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Health care overcharges are unjust burden for USPS

Apr. 18, 2010 - 06:00AM   |  
By DAVID C. WILLIAMS   |   Comments

Newspapers across the country are describing the U.S. Postal Service's financial difficulties and how service cuts may be needed. The alarm is not exaggerated. The Postal Service expects to lose $11 billion this year before its aggressive plan for cost reductions.

Yet in the discussion of the Postal Service's financial problems, a huge contributing factor is often ignored.

Each year, before the Postal Service even opens its doors for business, it is saddled with paying a $7 billion-a-year overcharge for retiree health care more than 10 percent of revenues. My office believes these $7 billion payments are erroneous and the result of exaggerated health care forecasting, excessive pre-funding levels for the retiree health care and pension funds, and an unfair transfer of federal pension obligations to the Postal Service.

We believe the estimate of the Postal Service's future burden for retiree health care has been exaggerated because the government has assumed a health care forecast 2 percent higher than the industry standard.

Secondly, the Postal Service is currently required to fund 100 percent of its retiree health and pension obligations more than the standard 80 percent pension funding levels found in the Standard & Poor's 500 and the federal government's own funding level of 41 percent.

Lastly, by our calculation, the Postal Service has been overcharged $75 billion for its pension obligations. When the Post Office Department became the Postal Service in 1971, employees who belonged to the federal pension fund started contributing to the Postal Service.

For employees who worked for both the Post Office Department and the Postal Service, the federal and the postal pension funds shared responsibility. However, the federal fund paid for retirements based on 1971 salaries, not final salaries.

In essence, the federal fund collected full contributions, but paid only partial benefits.

Fixing the last issue alone would fully fund the pension and health care retiree plans. The Postal Service's $7 billion annual payments to build the health care fund even larger would no longer be needed and earned interest could pay annual premiums. Health care benefits for Postal Service retirees would not be affected. They would continue to receive the same benefits as before.

This issue involving the fund's overcharge is even more serious because the Postal Service pension fund is not made up of tax dollars. The two funding streams are employees' own money and money collected from postage sales. These past postage payments were inflated because of the previous mischarges. The money belongs to the Postal Service's employees and its customers American businesses and citizens not the federal government.

These overcharges have been seen by many in the mailing industry as an unauthorized tax on Americans that the postal trade press has termed the "stamp tax." Americans have long ago spoken their minds about abusive stamp taxes. I doubt their feelings have changed.

The Postal Service has an aggressive plan to address its financial condition. It calls for huge simultaneous actions across a broad and fast-moving front including major initiatives such as dropping Saturday delivery and optimizing the Postal Service's network of processing plants and post offices. As a result, the plan has the potential to produce significant management challenges and unintended consequences.

If the current benefit overcharges are not corrected, the Postal Service may focus on addressing an $11 billion shortfall when it should focus on a $4 billion shortfall because $7 billion of its expected losses are due to erroneous billing from the federal government.

Fixing these overcharges will allow the Postal Service to address its real challenges and implement its plan at a safer pace.

The fund was weakened and postage inflated. The fund balances need to be reset so that future postal rate increases are avoided or blunted to make this matter right.

The Postal Service and its employees deserve justice in this matter and the ability to fix the real problems.

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David C. Williams is inspector general for the U.S. Postal Service.

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