A June 18 inspector general audit reveals the Postal Service is facing a good news/bad news situation.

The OIG report says the Postal Service has funded its pension benefit obligations at approximately 105 percent, meaning that it’s overfunded by $13.1 billion. That found money is a welcome piece of news for the cash-strapped agency, which recently implemented a multibillion dollar cost-cutting plan to close 250 mail processing centers and offered buyouts to 45,000 mail handlers.

“In the past three fiscal years, the U.S. Postal Service has sustained losses of more than $17 billion,” the report says in its introduction. “It is more critical than ever to reverse this trend.”

The downside of the perceived windfall is that by law the Office of Personnel Management cannot change the Postal Service’s contribution formula. Likewise, it can’t refund the surplus, either current or future, without legislative action. The OIG recommended that the agency pursue the necessary legislative action to refund the surplus.

In addition, the Postal Service is obligated to fully fund the health care benefits of future retirees. So far, the agency has met about 50 percent of that obligation.

The report goes on to say that one of the Postal Service’s best opportunities for saving money comes from the overfunded pension plan. This includes the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS).

“The law does not specify how the federal government, including the Postal Service, resolves a surplus in the (Civil Service Retirement and Disability Fund),” the OIG report says. “We believe allowing the Postal Service to use its current and future surplus funds will provide significant financial relief and dramatically improve cash flow.”

The OIG report also suggested that the Postal Service could find some financial relief in selling off some of its properties. It estimated that the current fair market value of the Postal Service’s real property to be $85 billion, which would more than cover the remaining $46 billion in its unfunded obligation. This would also prevent prefunding payments from adding to the agency’s debt.

Postal Service responds

In responding to the report, the Postal Service neither agreed nor disagreed with the monetary impact. It did agree to the recommendation to pursue legislative action that would remedy the FERS surplus. The agency will also review its pension liabilities and assets before the start of the January 2012 congressional session and take action as needed.

The Postal Service has already put out a request for legislation to take on retiree healthcare and resolve the FERS surplus. The 21st Century Postal Service Act of 2012 (S. 1789) would complete funding rules for both deficits and surplus in FERS, making future legislative action unnecessary. It would also extend and lower the funding levels of retiree health benefits. While the Postal Reform Act of 2011 (H.R. 2309) does not resolve future surpluses, it does adjust the timing of the prefunding of those benefits.

The Postal Service might also benefit from legislation currently making its way through Congress that “includes provisions to increase FERS and CSRS contributions an additional 5 percent, with the increase phased in over a five-year period beginning in 2013,” the report says.

Under a recently enacted piece of legislation, federal employees hired in 2013 and employees with less than five years of government service will have to pay 2.3 percent more of their paycheck into FERS.

“Additional proposals still being considered including reducing FERS benefits by computing the annuity on a five-year salary average and allowing 0.7 percent for each year of service,” the report says.

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