What if your credit card company told you: “You will charge a million dollars on your credit card during your life; please enclose the million dollars in your next bill payment. It’s the responsible thing to do.” Doesn’t seem quite right, does it?

Well, that’s what the U.S. Postal Service’s requirement to prefund its long-term pension and healthcare liabilities is like. The Postal Service is required to pay the full estimate of its liabilities, currently estimated at nearly $404 billion, even as that estimate moves around and is based on assumptions that are highly uncertain and can frequently change over the life of the liability. Our recent white paper, Considerations in Structuring Estimated Liabilities, evaluates these assumptions and other considerations and shows the Postal Service is closer to being fully funded, or potentially overfunded, when certain assumptions are reasonably adjusted or considered.

First, let’s look at current funding levels. The Postal Service has set-aside cash totals of more than $335 billion for its pensions and retiree healthcare, exceeding 83 percent of estimated future payouts. Its pension plans are nearly completely funded and its retiree healthcare liability is 50 percent funded – much better than the rest of the federal government. But getting to this well-funded position has been painful. The Postal Service’s $15 billion debt is a direct result of the mandate that it must pay about $5.6 billion a year for 10 years to prefund the retiree healthcare plan. This requirement has deprived the Postal Service of the opportunity to invest in capital projects and research and development.

As things stand now, retiree healthcare, pensions, and workers’ compensation are unfunded by about $86.6 billion. But our paper says any discussion of unfunded liabilities should take into consideration assets that could be used to satisfy the liabilities, such as real estate. The Postal Service’s real estate assets have a net book value of $13.2 billion. But fair market value of these properties is estimated as high as $85 billion. Neither is factored into the Postal Service’s ability to meet future liabilities.

In addition, the liabilities are not exact or static amounts and they require certain assumptions, such as interest rates and demographic inputs, to estimate the future costs of these programs. For example, interest rates are at historic lows. Even slightly higher interest rate assumptions would reduce or eliminate the estimated liabilities.

Our paper details how different assumptions and considerations would affect the liabilities. Basically, if the Postal Service’s real estate assets were considered and one other assumption adjusted, the long-term liabilities would be overfunded.

Mandating 100 percent prefunding of future liabilities that are frequently changing and highly uncertain could unnecessarily damage the Postal Service, inflate prices, and overfund future liabilities.

Share your thoughts on our paper. Do you agree or disagree with the overall premise of the paper or have additional insight to share? 

Comments (76)

  • anon

    No, the USPS is NOT required to pre-fund 75 years in advance. That is a myth perpetrated by those who do not understand the requirement or those who have an agenda other that presentation of the facts. This 75-year myth has been debunked by the nonpartisan Congressional Research Service. The USPS has no requirement to fund 75 years’ worth of benefits. The requirement is to fund only the actuarial calculation of the future liability of their current or former workforce. For accounting purposes the USPS must estimate the future liability over a 75 year period. This 75 year issue is only an accounting exercise, however; the funding requirement is limited to the actual liability for the benefits already accrued by the USPS workforce. This pre-funding requirement is quite reasonable and should be required of all post-retirement benefit schemes, both public and private. The intent is to ensure that the growing unfunded liability for retiree benefits for current employees is covered by well-managed investments that grow for the benefit of the workers. The workers earned the benefits with their work, so USPS (and other government agencies and private companies) should set aside funds for them -- as they are accrued, not later. Universal adoption of this rule would prevent the USPS and other institutions from raiding employee’s accrued benefit funds and would eliminate potential taxpayer liability due to benefit plan fund mismanagement.

    Dec 11, 2015
  • anon

    In 2000, 2001 USPS employees were made to pay in extra to their retirement accounts , known as CSRS and FERS, under the 1997 budget reconciliation act law for BUDGET Reasons only according to NALC Legislation fact sheet of 2003. The President and both sides of Congress thanked the Postal Workers for their "sacrifice", while others were getting tax cut payouts in the US Mail. The increase was removed from the Presidents budget in 2003. And New Legislation began on CSRS. A request was made for a ' hypothetical postal funding ' of CSRS by the author of the PAEA and several other Senators. A letter to the honorable Jim Nussle was written and sent on January 27, 2003, www.cbo.gov/publication/14255, in which a lowered amount was to be paid in to CSRS by the USPS. Following that the Envelope Mailing Association Institute met with the Presidents Commission on Postal Studies which can be found online at govinfo.library.unt.edu/.../comments/organizations/ema.foundation.pdf dated Feb. 12, 2003, in which the USPS was found by OPM to overfund CSRS by 71 billion and GAO 103.1 billion , due to this matter the USPS was to legally be recognized by Congressional legislation, on the matter, and get a lowered amount from 32 billion to 5 billion . The 5 billion was to be paid forward over 40 years time , having no effect on the USPS, the public, its workers, the federal budget or federal budget scoring. But due to the alec/Koch cabal pursing the privatization of USPS for Ups and FedEx, ( see article on line with search , April 2012, Bob Sloan , voters league transparency project . net, and www.kochcash.org/koctopus ) the congressional budget office came on board and stated if the USPS was to get a lowered amount to pay forward then the USPS would not raise stamp rates. according to further information, the USPS Post Master General Potter, agreed not to raise stamp rates ( GOP ) for 3 years from 2003 until 2006. He received pay per performance bonus money and eventually retired with 5.5 million . The PAEA was passed by voice vote , and the effect on the USPS began. Non replacement of attrition orders began to be given to cut back on the working forces of the USPS due to having CSRS and FERS overfunded and now the PAEA. Over 925 have died directly or indirectly due to the effect of the PAEA. Safetyfirstusps.com /fallen-postal-workers lists a few. not all. So for having too much money and needing more prefunded, workers have died. When will enough money be for retirement for deceased workers , is there an answer for the ones that have passed that don't get the retirement and are dead due to the prefunding mandate? Looking out for a mandate by the alec Koch in order to take down the USPS, which predates the forming of the Nation and Constitution is a reason for orders of non replacement so a USMC/USPS can die for having too much money in retirement in the first place , this is a Congressional standard?

    Feb 19, 2015
  • anon

    Better yet... Lets force the US Government to Prefund as well. Lets see them come up with 50+ trillion over night.

    Feb 19, 2015
  • anon

    Just because a business has an asset such as real estate, does not mean it could be used to fund pension obligations. I have a house, but I can't use the value of my house to pay for my credit cards, unless I want to also live in a box. I don't understand all the ins and outs of the USPS pension prefunding requirement, but I think playing head games about what might happen in the future is not good policy. Interest rates might go up, healthcare costs might go up or down, everyone over 65 might die tomorrow of a plague. But you can't make policy based on blue-sky projections that may never come to pass. To me, a critical problem with the USPS is that people do not use their service like they used to, because there are other options such as email. That fact is not going to change. To adjust, the USPS should go to 2 day/week delivery, instead of arguing about whether to drop Saturday. Rotate deliveries so that every neighborhood gets a M/Th, T/F, or W/S delivery, and put a mail pickup box in every neighborhood (1-2 mil radius) that gets checked once/day. Deliver to businesses every day, but charge them extra if they need that; many will not. And instead of pandering to the junk mail industry, RAISE THE JUNK MAIL RATE! No one likes this stuff anyway, and 99% of it ends up in a landfill. If mailbox advertising is truly effective, junk mailers will be willing to pay higher fees. And if it isn't effective, which I suspect, it will go away, which would be great for citizens and great for the environment. My last suggestion is this: if the USPS wants to "compete" with other shipping companies, I have no problem with that. But in that case, it is only fair that the shipping companies also get to compete for any of the USPS' business, including letter delivery and stamps. You can't have one business with a protected monopoly arm and a "competitive" arm; resources will always find a way to flow between the two. The argument is that we have to have delivery to every mailbox in the US. Okay, fine; but it doesn't make sense that it costs the same to deliver to a cabin in the woods as it does to a house in the city.

    Feb 18, 2015
  • anon

    Your ignorance of the job and what it takes to get said job done is astounding. It must be nice living in your conservative fairy tale land. Let me clue you in on the facts. The internet has become a net positive for the USPS. The mail volume lost has not only stabilized, but the lost volume has been replaced by a crushing volume of parcels. The increasing popularity of companies like Amazon, to smaller startups such as Dollar Shave Club, Naturebox, and other subscription based services that mail you parcels on a monthly schedule, has increased the workload for every route in the country. Offices that have lost routes are now getting back new routes because of the increasing levels of work. There are City Carrier Assistants working upwards of 55 hours a week. They get forced in on their day off, sometimes being mandated to work 20+ days in a row without a day off, and you're talking about mail delivery two days a week? If we have just two measly days off in a row because a holiday lines up with sunday, the mail volume on the next working day is crushing alone, with carriers being on the clock until 7 PM just to get everything delivered, but you want the mail to be delayed for almost the entire week, every week? It would be impossible to get all of the mail that's backed up on a weekly basis out any single day, every week. The fact that you came up with this brainless proposal is proof to me that you have no idea, not a single clue as to what it takes to get this job done. Also, businesses clamor for their mail EVERY DAY, not two days a week. I also have customers who wait for me EVERY DAY, and if they heard your idea for mail delivery two days a week, they'd laugh in your face. Delivery costing the same to a remote cabin as well as in a city across the country from that cabin makes perfect sense, because the mail is a PUBLIC SERVICE. You DON'T cut up the post office and privatize it because this is a universal, public service available to everyone who lives in this country, and it is indiscriminate to how far you live from a major city. While UPS looks at how much gas and time it costs them to get mail to a remote cabin, we don't, and that's the way it should be. I suggest you apply to become a City Carrier Assistant if you want a firsthand look at how hard this job is, what it actually takes to get it done, and the reality of the workload today. The supervisors will be more than happy to show you just how much work they have for you, when you're working every day of the week (even sunday) for months on end.

    Nov 08, 2015
  • anon

    You are so out of touch with reality! Where do you get your facts? "No one likes junk mail. 99% of it ends up in the landfill." Really? I deliver the "junk" and I know you are incorrect. Also, the postal service's business is booming. Our package delivery has increased rapidly. People want their deliveries today, NOT in three days. If UPS and FedEx wanted to deliver letters, do you really think they would do it for 49 cents? Heck no! And, if UPS and FedEx had to prefund their retirement and healthcare benefits the way in which USPS is forced, they wouldn't be able to! If the postal service went to two day/week delivery, as you propose, what's going to happen to the 100,000 people now out of good middle class jobs? The Postal Service is not supposed to be profitable. It's supposed to hold it's own (which it more than does.) It is supposed to be a service to the American people. It supposed to be the tie that binds our great nation together. Why do you want to see it gone?

    Feb 21, 2015
  • anon

    Obviously you have never delivered mail for the usps. If you had, you would easily understand how delivering mail just 2 days per week would never work. I am in a medium size level 18 office and if you considered all the mail and parcels we deliver all week (20,000 letters, 8,000 flats and 3000 parcels) you would be able to consider that cutting that down to 2 days per week, the carriers would spend 12 hours one day in the office sorting all of the mail, then the next day they would be delivering mail and parcels for 12-14hrs. Plus they would need to deliver their routes out of a small semi because they could never fit all of the mail and parcels into a regular size vehicle. Ive worked for FedEx and UPS and 25yrs in the USPS. Of all three companies, the USPS is the most productive. Neither one of those companies could handle the volumes we get. UPS drivers often complain of a heavy day and having 125 stops on their routes. I have one aux route in my office that is 3 hours long and they deliver 387 stops. I am tired of being a govt rug that politicians wipe their feet on. We do more in one day than our congress does in a whole year.

    Feb 20, 2015
  • anon

    Please, find some way of making Congressmen understand this. This over funding is basically an interest free loan that Congress will use for pork in their own districts. The USPS just reported a net loss, which would be a profit if they didn't consider this debt no other business is forced to pay.

    Feb 17, 2015
  • anon

    I agree entirely with your comments. This pre-funding nonsense is the causative reason for plant closings and degradation of services. Now, if we could only get the congress to rescind this illogical mandate the postal service could get busy updating its facilities, vehicles and services. I am a retired postal service employee and I depend on the service to deliver my bills, magazines, hobby supplies and yes I even enjoy bulk business mail. No telling what offers may entice me.

    Feb 16, 2015
  • anon

    The whole thing is utter nonsense. A blatant way to force privatization on our postal services and that will lead to loss of services, rise in prices and chaos! More people have to know about this. We have been led to believe the whole thing boils down to the future price of a stamp!!!! Again, utter nonsense. No other service, UPS, FEDEX, etc. can provide the services the USPS does and reach the amount of people it reaches at its low prices. Wake up America...this will eventually be yet another service taken from us!

    Feb 18, 2015
  • anon

    I would like to see the actual account the usps prefunding payments go to. The usps portion of the balance that currently exists. And whether our govt has withdrawn any of the usps funds to make up their own under funded obligations in politician, irs etc..retirements & healthcare, military, etc.... If the usps has paid $335b into this fund, is it still there?

    Feb 16, 2015
  • anon

    These are assets of the entire government pension fund and the amount mentioned is just an allocation attributed to the postal service. The entire fund is in much worse shape because the other agencies were not actually funding at the same rate. This is a multi-employer (all gov't agencies in the same pot) plan. Also when the Treasury comes up against the debt limit it borrows this money to stretch out the day it will run out of funds.

    Feb 17, 2015
  • anon

    This just bolsters the old saying that the US Postal Service has always served the government as a cash cow. With the postal reform act of 2006 which is the year the USPS saw its highest peak of first class letters before the decline, the lame duck session didn't look into the future and see that hard copy mail would be declining as electronic diversion took hold. They cut off their nose to spite their face. The USPS can't afford those payments and falls deeper in debt so good bye cash cow!

    Feb 19, 2015
  • anon

    The assumption has also been that the government as a whole borrows from this fund, is this true? Second, if they have as much money in these funds now shouldn't they be making considerable amounts of interest ? helping accelerate the funding? And of course the unable to prove theory is that the Bush administration started this in an effort to bankrupt the PO and thusly cancel union contracts and privatize. Thanks

    Feb 16, 2015
  • anon

    The pension and retiree health care funds are invested in government debt. The federal government uses the pension and retiree health care funds to pay for its undertakings. In turn, it pays interest for use of the funds. In recent years, the two pension funds earned somewhat more than $10 billion in annual interest.

    Feb 18, 2015
  • anon

    if the purpose of the pre-funding of future retiree health benefits was a legitimate concern it might be possible to excuse the current situation, because there would be an immediate push to correct it by those who created the mess. The fact that years into the "manufactured financial crisis" the problem still remains indicates that there most probably was another agenda at work. The damage to the Postal Service has been immense. The recent change in the service standards and the proposed plant consolidations are devastating mistakes. The sole impetus to make those changes were the overfunding. Where is the White House on this? Where are the Postal Board of Governors? Were is the PRC? And where is Congress? If they fail to act soon, it might be concluded that they are serving other interests than what's best for the American people who need and deserve a functioning Postal Service.

    Feb 16, 2015
  • anon

    There is no sensible theory which suggests that the Post Office needs to have its pension and health liabilities fully funded 75 years in advance. This was, and continues to be, the primary means of strangling the public Post Office, creating the demand for privatization because the Post Office is not "fiscally viable." Fortunately, enough people are seeing through these charades and financial voodoo that this may not come to pass. But continued analysis by the Inspector General is critical to being able to shed light on these attempts to destroy the Postal Service. Continue the good work!

    Feb 16, 2015
  • anon

    I understand the basic idea that the Congress would like for the USPS to prepare for it's ultimate demise (that they are trying their best to cause) by having all it's future expenses pre-paid. Shouldn't all the real estate and other property that the USPS has factor in somewhere? If suddenly the Post Office was somehow magically gone tomorrow, there would be lots of assets to sell off that would help pay those retirement benefits.

    Feb 16, 2015
  • anon

    One of the key points we raise in our white paper is the fair market value of the Postal Service’s real estate could be used to offset most, if not all, of the liabilities should the Postal Service close (we are not suggesting the Postal Service should or will close).

    Feb 18, 2015
  • anon

    <i> But fair market value of these properties is estimated as high as $85 billion. <i/> I doubt this. Most older post offices are in declining inner cities. Please cite sources for high estimates

    Feb 16, 2015
  • anon

    In our (U.S. Postal Service OIG) report Pension and Retiree Health Care Funding Levels issued in 2012, we estimated the fair market value of the Postal Service’s real estate at about $85 billion. We determined the amount by increasing the purchase value based on the long-term average commercial real estate rate of return of 3 percent per year. We did not look at properties individually. We recognize certain real estate might have declined in value for various reasons. However, it is reasonably possible that other properties have increased in value at a rate greater than 3 percent annually. In our white paper, we stated, should the properties’ fair market value be used in evaluating liabilities, a more precise method is needed to determine the values on an individual basis.

    Feb 18, 2015
  • anon

    The source is the OIG inflating the purchase price at 3% per year because that is the return that they expect on investment real estate.

    Feb 17, 2015
  • anon

    USPS Real Estate holdings comprise far more than just a Post Office building. For instance, the Processing Plants. There were more than 400 that were active. Some are being closed now. These buildings have hundreds of thousands of square feet of open space that someone could be interested in having. There is also a great deal of vacant property that was purchased in anticipation of building that never happened. These properties are concentrated on Industrial areas where land is at a premium. Always bear in mind that there is much more in the background of the picture you see from the outside.

    Feb 17, 2015
  • anon

    Your theory is flawed in that these dinosaur buildings you refer to are not really in high demand with Manufacturing slowing to a crawl. As for the Local Post Offices-a large majority of these offices are leased and do not belong to the Postal Service, not to mention that a very large number of offices are extremely old buildings in major need of upgrades.

    Oct 29, 2015
  • anon

    More of a question than a comment. If the USPS were to invest it's "set aside cash assets" instead of parking them in the U S Treasury could it be expected to earn a much greater return that presently possible. And wouldn't such investing solve the problem and perhaps over time even accrue assets instead of liabilities?

    Feb 16, 2015
  • anon

    By law (Section 39 of the U.S. Code), the Postal Service may only invest in obligations guaranteed by the U.S. government. Therefore, the Postal Service may not invest in other securities. We (U.S. Postal Service OIG) have not compared returns on the pension and retiree health care funds with, for example, what might have been earned with stocks. Nonetheless, we recognize, historically, returns from investing in stocks beat returns from U.S. Treasuries.

    Feb 18, 2015

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