In its May 23, 2021, edition the Star Ledger carried an article from the Washington Post about a recently introduced Senate bill that would, among other things, eliminate the requirement that the United States Postal Service pre-fund retiree healthcare benefits, which requirement, according to the article, costs the USPS $5 billion a year.
By way of brief background (a more detailed explanation can be found here), in 2006 Congress passed a law that relieved the postal service from some pension funding obligations, but also required it to make contributions to a retiree healthcare benefit fund.
The rhetoric from the postal service is usually to the effect that no other company is required to pre-fund retiree healthcare benefits. True, but private companies can simply cancel those benefits, while the postal service is required by federal law to offer them.
There is also frequently the claim that this requirement has cost the postal service billions of dollars in needed cash flow and prevented necessary investments. This claim is false because the postal service has not actually made the payment since 2012. The obligation is accrued on its balance sheet and contributes to its paper losses, but it does not impact the postal service’s cash flow.
The postal service and, surprisingly, its unions want to pay for retiree health benefits in what they call a “pay as you go” system where the premiums for current retirees are paid from current revenues, which means that today’s postal customers are paying for services performed years ago. (To put it another way, tomorrow’s customers will pay part of the labor cost for services rendered today. In the words of Popeye’s friend Wimpy, “I will gladly pay you on Tuesday for a hamburger today.”) Under a true “pay as you go” system, today’s customers would, by means of the pre-funding, pay for all of the services received today and not saddle future customers with such legacy costs.
As noted above, the postal unions seem to support eliminating the requirement, and I have to wonder why. Here in New Jersey the state employee unions have been pushing for years to have their pension funds fully funded to provide security that the promised benefits will in fact be paid. The postal unions must be awfully sure that when (I wish I could say “if”) the service finds itself unable to pay retiree healthcare costs in the future, there will be a taxpayer bailout.
Jay Bohn
May 24, 2021