A mailbox (Photo: Allison Bell/ALM)

Frederic Rolando, the head of a labor group for U.S. postal workers, says the retiree health benefits funding problems at the U.S. Postal Service may be more manageable than they look.

Rolando — the president of the National Asociation of Letter Carriers — is one of the witnesses who testified Tuesday at a House Oversight and Reform Committee on the financial condition of the Postal Service.

A federal law, the Postal Accountability and Enhancement Act of 2006 (PAEA), has made the Postal Service the only employer in the United States required, by federal law, to pre-fund its retiree health benefits, rather than simply waiting for the bills to come in and hoping it will have enough cash to pay the bills.

“The Postal Service has defaulted on more than $40 billion in payments owed to pre-fund retiree health care expenses,” according to a hearing notice prepared by the staff of the committee, which is now controlled by the Democrats.

(Related: New York City Owes About $100 Billion for Retiree Health Care)

Rolando argued that the Postal Service situation is not as dire as it looks, and that there are still ways for the Postal Service to provide the retiree health benefits it has promised.

Excluding the effects of the PAEA retiree health benefits funding obligations, the Postal Service has been doing much better in better recent years, according to a written version of Rolando’s testimony.

Minus the effects of the health benefits funding requirement, the Postal Service generated $700 million in earnings in 2018 on $71 billion in revenue, Rolando said.

Congress has aggravated the effects of the highly unusual PAEA retiree health benefits pre-funding requirement by requiring the health benefits fund assets to be invested in low-yielding Treasury requirements and with other restrictions, Rolando said.

Rolando said one barrier to repealing the PAEA pre-funding requirement is federal budget scoring rules. Under those rules, he said, the Postal Service itself is an off-budget agency, but the payments into the Postal Service Retiree Health Benefits Fund are treated as if they were tax revenue. That means eliminating the pre-funding mandate would increase the federal budget deficit, Rolando said.

Rolando suggested four ways to ease the retiree health benefits pre-funding problem:

  1. Simply eliminate the pre-funding requirement.
  2. Set the prefunding target at 60% of the “vested liability,” or baked-in liability, rather than the liability for all employees, even if those employees have not actually locked in having retiree health benefits.
  3. Let the Postal Service retiree health benefit plans provide prescription drug benefits through the Medicare Part D prescription drug plan program.
  4. Require most Postal Service workers who are now under 55 to enroll in both Medicare Part A and Medicare Part B at age 65, if they are eligible to do so, rather than letting them depend solely on health benefits provided through the Federal Employees Health Benefit Plan.

Rolando said the typical private employer that prefunds retiree health benefits typically sets enough to cover about 60% of the vested benefits.

Rolando said that, even if the Postal Service went out of business, it has assets it could use to meet the vested retiree health benefits obligations, such as real estate with a total value of about $85 billion.

Resources

Information about the Postal Service financial condition hearing, including a video recording of the hearing, is available here.

— Read Postal Service Bill Cuts Spending on Health Care for Retirees, on ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on LinkedIn and Twitter.