October 16, 2012 (RARC-WP-13-001)
The Postal Service’s pension surplus was projected to be $13.1 billion as of the end of fiscal year 2011. Most of the surplus – $11.4 billion – is in the Federal Employees’ Retirement System (FERS) pension program. A surplus occurs when assets exceed accrued liability. FERS has been in surplus since 1992, and the OIG wanted to investigate the reasons behind this persistent surplus. Are there distinctive characteristics of the Postal Service and its employees that cause the surplus? And can the surplus be expected to continue?
To answer these questions, we contracted with Hay Group, an actuarial firm with expertise on Postal Service retirement liabilities. Hay Group found that the FERS surplus does result from differences between Postal Service and the rest of the federal government. The assumptions used to measure the Postal Service’s liability do not reflect these differences.
Hay Group recommends using Postal Service-specific assumptions to measure the FERS liability. Using Postal Service-specific assumptions provides a more accurate and stable estimate. When Postal Service-specific assumptions are used, the fiscal year 2011 surplus increases from $11.4 billion to $24.0 billion.
Finding a solution to the FERS surplus is important to the Postal Service’s financial health. There is no mechanism under current law for returning a FERS surplus once it has occurred, but recent legislative proposals have offered potential options. To prevent the FERS surplus from growing unnecessarily, Postal Service contribution rates can be adjusted to reflect Postal Service-specific assumptions. The Postal Service cannot afford to make pension contributions that are not necessary for future benefits.