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Budget recommends greater flexibility for Postal Service

Plan would restructure retirement obligations and reduce mail delivery to five days.

President Obama’s fiscal 2013 budget proposal recommends giving the U.S. Postal Service greater flexibility to operate and save money, including restructuring the way the agency prefunds retirees’ health benefits.

The administration seeks to tweak a provision in the law that requires USPS to prefund retirees’ health benefits, which costs the agency billions annually. The proposal would move the payments to an accruing cost basis and reduce the near-year postal payments, according to the budget document. The Postal Service lost $5.1 billion in 2011, and would have lost $10.6 billion if Congress had not allowed the agency to defer its mandatory payment to prefund those health benefits for retirees. The payment has been deferred several times and is due in the summer.

The budget proposal also supports providing USPS with a refund over two years of the $10.9 billion in overpayments made to the Federal Employees Retirement System; reducing mail delivery from six days to five days beginning in 2013; allowing the Postal Service to collaborate more with state and local governments; and giving the agency the ability to better align postage costs with mail delivery costs while still operating within the current price cap.

The White House estimates the reforms would provide the Postal Service with more than $25 billion in cash relief over the next two years and save $25 billion over 11 years.

“The president has offered helpful recommendations to stabilize the Postal Service’s financial crisis,” said Postmaster General Patrick Donahoe in a statement.

The Senate Homeland Security and Governmental Affairs Committee in November 2011 approved a bill that included some similar provisions, including one that would restructure prefunded retirement health benefits. The legislation also would allow USPS to reduce mail delivery to five days and require the Office of Personnel Management to return a FERS surplus to the agency every year one is calculated. The nonpartisan Congressional Budget Office, however, estimated the bill would create a net government loss of $6.3 billion over 10 years. The Senate is expected to vote on the legislation in next few months.

The Postal Service expected a financial boost from the 2011 holiday season, but it didn’t materialize. The agency lost lost $3.3 billion in the first quarter of fiscal 2012.