Talk of postal finances inevitably turns to the U.S. Postal Service’s retiree pension assets and obligations. With nearly $279 billion in assets, yet $41 billion below their estimated liabilities, the pension plans are a huge part of the USPS portfolio.
Our office has looked at ways to address the Postal Service’s long-term pension and health liabilities, focusing recently on ways to invest assets so they yield higher returns while minimizing risk.
In our most recent white paper, we reviewed how 11 foreign posts invest their pension plans. We found all 11 diversify their pension investments, with eight of them investing in three or four asset classes, such as bonds, equities or real estate. The Postal Service has only the single investment option of Treasury Bonds.
The Postal Service participates in two government-wide pension plans
, the Civil Service Retirement System (CSRS) and Federal Employees Retirement System (FERS). The U.S. Office of Personnel Management (OPM) administers the funds, and by law, OPM and the Treasury Department can only invest in U.S. Treasury Bonds. We have noted in past reports that the inability to invest more diversely leaves the postal pension and retiree health funds vulnerable to a low rate of return that may not generate enough income to meet future obligations, especially if inflation increases.
Our review of the investment practices for pension funds of the 11 foreign posts found they based their financing on a much more sophisticated portfolio and relied on risk optimization. Over a 14-year period from 2004 to 2017, the Postal Service’s pension assets were much less volatile than the foreign posts, yet returns were generally more modest.
The report notes that certain factors make robust comparisons of posts’ long-term investment challenging. Still, we conclude that broader diversification would likely result in additional volatility but could allow the Postal Service to improve returns on their pension assets. This type of change, however, would require legislative action.
Do you think the Postal Service should be allowed to invest its pension funds in a more diversified strategy?