USPS OIG White Paper: Considerations in Structuring Estimated Liabilities
Be Careful What You Assume: Postal Service closer to being fully funded, or potentially overfunded
February 16, 2015 – What if your credit card company told you: “You will charge a million dollars on your credit card during your life; please enclose the million dollars in your next bill payment. It’s the responsible thing to do.” Doesn’t seem quite right, does it?
Well, that’s what the U.S. Postal Service’s requirement to prefund its long-term pension and healthcare liabilities is like. The Postal Service is required to pay the full estimate of its liabilities, currently estimated at nearly $404 billion, even as that estimate moves around and is based on assumptions that are highly uncertain and can frequently change over the life of the liability. Our recent white paper, Considerations in Structuring Estimated Liabilities, evaluates these assumptions and other considerations and shows the Postal Service is closer to being fully funded, or potentially overfunded, when certain assumptions are reasonably adjusted or considered.
First, let’s look at current funding levels. The Postal Service has set-aside cash totals of more than $335 billion for its pensions and retiree healthcare, exceeding 83 percent of estimated future payouts. Its pension plans are nearly completely funded and its retiree healthcare liability is 50 percent funded – much better than the rest of the federal government. But getting to this well-funded position has been painful. The Postal Service’s $15 billion debt is a direct result of the mandate that it must pay about $5.6 billion a year for 10 years to prefund the retiree healthcare plan. This requirement has deprived the Postal Service of the opportunity to invest in capital projects and research and development.
As things stand now, retiree healthcare, pensions, and workers’ compensation are unfunded by about $86.6 billion. But our paper says any discussion of unfunded liabilities should take into consideration assets that could be used to satisfy the liabilities, such as real estate. The Postal Service’s real estate assets have a net book value of $13.2 billion. But fair market value of these properties is estimated as high as $85 billion. Neither is factored into the Postal Service’s ability to meet future liabilities.
In the past 8 years, the Postal Service’s financial condition has significantly worsened from making large prefunding payments for retiree health care. Postal Service customers were charged for increased postage, in part, because of these prefunding requirements.The Postal Service’s research and development and infrastructure maintenance were poorly funded because of its financial condition.
Through congressional action, the Postal Service has funded $335.6 billion in cash towards its future retirement costs. However, mandating 100 percent prefunding of liabilities that are frequently changing and highly uncertain, risks unnecessarily damaging the Postal Service, inflating prices, and overfunding future liabilities.
The Senate’s recent effort to move to 80 percent funding for future health care liabilities reduces the adverse impact of changing assumption fluctuations, such as a downsized workforce, demographics, and actualized interest rates. The Postal Service’s physical assets would cover any remaining shortfall.
Additionally, Congress is considering additional provisions, including requiring Medicare participation and using Postal Service-specific versus general federal government demographics, which would further reduce the liabilities.
Finally, as the OPM is set to establish an annual payment schedule no later than FY 2017 for retiree health care liabilities, the Postal Service may want to request consideration of whether the missed prefunding payments, totaling $22.4 billion, should continue to be reflected as a liability on the financial statements.
via Be Careful What You Assume
the prefunding of the Postal Service’s health care costs came about to destroy the Postal Service! Why not force every other government agency, and private co to prefund their health care costs? Never will it happen! Most people don’t care about what is right or wrong, but only what they can get away with! Now, as can be acknowledged, the requirement that the Postal Service must prefund it’s health care costs is an artificial, invented, unnecessary, imitation, fantasy land cost. A considerable amount of time and money has been wasted! Our country is going back in time, not forward.
Think about this: The Postal Service, despite incompetent and bloated management was profitable before the pre-fund tax and is back to operating at a profit since Donahoe stopped the $5.5 billion payment 3 years ago.
the country has 18 trillion in debt………everything is smoke and mirrors and shadows on the wall. tell me one government agency that is not screwed up. you really think you can run up 18 trillion in debt and have no repercussions……..you people have not seen anything yet. read a few books about hyper-inflation in Weimar Germany in the 1920″s to understand what will happen next.
This requirement had only one objective: to cripple the USPS and force it into the hands of Congress, making a return to subsidies that no doubt would mean salaries would be paid by the public through increased stamp costs and federal taxes. Then, because the public would be incensed at having to pay postal workers through said taxes, the support for selling the Service outright would be easier, and the chances of states voting to remove the Constitutional requirement of universal service would be that much higher. It would take a fifty state unanimous vote to change any amendment language.
But, the Service is closing in on its mandate, and picking up a lot of parcel revenue, as customers are finding out it is cheaper and no less reliable than its competition. People in rural areas especially are up in arms about losing Saturday delivery, and a surprising amount of legislative support has sent a message to people like Darryl Issa, Tom Coburn and Tom Carper that destroying the USPS isn’t the cake walk they hoped for.
We all complain about the management at the USPS but there is no denying they were stuck with a very unfair requirement to fund retiree benefits at an astronomical cost, something no other government entity has had to do. That cash shortage is partially responsible for the layoffs, plant closings and the inability to upgrade a decrepit fleet of LLV’s.
If the rest of the retirement balance can be removed or greatly reduced, we may see the new changes the Service desperately needs. Yes, management has that special ability to screw up everything they touch, but they don’t need the kind of fiscal pressure they’ve got, because we suffer for it too.
Agree with most of what you say but might want to add to your research in these areas:
“Constitutional requirement of universal service”?
“fifty state unanimous vote to change any amendment language”?
peace out.