The shrinking Postal Service workforce is currently having some welcome impacts on the Postal Service’s balance sheet. Surpluses have formed in the Postal Service’s Civil Service Retirement System (CSRS) and Federal Employee Retirement System (FERS) Accounts. The unfunded liability associated with the Postal Service’s retiree health benefit plan has declined even with the Postal Service not making $11 billion in payments required by the Postal Accountability and Enhancement Act.
The following chart presents information on the unfunded liability or surplus in the Postal Service’s CSRS and FERS account. As the Federal Government does not separate out funds, the funded status of these two retirement programs are combined to produce the combined funded status of the Postal Service’s pension programs.
The chart shows that as of 9/30/2011 the Postal Service has a surplus in both its CSRS and FERS Account. The chart also shows that funding status in both accounts have improved each year. Combined, the two accounts are overfunded by $13.1 billion.
The information in this chart reflects the Office of Personnel Management’s analysis for all four years. Therefore, the 2011 CSRS surplus reported in the table below is unrelated to the dispute between the Postal Service and OPM over how to calculate the Postal Service’s share of the CSRS liability and discussed in the Government Accountability Office report, “Allocation of the Responsibility for Pension Benefits Between the Postal Service and the Federal Government.” Therefore, the CSRS surplus below is similar to the FERS surplus that both Republicans and Democrats in the House and Senate agree the Postal Service should be able to use to cover other payments to the Federal Government.
Present Value Analysis of Retirement Programs
as calculated by OPM (9/30/2011 which is the latest data available.
Retiree Health Benefit Plan Funding Level
The Postal Service’s 2011 10-k showed that the unfunded liability associated with the Postal Service Retiree Health Benefit (PSRHB) Fund declined from $48,567 to $46,219. The unfunded liability declined because of a significant actuarial gain calculated by the Office of Personal Management. The decline is significant because it occurred even though the Postal Service has missed $11 billion in payments into the PSRHB fund.
If the Postal Service implements its network optimization initiative or any other program that reduces the Postal Service’s workforce by significant numbers, OPM will have to make additional actuarial adjustments to reflect the smaller Postal Service workforce. This change could be significant if the reduction in the Postal Service’s workforce is as large as Postal Service management now projects. Before legislation is passed in Congress, the OPM should be required to do an analysis as to how the unfunded liability in the PSRHB fund will change, if the Postal Service’s workforce is cut by as many as 225,000 employees.
Impact of Changes in the Funded Status of USPS Retirement Funds on Postal Legislation
The changes described above all relate to actuarial changes made by OPM. There is no dispute as to the methods used by OPM, as they are the standard accounting method used for all Federal Government agencies and are required by law or standard pension accounting rules.
The changes do create a problem for legislation. Both the surpluses in the pension accounts and actuarially-based reductions in the underfunding of the PSRHB fund would logically call for reductions in payments by the Postal Service to these funds. As reducing payments to pension and PSRHB funds reduces Federal revenues, legislative proposals that allow the Postal Service to reduce payments to actuarially-appropriate levels will produce a Congressional Budget Office cost estimate that adds to the budget deficit.
The CBO cost estimate on H.R. 2309 uses an estimate of the FERS surplus that is $0.5 billion below the estimate in the Postal Service’s FY 2011 10K and in the CBO cost estimate for S. 1789. Therefore, even without changes in H.R. 2309, the postive budgetary impact that CBO reported must be reduced by $0.5 billion to reflect the more current figures.
As H.R. 2309, the Postal Reform Act of 2011, does not allow the Postal Service to use the surplus in the CSRS account, a floor amendment is required to allow the Postal Service to treat the CSRS fund surplus in the same manner than it is allowed to treat the FERS fund surplus. Given the discussion that I had with Congressman Dennis Ross on twitter yesterday, it is not clear if the sponsors of H.R. 2309 will agree to make what should be an non-controversial change to their bill.
CBO nor OPM have not made any estimates of changes in funding levels in the CSRS and FERS pension funds or the PSRHB fund due to reduced staffing levels caused by either the network optimization initiative or the introduction of five-day delivery. As such, the CBO cost estimates, more than likely, underestimate the surpluses that will exist in CSRS and FERS funds in years beyond FY 2012 and may miss a potential new problem of overfunding of the PSRHB fund near the end of the 10 year period that CBO examines. Unfortionately, correct accounting for these changes caused by actuarial changes would worsen the CBO cost estimate of the budgetary impact of both H.R. 2309 and S. 1789.
If recent trends in pension accounts funding levels continue, a bill to eliminate the surpluses would likely be more budget negative, if it is evaluated after September 30, 2012. Similarly, changes in the underfunding of the PSRHB due to the actuarial impacts of reductions in the Postal Service’s head count following network optimization that would justify a different and lower funding plan than in current law would increase the negative budget impact of any postal reform legislation.
What this legislative conundrum creates is a serious problem for mailers and postal employees, as rate and cost pressures are intensified to allow the Postal Service to continue to build surpluses in its pension accounts and pay down unfunded liabilities in its PSRHB account at a rate faster than prudent management would suggest. (Depending on how the PSRHB liability is estimated after the reduction in the workforce, the current funding schedule may even result in surpluses in this account.) A solution is needed to fix this without forcing legislatively-mandated cost-cutting or rate increases solely designed to ensure that a postal reform bill is budget neutral or positive.