• Over the past 10 years, the Postal Service’s retirement costs have grown faster than other categories of spending. These expenses are a major contributor to the agency’s annual losses.
• The paper analyzes the potential financial impact of selected alternative retirement models on the Postal Service’s pension funding. The OIG presents 20-year projections under different retirement benefit models, including the status quo and four alternative models.
• Maintaining the current retirement system would likely result in the Postal Service’s pension liabilities remaining underfunded over the next 20 years. 
• Diversifying retirement investments could by itself address the agency’s retirement benefit funding problems without impacting employee benefits. However, this may expose the Postal Service’s pension funds to greater market volatility. 
• The Postal Service cannot make changes to its retirement model on its own, and congressional action would be required to allow the agency to depart from its current model.

The Postal Service is in a precarious financial situation and has operated at a deficit since 2007. Over the past 10 years, retirement costs grew faster than other categories of spending. Taking action to improve retirement funding can strengthen the Postal Service’s finances and help sustain its mission over the long term.

Since the 2008 financial crisis, public sector employers at the state and local levels have increasingly adopted models other than traditional DB plans to reduce their retirement liabilities. The Postal Service cannot make changes to its retirement model on its own, and congressional action would be required to allow the agency to depart from its current model.

To understand the potential financial impact if the Postal Service were to operate under a different retirement model, the OIG partnered with the Segal Group, an actuarial consulting firm, to project the effects of such a change on the Postal Service’s pension funding status over the next 20 years. These projections compare a current model scenario with four alternative retirement models and include a range of outcomes based on projected performance of investment assets. See the table below for a breakdown of these projections.

Major takeaways from these projections include:

• The Current Model Will Likely Leave the Postal Service’s Retirement Obligations Underfunded: Maintaining the current retirement system would likely result in pension liability remaining underfunded over the next 20 years. As a result, high pension costs, including billions in annual amortization payments to pay off unfunded liabilities, will persist and continue to strain the Postal Service’s finances.
• Diversifying Retirement Investments Could Significantly Improve Funding Within 10 Years but Increases Market Risk: In this scenario, the Postal Service would invest all its retirement assets in a diversified investment portfolio of 60 percent equities and 40 percent fixed-income investments. Over time, diversified investment of pension funds could by itself address the agency’s retirement benefit funding problems without impacting employee benefits. However, this may expose the pension funds to greater market volatility.

The other models projected in this paper could also positively impact retirement funding but would achieve those outcomes by reducing benefits or increasing employee contributions. Weakening benefits or reducing overall compensation may affect the Postal Service’s ability to attract and retain employees.

Tristan Dreisbach, David Neu, and Joy Sanzone contributed to this report.