Inspectors General Wrestle Over Postal Service Trust Funds

The U.S. Office of Personnel Management (OPM) watchdog is objecting to the recommendations the U.S. Postal Service watchdog has made regarding retiree benefits trust funds.

The U.S. Postal Service Office of Inspector General (OIG) says the postal service has contributed $142 billion too much to the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Funds and could put those excess contributions to better use.

The OPM Office of the Inspector General says the postal service has contributed the right amount and ought to leave the trust funds alone. Taking money out would hurt federal retiree benefits programs without doing much to help long-term postal service profitability, OPM OIG officials say.

The postal service was a government department until 1971. Congress then made the USA service a stand-alone corporations that was supposed to be self-supporting entity.

Volume and revenue grew in the 1980s and 1990s, but the recession and the rise of the Internet have hurt revenue in the past few years, and the postal service now has 596,000 career employees, down from about 700,000 10 years ago.

The postal service reported a $329 million net loss for the first quarter of federal fiscal year 2011 on $18 billion in revenue, compared with a net loss of $297 million on $18 billion in revenue for the fourth quarter of fiscal year 2010.

Federal fiscal year 2011 started Oct. 1, 2010.

Net results for the latest quarter include a $2 billion retiree health benefits pre-funding contribution.

Projections show that the service will be out of cash by Sept. 30 and that it will have used up its statutory borrowing capacity.

Postmaster General Patrick Donahoe said in December 2010 at a Senate subcommittee hearing that a federal law enacted when the economy was strong requires the postal service to pre-fund

future retiree health benefits on a 10-year schedule.

“No other federal agency or private sector companies have a similar burden,” Donohoe said.

In January 2010, the postal service OIG said OPM has been overcharging the postal service for retirement benefits obligations incurred by current employees who began working for the service while the service was still a government department.

The postal service OIG estimated the service had been overcharged by about $75 billion.

An outside consulting firm estimated the service had contributed more than $50 billion too much.

In 2009 and 2010, the postal service OIG came up with three proposals to free up a total of as much s $142 billion in cash by reducing or eliminating postal service payments to the retiree retirement and health benefits funds.

The proposals call for policymakers to:

1. Change the federal law to let the postal service get rebates of excess retirement fund contributions, or else excuse the postal service from making contributions until the excess is exhausted.

2. Increase the federal government’s responsibility, and decrease postal service responsibility, for funding retirement annuities for employees who started working for the service back when the service was officially part of the federal government.

3. Change the law to let the postal service reduce the retirement plan funding level to 80% and the retiree health benefits funding level to 30%.

The OPM OIG generally agrees with the excess retirement contribution rebate proposal, office officials say.

The OPM OIG opposes the other proposals, because it believes the proposals would give the government more responsibility for postal service retiree benefits expenses without giving the government more control over the postal service, officials say.

In addition, “the proposals would create a dangerous precedent whereby the trust funds’ assets are used for purposes other than the payment of benefits,” officials say. “If this became common practice, the financial soundness and integrity of the trust funds would be severely compromised.”

The OPM OIG found no evidence that the postal service can restore its operations to profitability, and that means the postal service may be in no position to make up for future retiree benefits funding shortfalls, officials say.