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Letter to the Honorable Jim Nussle: The Proposal to Reduce Payments by the Postal Service to the Civil Service Retirement System 1 (January 2003)

handle is hein.congrec/cbo9043 and id is 1 raw text is: CONGRESSIONAL BUDGET OFFICE U.S. Congress Washington, DC 20515 January 27, 2003 Honorable Jim Nussle Chairman Committee on the Budget U.S. House of Representatives Washington, DC 20515 Dear Mr. Chairman: The federal Office of Personnel Management (OPM) has prepared draft legislation that would allow the Postal Service to reduce its annual payments to the Civil Service Retirement System. In response to your request of January 15, 2003, the attached report examines the potential impact of that proposal on the federal budget and raises other relevant policy issues. CBO was specifically asked to consider the implications of the draft legislation on the federal retirement system in general (including retiree health benefits), on any unique aspects of the Postal Service as a federal employer, and on the competitive setting in which the Postal Service operates. Although reducing the Postal Service's payments to the retirement fund would improve the agency's internal fiscal position, it could increase deficits or reduce surpluses in the unified budget by as much as $10 billion to $15 billion over the 2003-2007 period and by as much as $36 billion to $41 billion over the 2003-2013 period. The impact would depend on whether the Postal Service responded to its improved fiscal position by delaying increases in postage rates, by increasing spending, by repaying debt owed to the Treasury, or by some combination thereof. A more-complete accounting for retirement costs, however, involves more than how pensions are funded. It takes into account all retirement costs, including health benefits. The Postal Service accounts for pension obligations as they are earned by its employees, but it does not do the same for retiree health benefits. Those benefits are paid for when its workers become retirees. Although that is true for all federal agencies, it is particularly important for the Postal Service, which is required to set postal rates to cover its full costs. Failure to recognize retiree health insurance benefits as workers accrue them will only push those costs into the future. If the www.cbo gov

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