EVERYONE LOVES the Postal Service — now. It ranked in one poll last year as the most popular federal agency, with an 83 percent approval rating. But under the hood, the situation is dire.
In the first quarter of 2011, the Postal Service posted $329 million in losses after paying $1.4 billion to prefund its employees’ retirement benefits and a liability of $700 million in workers compensation. By the end of fiscal 2011, it will have hit its borrowing limit, leaving it without funds to continue its services.
A new labor agreement between the Postal Service and its employees does little to change this. The cost savings sound impressive at first glance — $3.8 billion over the next four years — until one considers that the Postal Service lost $8.5 billion in the last fiscal year alone. The agreement provides a raise for postal workers in exchange for the concession that they will fund an increased percentage of their own retirement benefits, up to 34 percent over the next three years. Impressive — until one learns that, on average, federal workers contribute 38 percent of pension funding.
Even if the agreement passes an upcoming ratification vote, a whopping 80 percent of the Postal Service’s costs will still be labor-related. But savings are possible. Last week its inspector general testified that the postal disability compensation system is highly susceptible to fraud. Incredibly, employees can keep changing their claims until they qualify for disability benefits, and they can hire their own doctors. Many who receive disability pay are well over the retirement age. Simply moving retirement-eligible employees to retirement benefits would save an estimated $400 million over the next 10 years.
However, a proposal put forth by Rep. Stephen Lynch (D-Mass.) to restructure the Postal Service’s obligation to prefund its employees’ retirement benefits would be a grave mistake. The reason the Postal Service was saddled with the obligation is simple: Unlike other federal agencies, which are expected to remain solvent as their employees retire, the Postal Service is hemorrhaging money. If it is unable to pay for its employees’ retirements, taxpayers will be left with the burden.
It is not unreasonable to project further decline. The volume of first-class mail — the most profitable type — is plummeting as people increasingly file taxes, correspond and conduct business online. The Postal Service acknowledges that even as the economy recovers from the recession, first-class mail will not return to earlier levels. Its place is being filled by standard mail — a term for the bulk advertising from companies that now floods into your mailbox at special low rates. But even vast volumes of standard mail generate a small fraction of the profit that comes from first-class mail.
The inadequacy of the labor agreement makes the need for reforms more urgent. One that can be made right away is moving those of retirement age off disability. Another can be found in a proposal by Sen. Susan Collins (R-Maine) for increasing competition for contracts. Congress must push the Postal Service to stop ducking the need for radical change.