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How the Postal Service Could Overhaul Its Retirement and Leave Benefits

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The U.S. Postal Service spent $6 billion on retirement benefits in fiscal 2013, and the agency thought that was too much.

USPS asked its inspector general’s office to evaluate its retirement packages against the benefits offered at other organizations. Current law mandates the Postal Service offer employees enrollment in the Federal Employees Retirement System, unless they were grandfathered into the Civil Service Retirement System.

In the resulting white paper report, the IG found many of the entities the auditors studied -- both public and private -- have adapted their retirement programs to reflect rising costs and budgetary realities. The Postal Service, of course, has not changed its offerings since FERS was created in 1987.

Federal statute requires USPS employees to receive “compensation comparable to the private sector,” the auditors noted. Federal employees earn 39 percent of their total compensation through benefits, however, compared to 30 percent for private-sector workers. The Postal Service spent 12.3 percent of its $47 billion compensation budget on retirement expenses in fiscal 2013, while private-sector companies averaged just 3.7 percent.

“Unlike private sector companies,” the IG also pointed out, “the Postal Service does not have the authority to change retirement benefits for its employees.”

Pensions, such as the defined benefit portion of FERS, used to be the most common form of retirement program in the United States, the auditors wrote, but over the last few decades 401(k) plans have become more popular. FERS also offers a 401(k)-type option through the Thrift Savings Plan.

Of the eight organizations the IG studied -- six private-sector companies, one state government and one city government -- all historically had defined benefit pensions, but seven of them moved at least partially to defined contributions. The unspecified state government maintained its pension plan, but increased the retirement age requirement, decreased employee benefits and offered a delayed compensation plan.

“These organizations are…freeing themselves of long-term retirement costs by shifting the responsibility to the employee,” the auditors wrote. The move toward retirement savings accounts like the TSP also reflects today’s more “mobile and transient” workforce, as employees can typically take a 401(k) with them to new jobs.

A private communications firm estimated $3 billion in savings over 10 years by switching from a defined-benefit to a defined-contribution plan, while the state government predicted $5 billion in reduced liabilities over 30 years from its changes.

One of the companies the IG examined was the “world’s largest package delivery company,” which still offers a pension to its unionized workforce but transitioned its nonunionized employees to a 401(k) plan. The USPS IG argued the defined-contribution plan offered workers more flexibility, and the company “plans to persuade all employees” to switch to the 401(k) program.

Another common practice among the organizations that maintained some version of a pension, was that they increased the length of service requirement to become eligible for the benefit, the IG said. The auditors found a “healthy, collaborative relationship between the organization and its unions is pivotal” to reforming retirement benefits. Organizations that changed their programs openly communicated to the unions the “difficulties and cost burdens” they were incurring.

Of course, none of these suggestions are possible without congressional action. And postal reform of any kind hasn’t exactly proven easy over the last few years. If the agency is able to institute changes, however, the inspector general said it has laid out a successful framework.

Leave Policies

The inspector general’s office also reviewed in a separate white paper USPS’ leave policy in comparison to six private-sector and two government organizations.

The auditors found several companies were moving away from specified leave -- such as the annual, sick and personal leave the Postal Service offers -- and toward a more general “paid time off” policy. Analysis of data from the Bureau of Labor Statistics showed the average number of total days off, including holidays, ranged from 33 to 49 in the private sector, depending on length of service. The Postal Service similarly offers between 36 and 49 paid days off annually.

Most of the organizations the IG studied, however, have tighter limits on the number of vacation days employees can carry over into a new year. The cap at the eight employers ranged from three to 36 days, while Postal Service workers can carry over 55 days of annual leave and an unlimited number of sick days.

By modifying its leave policies the Postal Service can likely reduce costs and have employees working more days, the IG said, but the changes would present several challenges. The difficulties include “legal requirements, union negotiations, updated information technology to support changes and assessments of the impact of benefit changes on employees.” 

Eric Katz joined Government Executive in the summer of 2012 after graduating from The George Washington University, where he studied journalism and political science. He has written for his college newspaper and an online political news website and worked in a public affairs office for the Navy’s Military Sealift Command. Most recently, he worked for Financial Times, where he reported on national politics.

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