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USPS will default Wednesday on required $5.5B health payment

Jul. 30, 2012 - 04:35PM   |  
By STEPHEN LOSEY   |   Comments
The White House is endorsing the U.S. Postal Service's call to end Saturday delivery.
The White House is endorsing the U.S. Postal Service's call to end Saturday delivery. (GETTY IMAGES)

The U.S. Postal Service on Monday confirmed it will default Wednesday on a legally required $5.5 billion payment into a health benefits fund for future retirees.

The Postal Service also said it will not be able to make another $5.6 billion payment into the fund that is due Sept. 30.

The Postal Service urged Congress to pass postal reform legislation that would waive or lower the required payments. But that appears unlikely. The House has not acted on a Senate-passed bill that would eliminate the payment, and is unlikely to vote on another bill that would cut the payment to $1 billion.

The Postal Service said the default — which will become official at midnight Wednesday — will not harm its ability to deliver mail.

“We will fully fund our operations including our obligation to provide universal postal service to the American people,” the Postal Service said in a statement. “We will continue to deliver the mail, pay our employees and suppliers and meet our other financial obligations. Postal Service retirees and employees will also continue to receive their health benefits. Our customers can be confident in the continued regular operations of the Postal Service.”

But the Coalition for a 21st Century Postal Service, a collection of magazines, newspapers, advertisers, and other business mailers, said Monday that the default could have longer-term effects. The coalition said that the default could erode public confidence in the agency and make it more difficult to restructure and reach out to customers. Those customers could move their budgets away from the mail, accelerating the long-term trend toward electronic communication that has devastated the Postal Service’s business model.

And the two back-to-back defaults will worsen the Postal Service’s already-worrisome debt, the coalition said, and make an overhaul of the agency more expensive and complicated.

“The impact of this default may not be seen by the public, but it will be felt by the business community, said the coalition’s Art Sackler. “This default couldn’t come at a worse time, as many major and midsized mailers are preparing their budgets for next year. It would be the perfect storm of negatives for the Postal Service.”

Congress required the retiree healthcare prepayments as part of its 2006 Postal Accountability and Enhancement Act. Lawmakers wanted to make sure the Postal Service could ensure coverage for future retirees without falling back on taxpayer assistance. But the Postal Service has consistently objected to the requirement, saying that no other business or government agency faces a similar requirement.

Congress has twice stepped in to help the financially struggling Postal Service avoid defaulting, either by reducing the legally required amount or pushing back the deadline.

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