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283 IRET Congressional Advisory 1 (2012)

handle is hein.taxfoundation/iretcgadv0280 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. April 11, 2012 Advisory No. 283 Why The U.S. Postal Service Is In Greater Financial Trouble Than Most Foreign Posts - The Role of Postal Retiree Health Care Benefits Executive Summary Many foreign postal services are profitable, according to data from the Universal Postal Union (UPU). Those posts have adjusted successfully to the upheaval in the postal market caused by electronic diversion and the last recession. In contrast, the U.S. Postal Service has lost money throughout the years 2007-2011, and its losses are deepening. This paper examines two major, separate retirement fringe benefits that USPS provides to its workers: pensions and retiree health care. The Service's pensions are in very good financial shape. A few foreign posts have had trouble with underfunded pensions, but USPS actually enjoys a pension surplus: $13.1 billion at the end of 2011. The Service should be allowed to access that money - provided it is used to help finance needed reforms, not to delay them. On the other hand, the generous retirement health benefits the Service promises to its workers and the high cost of paying for those benefits are one of the key reasons for USPS's poor financial performance compared to the majority of foreign postal services. The U.S. Postal Service is burdened with massive unfunded obligations for retiree health care: an estimated $46.2 billion at the end of 2011. The unfunded obligations gradually accumulated because, until 2006, the Service followed the pay-as-you-go approach, which means not funding promises when they are made but waiting until the bills later come due. The Postal Accountability And Enhancement Act of 2006 (PAEA) established a front-loaded 10-year contribution schedule for reducing the unfunded retiree health care liability. Prefunding is just as sound a concept for USPS's expensive retiree health care promises as it is for pensions. The absence of prefunding would reduce transparency, be unfair to future mail users, and almost certainly lead to a taxpayer bailout. Although the funding schedule appeared challenging when enacted, a frequently overlooked fact is that part of its cost was indirectly built into the postal rate base through allowances for the expense of an escrow account and a charge related to some employees' prior military service. PAEA repealed the

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