The Postal Service’s Share of the Civil Service Retirement System Pension Responsibility Mailer’s Technical Advisory Committee February 17, 2010 David C. Williams Inspector General 1

History of Overfunding Obligations  2002: $78 billion in overfunding uncovered.  Corrected in  2003: $27 billion military service overcharge.  Corrected in  2009 : $13 billion overfunding future healthcare liability.  Partially corrected in 2009:  OPM changed the healthcare trend rate  Congress urged OMB, OPM and USPS to develop “fiscally responsible proposal”  2010: $75 billion overcharge because of unfair split.  Needs to be corrected. 2

Impact of the Correction Here’s what could be done with the $75 billion:  USPS could pay off $10 billion liability of pension fund.  USPS could pay off Treasury debt of $10 billion.  Add remaining $55 billion to $35 billion already in health care fund, making $90 billion, which will more than cover the $87 billion liability.  The $90 billion would earn about $4.5 billion annually in interest – almost enough to pay the annual costs for retirees and current employees. 3

Background  On July 1, 1971, the Postal Service was established.  USPS was required to continue CSRS pensions.  For postal employees who served before and after July 1, 1971, CSRS costs are split between the federal government and the USPS.  OPM determines the methodology for the split. 4

Why Is OPM’s Methodology Inequitable?  USPS is responsible for pension costs of all post-1971 salary increases.  The federal government’s share is calculated as if employees retired in 1971 at their 1971 salaries.  Ignores OPM’s benefit formula based on average of “High-3” salary and years of service.  Ignores natural inflationary increases to pay.  USPS could be charged 70% for employee who worked 50% of career at USPS. 5

Five Part Solution 1.Change methodology to years-of-service. 2.Return $75 billion to USPS immediately. – Use $10 billion to pay liability that has accumulated. – Use additional $10 billion to pay off Treasury debt. 3.Add remaining $55 billion to $35 billion, bringing fund total to $90 billion. – OPM determined $87 billion needed to full-fund liability. This leaves $3 billion surplus. 4.Stop $5 billion annual payments required under PAEA. 5.$90 billion will earn $4.5 billion in interest. Use to pay premiums as intended. – $2 billion for retirees. – $3 billion for current employees. 6

Fixing the Funding Issue Legislation is needed to make adjustments, but the fix is fairly simple.  Move up long-term funding schedule from future to present.  Change would permit Postal Service to pay off Treasury debt, incurred as result of overcharge. These changes simply advance the timing of provisions already in existing law. They do not alter the structure established by PAEA. 7

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