Postal Committee Considers the 800-Pound Gorilla in the Room

If Congress passed a postal reform law that would mandate the integration of retiree health care benefits (RHB) with Medicare so that Medicare becomes the primary payer of claims, the U.S. Postal Service’s $48.3 billion in unfunded liabilities for RHB would fall to $3 billion overnight. That was the testimony delivered yesterday by USPS Chief Human Resources Officer Jeffrey Williamson before a subcommittee of the Oversight & Government Reform Committee, which has two postal bills before the House: Chairman Darrell Issa’s Postal Reform Act and member Stephen Lynch’s (D-MA) Postal Service Stabilization Act.

Ever since the Christmas Eve approval of a 4.3% exigent rate increase by the Postal Regulatory Commission, direct mailers and catalogers have wondered what happened to the 800-pound gorilla in the Postal Service’s waiting room—namely the $5 billion-plus annual obligation it has to prefund retiree healthcare benefits. But the Federal Workforce, Postal Service & Census subcommittee, of which Lynch is Ranking Member, had not forgotten the monster looming over the Post Office’s balance sheet.

In yesterday’s hearing, Lynch pointed out that the Postal Service is the only government agency required to pay for employee and retiree healthcare by itself. “They just sell stamps; that’s their whole business,” Lynch said, “and 20 cents of every revenue dollar they make goes to healthcare. Their 2013 healthcare costs were $13.4 billion.”

Rep. William Lacy Clay (D-MO) wondered why Robert Moss, the chief of the Department of Defense’s (DOD) health agency was there to testify. Lacy failed to see the connection between DOD and USPS, since the former operates on Congressional appropriations and the latter does not. “At the end of 2013 DOD’s health fund had assets of $187 billion with liabilities of $502 billion. The Postal Service had assets of $43.7 billion and liability of $95.6 billion,” Clay noted. “In other words, the DOD is more unfunded than the Postal Service.”

In answer to Clay, Moss said he didn’t see a problem for DOD handling its healthcare liabilities. But when Clay asked what the situation would be if Congress cut off funds, Moss responded, “Then it would be a problem.”

It’s not that USPS is mismanaged, Clay implied, it’s that it’s the only government agency called upon to ask its customers to pay its own bills or face extinction. “Nobody’s talking about dismantling the federal government when we have $17 trillion in national debt,” Clay remarked.

Lynch asked Frank Todisco, chief actuary of the U.S. Government Accountability Office (GAO) if it’s true that the USPS’s annual contribution to RHB was so high because it was being forced to prefund 75 years worth of benefits in 10 years. Todisco said the Postal Service funding ranged over 50 years, but that the agency’s payments were heavily front-loaded in the first 10 years.

“There are several advantages for prefunding, but that said, no prefund approach is viable unless you can make a payment,” Todisco testified. “We’d support the use of an actuarial assumption specific to the Postal Service workforce that would modify the prefunding schedule. Ultimately, the funding of benefits depends on the underlying business model.”

Todisco also said he would support a section in Lynch’s bill that would allow USPS to use refunds from excess contributions to the Federal Employees Retirement System to pay down debt obligations and make pension contributions.

Should Congress pass legislation that restructures the Postal Service’s healthcare programs and deletes $45 billion of red ink from its balance sheet, it will remain to be seen if an equivalent measure of relief will be awarded to mailers in the form of reduced rates. When subcommittee Chairman Blake Farenthold (R-TX) asked Williamson if he foresaw a turnaround in mail volume, the Postal Service’s HR chief read the death notice of First Class Mail, but expressed optimism that Standard Mail and advertising mail’s volumes would hold steady.

It’s Washington politicians themselves who will swell Standard Mail volumes during this year’s mid-term elections, but direct mailers and catalogers may turn the tide of mail volume the other way in 2015 if exigency continues to hold sway over their budgets.

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