Could Postal Employees Lose Retiree Health Benefits?

The OPM-OIG Report, entitiled, "A Study of the Risks and Consequences of the USPS OIG's Proposals to Change USPS's Funding of Retiree Benefits," suggests Postal employees could lose their retiree health benefits if the Postal Service cannot make its statutorily required payments tothe Enployee Health Benefit (EHB) Fumd. They even seem to imply that current employees could lose their health benefits.

The report goes on to suggest that any shortfall by the Postal Service could raise the premiums paid by all other Federal employees. Although it is not clear if that woud depend on OPM continuing to provide benefits to postal employees and retirees.

 The following quote can be found on pages 8 and 9 of the report.
"It is unclear, however, what the effect would be upon USPS employees' or retirees' rights if the USPS ceased making its required payments into the EHB Fund because the fund does not contain sufficient reserves to "replace" the USPS's contributions.  Consequently the fund's assets would be exhausted very quickly.

In such a scenario, the insurance companies would still be legally entitled to the full amount of the premium negotiated under the contract.  The OPM would have to take some sort of an action because without the USPS's contributions, the fund simply would not have enough money to pay every FEHB participant's premium.

Absent an emergency appropriation from Congress,it is possible that the OPM would have to exercise its regulatory authority to disenroll USPS employees and retirees as a class in order to continue providing health care coverage to all other FEHB program participants.  

If the OPM did not take such drastic measures, the EHB would very quickly run out of assets and plans would stop receiving premium payments because OPM simply would not have the money to pay them.  In that scenario some insurance companies may unilaterally decide that the Government is in default of the plan and withdraw from the program.

If enough insurance companies withdrew, it would threaten the existence of the FEHB Program.  Even if some insurance companies continued to offer coverage for the remainder of the year, they may decide not to participate in the FEHB program the following year.   If they did decide to stay in the program they may be forced to increase premiums dramatically in order to make up the premium shortfall, which would affect other non-USPS participants. 

Brian Sheehan, publisher of Postalnews.com pointed out in an e-mail to me, there are no concerns about the Postal Service not covering its obligations for health benefits for current postal employees. So health benefits of current employees should be safe for the time being regardless of whether the Postal Service makes its payment to cover its statutory obligations to pay a portion of its its future retiree health benefit liability.  He indicated that the payments that the Postal Service finds difficult to make now would affect the FERHB fund in 2017.   This raises some interesting questions about what the OPM-OIG means by "disenroll."

• Would the "disenrolling" of USPS employees in retiree health benefit plans occur before or after 2017?
• If it is is after 2017, would retiree health benefits just stop in 2017 for both existing and future retirees or would retiree benefits exist for employees that retire before 2017 but not exist for employees who retire in 2018 and beyond?

Italicized text added 9:46 am on 3/1/2011

Dueling Inspector Generals or Revenge of the Creditor

Yesterday the Office of Personnel Management - Office of Inspector General (OPM-OIG) published a  report, entitled "A Study of the Risks and Consequences of the USPS OIG's Proposals to Change USPS's Funding of Retiree Benefits," that is devastating for anyone who had hoped that the Postal Service's financial issues could be resolved through changes to retirement funding issues were dashed. 

The OPM-OIG took different positions on each of the three proposed changes it investigated.  The OPM-IG generally supported a change in law to deal with the FERS Surplus.   It punted on changes on the allocation of CSRS liabilities for POD/USPS employees and reaffirmed testimony OPM made last year that OPM will follow whatever direction Congress gives it on that matter.  It rejected all proposals to fund Postal retiree obligations at less than 100%.

The OPM-OIG report reflects one of the eight challenges facing the Postal Service that this blog noted some 18 months ago, "Minimizing Risks to the U.S. Treasury."   Its conclusions are similar to what the first report of the consultant to the creditor committee would say regarding a firm facing bankruptcy. The report would oppose any change in terms that increase the risk of less than payment in full and any changes in the terms of the obligations.

The OPM-OIG goes even further suggesting that the USPS is not viable.  “Of Greater Concern to us is the fact that during the course of our research, we did not find any viable projections indicating that the USPS could restore its operations to profitability”  Creditors of firms in this position often require placing the debtor into bankruptcy so that the creditor committee can then choose to invest capital into the business to turn it around or liquidate it.

The OPM-OIG does a major service regarding the Postal Service even as it dashes the hopes of many stakeholders by making the following points that should focus the policy debate.

• The Postal Service does not have a plan to become profitable that a creditor would find credible.
• The Postal Service needs operating capital under its current plan and would likely need operating capital under any plan that a creditor would find viable as a path to profitable operations.
• OPM, as a creditor, should not put its solvency or its obligations to other Federal employees at risk as a source of working capital for the Postal Service.
• Changing Postal Service retiree benefit payments would not fix the fundamental problems in the Postal Service's business.
• If the Postal Service stops making its retiree health-care payments, health care benefits for retirees of the Postal Service retirees are at risk.  It is not clear how soon they would be at risk or if just future or current retiree health benefits are at risk. (Italicized addition added at 9:30 am.) For more information see "Could Postal Employees Lose Retiree Health Benefits?"
• If the Postal Service needs Federal assistance, then that assistance should be examined and debated independently and not within the context of funding retirement obligations.  (In other words, the fix cannot come out of our budget.)

Negotiating Changes in Retiree Health Payments

This blog has repeatedly noted the impact of Congressional legislation on postal operations and its ability to be financially viable.   In the Conference Report accompanying HR 3288, an appropriations bill covering the Departments of Transportation, Housing and Urban Development and related agencies, Congress lays out specific instructions to the Postal Service, the Postal Regulatory Commission, Office of Personnel Management (OPM), the Office of Management and Budget (OMB), and the Government Accountability Office (GAO).   Two of these instructions are new and significant and are in bold below.

First, OMB, OPM and thethe Postal Service are directed to "develop a fiscally responsible legislative proposal, for consideration by the appropriate congressional committees, that would grant a limited measure of relief from the PAEA requirements to pre-fund retiree health benefits."  There is no time period identified for this negotiation but it makes sense that the results of the negotiations would be included in the President's next budget proposal.

Second, GAO is directed to update its previous studies on network restructuring.  GAO has 6 months to complete the study.   The request for this study, like Congress's request to the PRC, appears to be focussed more on the process and the impact on employees and communities than on the potential financial impact of network restructuring.


UNITED STATES POSTAL SERVICE PAYMENT TO THE POSTAL SERVICE FUND (pp. 935-937)

The conference agreement provides $118,328,000 for a payment to the Postal Service Fund, of which $89,328,000 is an advance appropriation for fiscal year 2011 to continue free mail for the blind and for overseas voting materials, and of which $29,000,000 is for the annual repayment of revenue foregone as required by law. These provisions are the same as proposed by both the House and the Senate.

The conference agreement includes provisions directing that mail for the blind and for overseas voting shall continue to be free and that six-day delivery and rural mail delivery shall continue at not less than the 1983 level. Further, it includes language prohibiting use of funds in this Act to charge a fee for providing information to child support enforcement programs or to consolidate or close small rural and other small post offices. All of these provisions were also contained in the House and Senate bills.

Closings of Postal Facilities.-Numerous concerns and criticisms have been brought to the attention of the conferees regarding Postal Service plans to close or otherwise consolidate various retail and mail handling facilities. The conferees believe that the Postal Regulatory Commission is an appropriate forum for evaluating these proposals and the attendant concerns and have urged that the Commission take appropriate action to do so in language included under that heading.

In addition, the conferees direct the Government Accountability Office to update its previous studies regarding Postal Service initiatives to realign its mail processing network, including proposed closures or consolidations of area mail processing facilities, and to report to the Committees on Appropriations and other appropriate congressional committees not later than 6 months after enactment of this Act. GAO’s study should address the criteria used in selecting facilities for closure or consolidation, whether those criteria are being applied reasonably and consistently in particular cases, the adequacy of efforts to communicate and consult with affected communities and stakeholders, and the quality of efforts to evaluate the results of closures and consolidations.

Financial Condition of the Postal Service.-The conferees are concerned about the financial condition of the Postal Service. In fiscal year 2009, the Postal Service posted a net loss of $3.8 billion that would have totaled $7.8 billion, had Congress not reduced the Postal Service’s retiree health benefits payment by $4 billion.  Significant declines in mail volume, exacerbated by the struggling economy, have contributed to the most recent Postal Service financial crisis.

The conferees applaud the Postal Service for its efforts to reduce costs. In fiscal year 2009, the Postal Service reduced its operating expenses by $6.1 billion. These cost-cutting efforts must continue in close coordination with stakeholders and with careful consideration of the effect proposed cuts may have on service and volume.

Despite cost-cutting efforts, the financial condition of the Postal Service remains dire. The conferees understand that the Postal Service has requested legislative relief from the requirement that the Postal Service pre-fund a significant portion of its future retiree health benefits through the end of fiscal year 2016. Congress reduced the fiscal year 2009 payment from $5.4 billion to $1.4 billion.
The Postal Service continues to seek a reduction or elimination of future mandated payments.

The conferees understand that both the Postal Service Inspector General (IG) and the Postal Regulatory Commission (PRC) have reviewed the payment stream under the Postal Accountability and Enhancement Act of 2006 (PAEA). The IG concluded that the current schedule would result in an overpayment to the retirement fund by the end of fiscal year 2016, and the PRC study concluded that the unfunded liability would not be as high as originally estimated.

Because some experts, including OPM, have expressed concerns about the assumptions made in the Postal Service IG and PRC reports, the conferees urge the Postal Service to coordinate with OPM and OMB to develop a fiscally responsible legislative proposal, for consideration by the appropriate congressional committees, that would grant a limited measure of relief from the PAEA requirements to pre-fund retiree health benefits. These proposals should consider: (1) whether the PAEA-mandated stream of future payments overfunds through fiscal year 2016 the anticipated liability of the Postal Service for future retiree health benefits, (2) whether modifications to the mandated payments could meet the unliquidated liability goals contained in the PAEA, and (3) whether a decrease in mandated payments will reduce the incentive of the Postal Service to continue to cut additional costs.


POSTAL REGULATORY COMMISSION SALARIES AND EXPENSES (INCLUDING TRANSFER OF FUNDS) pp. 923-924

The conference agreement provides $14,333,000 for the salaries and expenses of the Postal Regulatory Commission, as proposed by both the House and the Senate. It does not include language proposed by the House requiring any unobligated balances remaining at the end of fiscal years 2009 and 2010 to be transferred back to the Postal Service Fund.

Proposed Closings of Postal Facilities.-The conferees are aware of considerable public concerns about plans by the Postal Service to close or consolidate retail post offices and other mail facilities, and believe that the Postal Regulatory Commission has an important role to play in evaluating those concerns and fostering well-informed decision making. The conferees commend the Commission for undertaking its current investigation of the national service implications of the Postal Service ‘‘Station and Branch Optimization and Consolidation Initiative’’ and urge the Commission to initiate such other proceedings as appropriate to fully evaluate the effects of proposed closings and consolidations on service levels, costs, postal employees, and the affected communities. Among other issues, the Commission should examine whether Postal Service actions, including notification and appeal procedures, are in accord with applicable law.