WASHINGTON — Today, Chief Human Resources Officer and Executive Vice President Jeffrey Williamson testified before the United States House of Representatives Subcommittee on Federal Workforce, U.S. Postal Service and the Census during a hearing titled “At a Crossroads: The Postal Service’s $100 Billion in Unfunded Liabilities.”

What follows are highlights of Williamson’s testimony.

“The enactment of comprehensive postal reform legislation cannot wait.  The Postal Service has exhausted its borrowing authority, faces unnecessary and artificial costs that it cannot afford, and is constrained by law from correcting the problem…

We cannot get there by our actions alone.  There exists no scenario where the Postal Service returns to financial stability without enactment of postal reform legislation.  Now is the time for bold and sweeping action, which will allow us to move forward with solutions that will last for years to come, instead of piecemeal efforts that will only bring the Postal Service back here again, pursuing legislative reform in a few years.

Our proposals and legislative requirements address our key liabilities.

• Retiree health benefits – full Medicare integration would reduce the unfunded liability by almost $44 billion, almost to zero.
• FERS overfunding – utilizing Postal Service specific demographic and salary growth assumptions would result in approximately $6 billion in overfunding which should be returned to the Postal Service.  This would minimize the likelihood that FERS would become overfunded in the future.
• Long-term pension liabilities – creating a defined contribution plan for future employees would provide a retirement system that better matches benefits with long-term employees’ needs, while ensuring the system’s financial viability.
• Worker’s compensation reform that would require recipients who reach retirement age to transition from workers’ compensation to a retirement program would be cost effective, and create a more equitable system that would also reduce the Postal Service’s unfunded liability.  In addition, legislation that would allow the Postal Service to settle workers’ compensation claims would be beneficial for both the Postal Service and those employees who are unable to return to postal employment.”

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Despite all of our efforts and the hard work of our employees, we cannot return the Postal Service to profitability, nor can we secure our long-term financial outlook without the passage of comprehensive reform legislation. Our current business plan (available for viewing on usps.com) clearly demonstrates that management actions combined with comprehensive legislative reform is the only option for restoring
the financial viability of the Postal Service.

Currently, approximately 20 cents of every revenue dollar the Postal Service takes in goes toward health care expenses. This major component of our total operating cost is second only to wages, and is largely outside of our control. Total health care cost for 2013 was $13.4 billion, which includes $4.9 billion for current employees, $2.9 billion for retirees, and $5.6 billion for RHB prefunding. As illustrated in Figure 4,
the Postal Service has a very large unfunded liability for RHB benefits. By 2014, we project the total liability to be $95.9 billion, with an unfunded liability of $46.8 billion.

In order to address the Postal Service’s long-term financial stability, it is absolutely essential to deal with the root cause of the problem—the size of the RHB liability, which is dictated by the costs the Federal Employees Health Benefits (FEHB) Program incurs in providing health care benefits to our annuitants.

Moving to a system in which our annual prefunding payments are actuarially-based, and allowing the existing assets in the RHB fund to be used to pay annuitant premiums more quickly than is contemplated under current law, are important aspects of comprehensive reform legislation. However, these reforms are insufficient by themselves, because they do nothing to reduce the size of the RHB liability. Even if the
prefunding payments are changed to an actuarial basis with a longer amortization schedule, they will still be unaffordable without changes to address the Postal Service’s unnecessarily high health care costs.

By addressing the costs of providing RHB directly, we can almost completely eliminate the unfunded liability associated with those benefits. The way to do this is by properly integrating retiree health care benefits with Medicare, so that Medicare becomes the primary payer of health care claims for eligible annuitants and covered family members, with FEHBP being the secondary payer. Under FEHBP, Medicare-eligible individuals are not required to enroll in Medicare. Ten percent of Postal Service retirees are not enrolled in Part A, and 24 percent are not enrolled in Part B. This failure to integrate fully with Medicare is despite the fact that the Postal Service and its employees are the second-largest payer into Medicare, contributing $27 billion since 1983, and has resulted in significantly higher retiree health care costs and liabilities. Failing to properly integrate our retiree health benefits with Medicare increases the Postal Service’s FEHBP costs, and is contrary to the virtually universal practice among private sector employers and state and local governments that provide health care benefits for their retirees.

The Postal Service has worked extensively with all stakeholders to develop a proposal that would ensure proper integration with Medicare Parts A, B, and D within the structure of FEHBP. Under this proposal, Postal Service employees and annuitants would remain in FEHBP, and their health care benefits would still be administered by OPM. FEHBP carriers that have more than 5,000 postal participants (active and
retired) in their plans would be segregated from the rest of FEHBP. These carriers would establish rates for Postal Service employees and annuitants based on a separate, postal-only claims pool. Postal Service Medicare-eligible annuitants (and covered family members) covered by those carriers would be required to enroll in Medicare Parts A and B, and the carriers would provide prescription drug benefits to
Medicare-eligible individuals through Medicare Part D Employer Group Waiver Plans (EGWPs). These requirements, in combination with the separate claims pool, would lead to lower FEHBP premiums for Postal Service employees and annuitants.

This proposal would almost completely eliminate the current unfunded RHB liability, and would make future amortization payments manageable (Figure 5). Properly integrating our health care with Medicare, consistent with the universal practice of private sector employers, is the only way to reduce our liability and make retiree health benefits an affordable proposition for the Postal Service moving forward. This, in turn, will ensure that we can continue to fulfill our commitment to employees and retirees to provide those benefits.

Williamson’s full written testimony is available at: http://about.usps.com/news/testimony-speeches/welcome.htm