The question of what should be done about the perpetually unprofitable US Postal Service has been with us for as long as many younger readers will be able to remember. A variety of fixes, bailouts and other remedies have been attempted (or at least discussed) over the years, but the USPS has remained stubbornly in the red for all but a few quarters for well over a decade. One legislative solution with some potential was attempted in January of last year, but while the measure passed the House with bipartisan support, it never received a vote in the Senate. Now, an almost identical bill has been submitted in both chambers and its prospects look at least a bit better. The real question, as we’ll get to in a moment, is whether this is just a bandaid that will fail to address the underlying issues. (NBC News)
A bipartisan group of lawmakers in the House and Senate introduced legislation that would provide the Postal Service much-needed financial relief by doing away with a mandate that required it to prepay retirement benefits decades in advance…
The “USPS Fairness Act,” introduced by Democrats and Republicans in both chambers, would do away with the requirement and comes as some lawmakers and the biggest Postal Service union have called for President Joe Biden to quickly install new leadership in the federal agency.
“The unreasonable prefunding mandate has threatened the survival of the USPS and placed at risk vital services for the millions who rely on it,” said Rep. Peter DeFazio, D-Ore., one of the bill’s sponsors. “The prefunding mandate policy is based on the absurd notion of paying for the retirement funds of people who do not yet, and may not ever, work for the Postal Service.”
The “draconian law,” as NBC News describes it, was passed in 2006 as a sop to the postal workers’ unions. It ordered the USPS to amass a $72 billion fund on an aggressive schedule. The money would be earmarked to pay for the retirement benefits and health care costs of all postal employees for fifty years into the future. The huge payments required to achieve this goal are seen as the primary driver forcing the USPS into the red year after year. And even then, they’ve still failed to make some of the required payments.
If that law is repealed, the Post Office will still be sitting on the roughly $50 billion for retirement benefits they’ve already stocked up. But that only kicks the can down the road for a limited time before the underlying chickens come home to roost.
The real problem the USPS is facing is the same as the one that has plagued state and municipal governments around the nation for years now, along with certain private sector entities with massively powerful unions like the auto industry. The unions negotiate for hugely generous retirement plans that their benefactors have a tough time affording during the best of times and which absolutely bury them when it comes time to tighten their belts. New Jersey has been fighting a losing battle against an underfunded state employee retirement system for decades now and they are far from the only ones doing so.
When Congress agreed to that 2006 law to “save” the pensions of all the postal workers, what they really did was move the untenable financial puzzle from some point in the future up into the present. Rather than running out of money to pay the pension costs of the postal workers in a couple of decades, they began running out of money immediately while still failing to meet the schedule for the fund.
The Post Office is in a rather unique position as a federally mandated agency that is forced to operate on its own budget like a private corporation. Either way, the situation remains untenable in the long run. You can take a look at the benefits package given to postal workers and see that it’s pretty much a golden ticket. There is virtually no place in the private sector where employees could get those sorts of perks from retirement until death.
Private companies operating in competitive business environments can’t afford that sort of payout over the long run and remain in business. Attempting to offer those types of perks would see the employer driven into bankruptcy. Private sector workers are expected to build up 401Ks and savings accounts to bolster their Social Security and medical benefits when they retire. But due to its unique nature, the operation of the US Postal Service gets the worst of both worlds. They can’t afford to fund the retirement costs they are locked into, but they can’t simply fold up their tent because the existence of the Postal Service is mandated in the Constitution.
If we expect the Postal Service to turn a profit, or at least break even, without the benefit of taxpayer dollars then it needs to be able to negotiate to manage its costs. All of those contracts with the unions should be renegotiated to the point where they have a viable business model that can pay its own way over the long run. Failing to do that while eliminating the retirement fund mandate will only kick the can down the road again. Eventually, the existing fund will be depleted and then the Postal Service will be falling back into unprofitability as it struggles to pay the bills on its massive retirement programs.