In a new financial assessment, the Office of Personnel Management concludes that the Postal Service has paid billions of dollars more than necessary into the government's pension fund during the last 30 years. That means pensions for all postal workers enrolled in the Civil Service Retirement System-about 248,000 employees at the end of fiscal 2001-are almost fully funded, instead of being a huge future liability.
As a result of the overpayments, the Postal Service may have extra funds to help pay down its debt and forestall a proposed rate increase for two years. But Congress would have to approve any shift in funds away from retirement payments.
Prior to the review, postal officials and others were concerned that the agency's obligations to make payments to the retirement fund would severely hamper its ability to get on a sound financial footing. Previous projections showed the Postal Service would have to spend $32 billion over the next 30 years to cover retirement costs. The new assessment puts the liability at only $5 billion.
OPM has determined that in essence, the Postal Service has been paying too much into the fund, which covers employees who joined the government before 1984. Each year OPM tells federal agencies how much they must contribute to the fund.
OPM officials were unavailable to comment on the report.
"The findings are the result of a number of factors," Postmaster General John Potter told the agency's board of governors at its monthly meeting Tuesday. "But the change was primarily driven by higher than expected yields on pension investments made by the Department of Treasury."
Treasury invests money that employees and agencies contribute to the pension fund. The return on those investments over the past three decades, assumed to be around 5 percent, was actually closer to 6.75 percent, according to William Tayman, manager of corporate financial planning at the Postal Service.
For the past year, David Walker, head of the General Accounting Office, has been hounding the Postal Service to reassess its long-term liabilities, including retirement and health care costs. As a result, the Postal Service asked the Office of Personnel Management to reassess its obligations to the pension fund. It's the first time that OPM isolated Postal Service payments from those of other federal agencies.
While OPM shared its analysis with the Treasury Department and the Office of Management and Budget, the General Accounting Office had not been briefed as of Tuesday afternoon. Walker said that if the numbers prove accurate, the Postal Service may have some "breathing room" to address other major challenges, including bringing down its debt and dealing with a slowdown in mail volume. He stressed that the agency must turn the same financial light on its long-term health care costs, which some have estimated to be as high as $50 billion.
The Postal Service, with the backing of the Bush administration, is proposing to reduce its future contributions to the pension fund. Doing so would increase the amount of money available to pay down the agency's debt in fiscal 2003 from $800 million to more than $3 billion, and delay a rate increase from 2004 to 2006.
Potter said the good news should not give the Postal Service a false sense of security.
"The nation still faces a long-term challenge to continue postal services to everyone, everywhere, while financing the costs of our growing nationwide delivery network," he said. "We want to do it as we have for the past 20 years-through postal revenues and without tax dollars."
Robert E. McLean, executive director of the Mailers Council, the mailing industry's largest trade group, agreed, saying that the good news creates an opportunity to assemble a presidential commission charged with developing reforms to postal operations.