OIG Report: USPS Overfunded Pension Benefit Obligations By $13.1 Billion

Excerpts of the OIG Report: Pension and Retiree Health Care Funding Levels Management Advisory Report (June 21, 2012)

The Postal Service is currently funded at 49 percent for retiree health care benefits, as of September 30, 2011, and is obligated to prepay $33.9 billion through 2016.The Postal Service is obligated to pay $11.1 billion in FY 2012 and an average of $5.7 billion between 2013 and 2016.

The Postal Service has funded its pension benefit obligations at nearly 105 percent and is currently overfunded by $13.1 billion. The law does not allow the Office of Personnel Management to alter the contribution formula for the Postal Service, nor can it refund current or future surpluses. Although the Postal Service continues to implement changes to align costs with revenue, action is needed now to use the current and future surpluses to remain a viable business.

Further, the Postal Service is required to fully fund its future retiree health care benefit obligations. Currently, the Postal Service has funded nearly 50 percent of that obligation. As an alternative to the annual prefunding payments, which has been difficult, we estimate the Postal Service’s fair market value of real property totals $85 billion and would be enough to cover the remaining unfunded obligation of $46 billion. Recognition of these assets that could be applied to the liability, if ever needed, could prevent the prefunding payments from increasing Postal Service debt.

WHAT THE OIG RECOMMENDED:
We recommended that management pursue legislative action to refund current and future pension surpluses to the Postal Service.

WHAT MANAGEMENT SAID:
Although management did not agree or disagree with the monetary impact, they agreed with the recommendation and will continue their support of pending legislation that would address the Federal Employees Retirement System surplus. They will also evaluate all pension assets and liabilities prior to the start of the new session of Congress in January 2013, and will pursue legislation as appropriate.

Introduction
This self-initiated report presents the results of our review of pension and retiree health care funding levels for the fiscal year (FY) ended September 30, 2011 (Project Number 12BS001FT000). We performed this review to explore the progress on funding pension and retiree health care benefits. This report addresses financial risk. See Appendix A for additional information about this review.

In the past 3 fiscal years, the U.S. Postal Service has sustained losses of more than $17 billion. It is more critical than ever to reverse this trend. One of the greatest opportunities for cost savings has been the overfunded pension plan,1 including the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS), and the prefunding of retiree health care benefits.2 The U.S. Postal Service Office of Inspector General (OIG) has issued seven reports exploring these complex issues and identifying opportunities for better use of these funds. See Prior Audit Coverage for additional information. This report updates prior work which described Postal Service funding levels for pension and retiree health care benefits


Comparatively, the federal government does not prefund its retiree health care benefits,the military is funded at 35 percent, and state governments were funded at 30 percentin FY 2009. Only 38 percent of Fortune 1000 companies that offer retiree health care benefits prefund the expense, at a median funding level of 37 percent.
 

The Postal Service has an opportunity to use its projected current and future surplusesto address its current financial crisis, while maintaining a 100 percent funding level for its pension obligations. Additionally, current PSRHBF assets would continue to growwith interest. The PSRHBF would still maintain a funding level that exceeds public andprivate industry standards. As of September 30, 2011, the PSRHBF had assets totaling $44 billion with unfunded obligations of $46 billion, totaling $90 billion in future obligations. Figure 4 details the funded and unfunded future retiree health care obligations. OIG Report (PDF)
 

 

OIG Report : USPS Retirees Prefunding Overpayments - June 2012

The USPS OIG reports (PDF)

 

 

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