OIG: Rethinking Assumptions – The Postal Service’s Health and Retiree Liabilities

May 15, 2017 – With $72 billion in revenue and 154 billion pieces of mail moved in a year, the U.S. Postal Service deals in the billions. That’s why you sometimes hear people joke that “a few million here and a few million there and pretty soon you are talking about real money” with the USPS.

But even for the Postal Service, unfunded liabilities – or future payment obligations for health and pension benefits – totaling about $73 billion is big money that has a huge impact on its long-term health. Hence, postal reform legislation over the years has included provisions that address the Postal Service’s health and retiree liabilities.

How those liabilities are measured has been the source of much debate in the postal community because of the assumptions used – such as interest rates and demographic inputs – to calculate the future costs. Our recent audit report looked at the impact of changes in assumptions on Postal Service retirement liabilities and found that by using Postal Service-specific demographic and economic assumptions, the overall liabilities decreased by $10.2 billion.

First though, let’s review what makes up the USPS’ long-term liabilities. The Postal Service provides pension and health insurance benefits to its retirees through the Civil Service Retirement System (CSRS) or Federal Employees Retirement System (FERS) pension programs. It also provides health benefits for retirees through the Postal Service Retiree Health Benefits Fund. The assets in these retirement liability accounts at the end of fiscal year 2016 totaled about $338.4 billion, while the liabilities as calculated by the Office of Personnel Management (OPM) were $411.8 billion. This means the liabilities are funded at 82 percent.

OPM calculates the Postal Service’s share of the retiree pension and health benefits liabilities using demographic and economic assumptions from the federal employee workforce. Our report, however, noted that those assumptions are materially different from those of the Postal Service workforce.

For example, federal employees can receive pay increases based on merit and promotions throughout their careers, whereas bargaining employees of the Postal Service reach the top of their pay scale in 12 or 13 years. Using demographic and economic assumptions of the federal workforce has burdened USPS with higher liabilities than if assumptions of Postal Service employees were used.

By lowering the liability estimates, the Postal Service reduces the amount it needs to pay annually to fully fund the retirement accounts. That difference could be used to reduce the Postal Service’s debt to the U.S. Department of the Treasury; more aggressively fund investments in USPS infrastructure; or reduce, slow, or delay future postage rate increases.

This above article was written by the USPS Office of Inspector General

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