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1 Michael Schuyler, A Primer on the Postal Service Retiree Health Benefits Fund 1 (2016)

handle is hein.taxfoundation/pripsrethb0001 and id is 1 raw text is: TAxO FOUNDATION FISCAL FACT No. 524 Aug. 2016 The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) non-profit organization. @2016 Tax Foundation Distributed under Creative Commons CC-BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org A Primer on the Postal Service Retiree Health Benefits Fund By Michael Schuyler Senior Fellow Executive Summary The Postal Service promises its workers they will receive health benefits in retirement. Retiree health benefits are different from pensions, but both are types of deferred compensation, are expensive, and are major components of the Postal Service's labor costs. Prior to 2006, the Service simply paid retirees' health benefit premiums when they came due. The Service put aside no money when it promised the future benefits. Paying benefits when they come due rather than funding them in advance is known as the pay-as-you-go or unfunded approach. Early this century, Congress, the Administration, the U.S. General Accounting Office (GAO), and a bipartisan presidential commission expressed concern about the lack of funding. Although retiree health benefits are often unfunded or poorly funded, two considerations suggested the Service's retiree health care obligations should be funded: they are as firm a commitment as the Service's pensions, and they had become enormous (about $75 billion by 2006). In 2003, the presidential commission suggested establishing a reserve fund for these obligations, and the Postal Service itself sent Congress a proposal for creating such a fund. In 2002-2003, it was discovered that the Service was contributing far more than necessary to fully fund its pensions, and Congress allowed the Service to contribute less. Congress decided the pension savings could help patch the retiree health benefit underfunding. In 2006, as part of the Postal Accountability and Enhancement Act (PAEA), the Postal Service Retirement Health Benefits Fund (RHBF) was established. Most of the Service's contributions to the new fund could be paid using the pension savings. PAEA was bipartisan legislation with broad support. Because postal rates had previously increased enough to cover pension costs and a temporary escrow account into which pension savings were placed in 2006, the Service's rates should have been high enough to cover its RHBF contributions. Shortly after PAEA's enactment, however, the Great Recession and accelerated electronic diversion crushed mail demand and postal revenue fell far short of earlier expectations.

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