Funding pension benefits related to the military service of postal retirees was a key issue at a hearing yesterday of the Senate Homeland Security and Governmental Affairs Committee.
The hearing also dealt with the Postal Accountability and Enhancement Act of 2005, introduced March 17 by Sen. Susan Collins, R-ME, the committee chairwoman, and Sen. Thomas Carper, D-DE, a committee member.
The Senate bill repeals a provision of the Postal Civil Service Retirement System Funding Reform Act of 2003 requiring that money owed to the U.S. Postal Service due to an overpayment into the Civil Service Retirement System fund be held in an escrow account. The account would require contributions of $78 billion over 60 years.
On April 8, the USPS filed a request with the Postal Rate Commission for an across-the-board rate increase of 5.4 percent. The postal service said the increase is needed only to meet the escrow requirement of the 2003 act.
The Senate bill proposes using the escrow funds to pre-fund post-retirement health benefit obligations; pay down any outstanding debt to the Treasury; and hold down operating expenses and rate increases.
It also returns to the Treasury Department the responsibility to fund CSRS pension benefits related to the military service of postal retirees. The USPS is the only federal agency that must pay these costs retroactively.
These issues divide the Bush administration from some in Congress and the mailing community because of their costs and effect on the federal budget. The split was clear at the hearing.
“The administration has serious reservations about two significant [issues],” Collins said in her opening statement. “The first is the question of how the so-called savings that resulted from our correcting the Civil Service Retirement System overpayment problem should be spent.”
Collins said the administration wants the entire $43 billion in savings over the next 10 years used to pre-fund retiree health benefits.
“This would take all of the benefit from correcting the problem away from the American mailing public and would lead to unnecessarily high rate increases for mailers,” she said. “This would be nothing less than a new and harmful tax on postal customers.”
Collins said the second concern involves the administration's position on the retirement benefits for USPS employees attributable to their military service.
“The administration contends that the postal service must continue to pay these benefits,” she said. “I believe it is unreasonable and unfair to ask the postal service to pay the retirement costs for the military service of its employees.”
Dan G. Blair, acting director of the Office of Personnel Management, said at the hearing that USPS payment of $27 billion of the cost of military service for retirees, as required under the 2003 act, is justified.
“This obligation is fair and equitable because the Postal CSRS Funding Reform Act effectively converted the postal service's CSRS to the funding system utilized for the Federal Employee Retirement System, which requires each agency — rather than the Treasury — to cover the military service retirement costs of its retirees,” he said. “The Postal CSRS Funding Reform reduced the postal service's pension obligations by $78 billion. In our view, the postal service should not benefit from the dynamic valuation of its pension fund without assuming responsibilities that come with dynamic funding.”
Collins said the higher rates that would result from the USPS continuing to pay these benefits would hurt the economy.
Also at the hearing, postmaster general John E. Potter backed eliminating the escrow requirement and returning the military service retirement payment obligation to the Treasury Department.
“In its place, we support the creation of a payment stream to pre-fund retiree health benefits,” he said. “The Postal Accountability and Enhancement Act … creates a 40-year amortization payment schedule for these obligations. This level payment stream will be particularly important in a rate-cap environment.”
David M. Walker, U.S. comptroller general, told the committee that the USPS has made progress since its transformation efforts and long-term outlook were added to the General Accountability Office's High-Risk List in 2001, including achieving record net income, repaying most debt, increasing productivity and downsizing its work force.
“Comprehensive postal reform legislation continues to be needed to address the fundamental financial, operational, governance and human capital challenges that continue to threaten the service's long-term ability to remain self-supporting while providing high-quality, universal postal service at affordable rates,” he said.
Collins noted that “the owner of a small Maine business that manufactures down comforters and pillows, called Cuddledown, told this committee that the last rate increase in June 2002, which raised Standard Mail an average of 8 percent, meant an increase of $240,000 in the company's postage bill — the equivalent of the salaries for eight jobs.”
Excessive and unpredictable rate increases are a recipe for business failure and job loss, Collins said.
“High rates also further reduce mail volume, aggravate the threat to universal service and lead to even more rate increases,” she said. “The only way to avoid what the GAO refers to as a 'death spiral' is through the comprehensive reform we propose.”
Chantal Todé covers catalog and retail news and BTB marketing for DM News and DM News.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters