The Postal Service has overfunded its pension because of lower-than-expected increases to employees’ salaries, according to a watchdog analysis.

As of the end of September 2011, the Office of Personnel Management projected the USPS had a $13.1 billion pension surplus — most of it in the Federal Employees Retirement System, according to the report by the USPS Office of the Inspector General, which hired Hay Group to do the analysis.

The report found actual pay increases for postal employees fell short of OPM’s expectations. From January 2002 to January 2011, OPM assumed an annual pay increase of 4.11 percent for postal employees. In fact, actual annual increases ranged from 2.77 percent to 3.41 percent, based on averages from the four major postal unions.

“Under current OPM assumptions, the surplus will likely continue and increase over time,” the USPS OIG report said.

Postal employees have fewer steps in their pay scale than the typical federal employee and reach the top step more quickly. Currently, more than 70 percent of postal craft employees have already reached the top of their pay scale, according to the report.

Graphic from USPS OIG report. Story continues below graphic.

Another reason for the surplus is lower-than-expected cost-of-living adjustments, which is tied to inflation. This year, the COLA increased by 3.6 percent after two years of no increase. Next year’s COLA is 1.7 percent.

The two-year pay freeze has also contributed to the surplus, the report said.

USPS agreed with the main findings of the report. The lower salary increases among Postal Service employees compared with the rest of the federal government suggests the current surplus is actually greater than the $11.4 billion that OPM projected, said USPS spokesman David Partenheimer

“OPM should use Postal Service-specific data to calculate the surplus,” Partenheimer said in an emailed statement.

He said OPM should adjust the Postal Service’s FERS contribution rate. For most feds, the FERS contribution is 12.7 percent, with 0.8 percent paid by the employee and the rest paid by the agency.

“The current FERS charges are too high, as evidenced by 20 years of surpluses, and continue to contribute to the Postal Service’s financial crisis,” Partenheimer said.

The USPS OIG found the Postal Service’s FERS has had a surplus since 1992.

In response to the USPS OIG findings, Jon Foley, OPM’s director of Planning and Policy Analysis, said, “OPM is required by law to make our estimates based on government-wide numbers using the most recent demographic and economic assumptions by the Board of Actuaries,” according to an emailed statement.

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