ 75 year claim is bogus.

In any event, I have now written a nearly 1,400-word post on an issue that is *the* definition of boring wonkiness. I did it in the hope that this will put this damn issue to bed once and for all.

Here’s hoping.

CORRECTION: For some reason, I got the acronym for the National Association of Letter Carriers wrong when I first posted this despite getting the group’s name correct. Go figure. It has been fixed

 

 

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Sean Higgins

Senior Writer
The Washington Examiner