Congress should fix Postal Service pension problem it created

The Heritage Foundation’s latest attack on the Postal Service is a convoluted collection of half-truths and untruths. The author, David John, doesn’t want the Postal Service to benefit from $11.6 billion in overpayments it made for its pension obligations even though he grudgingly admits “this surplus appears to exist.” The overpayment should be refunded to the Postal Service to help it met its operating costs, but Heritage wants those funds locked up in the pension plan, which it claims would “follow the private-sector practice of using the current surplus—whatever it is—to defray future retirement payments.” This is baloney. When a private corporation overfunds its pension plan, it can transfer excess funds to pay retiree health obligations. In the case of USPS, it could use the funds to pay both current obligations ($2.4 billion a year) and the congressionally mandated pre-funding for future obligations ($5.6 billion a year).

When it’s inconvenient, Heritage abandons its suggestion that the Postal Service should be treated like the rest of the private sector. Private sector employers are not required to pre-fund their retiree health benefits, and most of them fund retiree health benefits on a pay-as-you-go basis.  If USPS “followed the private-sector practice,” it wouldn’t contribute a nickel to the future retiree health obligations; it would pay them as they came due, yet Heritage supports a requirement that USPS “fully prefund this benefit.”

Heritage also glosses over the findings of two independent agencies that the Postal Service was treated unfairly by Congress and the Office of Personnel Management in the allocation of its pension obligations. EPI published a report in 2010 that took the same position as the Postal Service’s Office of Inspector General and the Postal Rate Commission: USPS and its ratepayers were overcharged approximately $75 billion for past service obligations, and taxpayers were undercharged the same amount. But for Congress’ misallocation of costs, the Postal Service’s short-term finances would be manageable despite the Great Recession and the growth of electronic communication and payments.

Heritage shades the truth in its claim that the Government Accountability Office “bluntly rejected” the agencies’ claims that the Postal Service had been treated unfairly. In fact, GAO admitted that the cost allocation methodology is “a policy choice” whose fairness is debatable:

“Although the USPS OIG [Office of Inspector General] and PRC [Postal Rate Commission] reports present alternative methodologies for determining the allocation of pension costs, this determination is ultimately a policy choice rather than a question of accounting or actuarial standards. Some have referred to “overpayments” that USPS has made to the CSRS fund, which can imply an error of some type—mathematical, actuarial, or accounting. We have not found evidence of error of these types. While the USPS OIG and PRC reports make judgments about fairness, the 1974 law also implicitly reflected fairness.

GAO does not dispute that the PRC and USPS OIG methodologies for allocating the pension costs are sound, it simply prefers a different policy choice, which burdens the Postal Service:

“All three methodologies (current, PRC, and USPS OIG) fall within the range of reasonable actuarial methods for allocating cost to time periods. However, the allocation of costs between two entities is ultimately a business or policy decision.”

In its ideological zeal to see the Postal Service destroyed or dismembered, Heritage has been careless with its facts and inconsistent in its arguments.