A $75 billion postal retirement fund overcharge caused rate hikes, and mail cutbacks.

By Chantal Tode — Graphic Arts Online

The US Postal Service was overcharged $75 billion for payments to the Civil Service Retirement System pension fund between 1972 and 2009, according to a new study released by the Postal Service’s Office of Inspector General. The Inspector General estimates that if the overcharge were used to prepay the Postal Service’s health benefits fund, it would fully meet any retiree health care liabilities and eliminate the need for required annual payments into the fund of more than $5 billion.

These annual payments have been an ongoing source of financial pain for the Postal Service at a time when it is under significant financial pressure from other sources, such as declining mail volume. The USPS reported a net loss of $3.8 billion for its 2009 fiscal year and has been considering closing post offices and shortening the delivery week as ways to cut costs.

Last year, Congress passed a bill to allow the USPS to delay $4 billion of its annual payments into the retirees’ health benefits fund.

In the study, an analysis conducted by the Inspector General’s office and Hay Group, demonstrates that the method used to determine how the Civil Service Retirement System pension fund costs are split between the Postal Service and the federal government is inequitable. As a result, the Postal Service was overcharged by $75 billion for payments covering retirees from 1972 to 2009.

I contacted the Postal Service’s Office of Inspector General about this issue. A spokesperson said the study was conducted with the goal of pointing out that there is a problem, defining its scope and determining why it’s happening. How the issue is addressed is up to the Postal Service and Congress, he noted.

History repeats itself

The accounting issues that led to the overcharge trace back to 1971, when the Postal Service ceased being a full-fledged federal agency and became the hybrid entity it is today. This means, for example, that the Postal Service doesn’t receive appropriations from Congress like other federal agencies do. However, the Postal Service’s Civil Service Retirement System pension fund is run by the Office of Personnel Management, which administers benefits for all federal government offices. This office is responsible for determining how much the Postal Service should contribute to its employees’ retirement funds versus how much the federal government should contribute to the fund. The problem is that the formula the Office of Personnel Management uses to calculate the split was established back in the 1970s.

This isn’t the first time USPS has been massively overcharged on its retirement funding obligation.

In 2002, it was determined that the Postal Service would overfund its retirement fund by $78 billion. Legislation passed in 2003 corrected this. Then it was determined that the Postal Service was overcharged $27 billion for Civil Service Retirement System military service credits. In 2006, Congress returned these funds to USPS, and the surplus was used to fund retiree health care liabilities.

Related Blogs