June 22, 2011

U.S. Postal Service Suspends Payments to Pension Plan

Announcement follows similar moves by GSEs, state and local governments to deal with tightening budgets

The U.S. Postal Service announced Wednesday it will suspend its employer’s contribution to the defined benefit portion of the Federal Employees Retirement System. In informing the Office of Personnel Management of the move, USPS says it is an attempt to conserve cash and preserve liquidity.

The announcement follows similar measures taken by other government-sponsored enterprises recently—as well as local and state governments—in the wake of lower tax revenue and cash strapped budgets as a result the economic downturn.

The Postal Service pays about $115 million every other week to OPM for the FERS annuity. It estimates the suspension of payments, effective June 24, will free about $800 million in the current fiscal year.

“We will continue to transmit to OPM employees’ contributions to FERS and also will continue to transmit employer automatic and matching contributions and employee contributions to the Thrift Savings Plan,” Anthony Vegliante, chief human resources officer and executive vice president, said in a statement.

The risk of fiscal insolvency has forced USPS in recent years to reduce the size of its work force, close mail processing facilities and cut its administrative overhead. It claims a reduction of 110,000 career positions and savings of $12 billion in the past four years.

Rethinking its strategy and business model has led it to open new retail locations in places where people shop, including grocery stores, drug stores and office supply stores, and introducing new product and pricing initiatives.

But even with what it calls this “emergency action,” the Postal Service called on Congress to enact legislation to return the Postal Service to financial stability by doing the following:

  • Eliminate the current mandates requiring retiree health benefit pre-payments.
  • Allow the Postal Service to access Civil Service Retirement System and FERS overpayments.
  • Give the Postal Service the authority to determine the frequency of mail delivery.

The Postal Service receives no tax dollars for operating expenses, and relies on the sale of postage, products and services to fund its operations.

In January the Financial Times reported that U.S. public pensions face a total shortfall of $2.5 trillion, citing Orin Kramer, former head of the New Jersey pension fund. The deficits have forced states and municipalities to sell assets and slash public services. Pew Center on the States reported a more conservative $1 trillion shortfall figure in late April.

Reprints Discuss this story
This is where the comments go.