GAO: USPS Prefunding Necessary to Protect Taxpayers

December 27, 2012

A new report released today by the Government Accountability Office (GAO) entitled “U.S. Postal Service: Status, Financial Outlook, and Alternative Approaches to Fund Retiree Health Benefits” dispels several myths pushed by opponents of postal reform, and clearly demonstrates the need for the United States Postal Service (USPS) to “prefund its retiree health benefit liability to the maximum extent that its finances permit.”

The GAO found that the Postal Service Retiree Health Benefits Fund only covers 49 percent of the U.S. Postal Service’s (USPS) $94 billion retiree health benefit liability as of the end of Fiscal Year 2012. The report states that “USPS’s deteriorating financial outlook” caused by America’s changing and declining use of paper mail might make it impossible for USPS to pay down the remaining $48 billion unfunded liability- even under the 44 years remaining on the 50 year schedule established by the 2006 Postal Accountability and Enhancement Act.

“In considering the options for USPS to address its retiree health benefit liability, Congress should keep in mind that stopping or deferring prefunding of these benefits would serve as short-term relief, but would also increase the risk that USPS may not be able to make future payments if its core business continues to decline,” the report states.

“If Congress was to eliminate the requirement for USPS to pay down its unfunded liability on retiree health care, taxpayers would almost certainly pick up the bill,” House Oversight and Government Reform Committee Chairman Darrell Issa, R-Calif., said. “USPS needs to cut costs, not cheat taxpayers or its own employees.”

The GAO specifically refuted factually incorrect claims made by postal unions opposed to comprehensive postal reform:

  • “Contrary to statements made by some employee groups and other stakeholders, [the 2006 postal reform law known as] PAEA did not require USPS to prefund 75 years of retiree health benefits over a 10-year period .” Instead, the law required payments over at least 50 years – including fixed prefunding payments over the first 10 years, followed by at least 40 years of further payments to finance the remaining unfunded liabilities. 
  • “Contrary to some claims, there is no [retiree health benefits] liability held, nor contributions made for any future employees who have yet to be hired or yet to be born.” Instead, about half of the $94 billion liability is for retired postal annuitants and their survivors, while the other half is for current career postal employees.