Postal Service will resume FERS retirement contributions next month

By Kellie Lunney

November 15, 2011

The U.S. Postal Service will resume payments in December to its Federal Employees Retirement System account after suspending them this summer, the agency announced Tuesday.

Chief Financial Officer Joe Corbett said the agency has "sufficient cash on hand" to resume contributions in early December and pay out the amount that was withheld, which is around $1 billion. "November and December are our strongest months, given the holidays, and we will accumulate more cash this quarter," Corbett said in a conference call with reporters.

Although the Postal Service plans to refill the FERS coffers, the bigger picture financial news is not good. The agency lost $5.1 billion in 2011, and would have gone even further into the red if Congress had not postponed a requirement to prefund retiree health benefits, USPS officials said Tuesday. The Postal Service lost $8.5 billion in 2010.

"Our situation is considered dire by us and requires urgent congressional action," outgoing Board of Governors Chairman Lou Giuliano said during an open board meeting Tuesday afternoon with Postal Service officials.

USPS would have lost approximately $10.6 billion this year if Congress had not allowed the agency to defer its mandatory $5.5 billion payment to prefund postal retirees' health benefits. That bill, originally due in September, now is due Nov. 18, when the current continuing resolution keeping the government open expires.

Jim Miller, who is on the USPS Board of Governors, said the Postal Service will default on Friday if Congress does not extend the deferral on the $5.5 billion payment. Congress is on track to pass another continuing resolution Thursday that would fund the government through Dec. 16 and likely include a measure that would again postpone the Postal Service's bill related to retiree health benefits.

Corbett said USPS probably will run out of money by the end of fiscal 2012, even if it doesn't have to prefund retirees' health benefits. The agency does not have the money to make the 2011 payment and will not have the $5.6 billion that is due on Sept. 30, 2012, he said.

Although 80 percent of the agency's costs are related to labor expenses, continuing declines in mail volume also have contributed significantly to its fiscal woes. Total 2011 mail volume fell by 3 million pieces, or 1.7 percent, from 2010. First-class mail, the Postal Service's most profitable product, decreased by $2 billion from 2010 to 2011. The agency did have some bright fiscal spots this year: Its shipping services revenue, which includes Priority Mail and Express Mail, increased $530 million in 2011 and revenue from Standard Mail increased by $495 million. In addition, USPS reduced its work hours by 34 million; in the last decade the agency has reduced work hours by 28 percent while delivering to nearly 14 million more addresses. And the public is pleased with the agency's work, according to the Postal Service's customer experience measurement. In the fourth quarter of fiscal 2011, overall satisfaction with the Postal Service among residential households was 88 percent, up from 86.8 percent the same time last year.

The House and Senate are moving ahead with postal reform legislation. Last week, members of the Senate Homeland Security and Governmental Affairs Committee approved the 21 Century Postal Service Act, which would allow the agency to recoup a $7 billion overpayment to FERS and to use those funds to offer buyouts and separation incentives to about 100,000 employees. The bill also would restructure prefunded retirement health benefits, reducing the payment goal to 80 percent, and require USPS to negotiate with its unions to develop a new employee health care plan.

In October, a House Oversight and Government Reform subcommittee responsible for postal issues approved a bill sponsored by Rep. Darrell Issa, R-Calif., that would allow USPS to drop a delivery day and adjust its labor costs by aligning pay and benefits more closely with other federal workers' and the private sector's, for example. The bill bans no-layoff clauses in union contracts. If USPS defaults, an authority would take over management of the agency.

The Government Accountability Office has recommended that the mandate requiring the Postal Service to prefund retiree health benefits be eliminated or restructured, and that compensation and benefits for employees follow either private or public sector standards, but not be a hybrid of both.

"The Postal Service can become profitable again if Congress passes comprehensive legislation to provide us with a more flexible business model so we can respond better to a changing marketplace," Postmaster General and Chief Executive Officer Patrick Donahoe said in a statement. "To return to profitability we must reduce our annual costs by $20 billion by the end of 2015. We continue to take aggressive cost-cutting actions in areas under our control and urgently need Congress to do its part to get us the rest of the way there."

Meanwhile, the Obama administration is pushing a plan that would allow the Postal Service to cut delivery days from six to five, provide two years of relief from employer contributions to the agency's FERS account and restructure obligations to prefund retiree health benefits. USPS also would have the flexibility to alter its retail network and adjust postage costs.

By Kellie Lunney

November 15, 2011