Postal Service aid plans would jeopardize federal retirement funds, watchdog says

Washington Post Staff Writer
Tuesday, March 1, 2011; 10:25 PM

Helping the cash-strapped Postal Service by drawing money from federal retirement and health insurance funds could jeopardize those accounts and result in an indirect taxpayer subsidy to the independently funded mail agency, according to a watchdog report.

Despite declining mail volume and the sagging popularity of snail mail, most of the Postal Service's financial woes stem from growing labor costs, including billions of dollars required to fund active and retired postal workers' health-care and retirement benefits - part of the same retirement and health-care funds used by civilian federal employees.

President Obama's recent budget proposal and a series of reports by the Postal Service and postal regulators have concluded that the agency over the years has overpaid into federal retirement and health insurance programs, perhaps by as much as $142 billion.

Obama's 2012 budget proposal recommends allowing the Postal Service to pay $4 billion less this year toward future retiree health benefits than otherwise required. The mail agency would have to pay about $1.5 billion of those costs in 2011 and make up the difference in later years.

The budget proposal would also adjust the size of the annual payments by taking into account a smaller postal workforce and would refund about $6.9 billion in overpayments that the Postal Service made to fund future annuity costs.

But Patrick McFarland, inspector general for the Office of Personnel Management, which oversees the federal retirement and health insurance funds, said Monday that drawing funds from those accounts to help the USPS would amount to subsidizing it with general tax revenue, contrary to its role as a self-funding entity.

"The proposals would cause the government to assume responsibility for USPS retiree benefit expenses without a corresponding increase in government oversight," he said.

Worse, "if this became common practice, the financial soundness and integrity of the trust funds would be severely compromised," McFarland said in a 56-page report on the issue.

Lawmakers are likely to highlight the conclusions during a House oversight subcommittee hearing scheduled for Wednesday on the Postal Service's finances.

The Postal Service is set to lose about $7 billion in the fiscal year ending in September, and McFarland's office concluded that the agency isn't likely to return to profitability, which could impact its contributions to the health insurance and retirement funds.

The OPM - and by extension, the Obama administration - should continue to support the 2006 law requiring the Postal Service to prefund its future retiree health benefits, McFarland said, because the law protects the federal health insurance fund against any risk of the Postal Service going broke. Unless Congress passes a law stating otherwise, the OPM also shouldn't allow the Postal Service to adjust the size of its annual payments based on its smaller workforce, he said.

Obama's budget requests support requiring the Postal Service to continue prefunding retiree benefits "because this helps to protect taxpayers from the risks associated with large, unfunded retiree liabilities," said Moira Mack, a spokeswoman for the Office of Management and Budget.

"Both the budget and the new report acknowledge that it will take more than those steps to ensure a viable Postal Service for the long haul," Mack said in an e-mail. "The administration looks forward to working with Congress and key stakeholders on the broader array of questions that concern the future of USPS."

The Postal Service Office of Inspector General disputed the OPM's conclusions, saying the outside actuarial firm used to estimate its overpayments was once used by the OPM to make similar calculations.

"This is not about the financial condition of the Postal Service, but that the Postal Service was overcharged and subsequently overpaid into benefit funds," the OIG said in a statement. "In the Unites States there is the rule of law and the accounts must be settled. This issue is fundamentally about righting an inequity."

Staff writer Eric Yoder contributed to this report.

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