U.S. Postal Service: Action Needed to Address Unfunded Benefit Liabilities Page: 2 of 20
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Highlights
Highlights of GAO-14-398T, a testimony
before the Subcommittee on Federal
Workforce, U.S. Postal Service and the
Census, Committee on Oversight and
Government Reform, House of
Representatives
Why GAO Did This Study
USPS continues to be in a serious
financial crisis, with insufficient
revenue to cover its expenses and
financial obligations as the volume of
USPS's most profitable product, First-
Class Mail, continues to decline. At the
end of fiscal year 2013, USPS had
about $100 billion in unfunded
liabilities: $85 billion in unfunded
liabilities for benefits, including retiree-
health, pension, and workers'
compensation liabilities, and $15 billion
in outstanding debt to the U.S.
Treasury-the statutory limit. These
unfunded liabilities are a large and
growing financial burden, increasing
from 83 percent of USPS revenues in
fiscal year 2007 to 148 percent of
revenues in fiscal year 2013. Unfunded
benefit liabilities represent estimated
future benefit payments to current and
retired employees for which USPS has
not set aside sufficient money to pay.
This testimony discusses (1) the extent
to which USPS's benefit liabilities are
unfunded and (2) the potential impacts
of USPS's unfunded benefit liabilities
absent action by Congress to address
them and key policy issues for
consideration. This testimony is based
primarily on GAO's work over the past
4 years and updated USPS financial
information for fiscal year 2013.
GAO has previously reported that a
comprehensive package of legislative
actions is needed so that USPS can
achieve financial viability and assure
adequate benefits funding for more
than 1 million postal employees and
retirees. GAO has also previously
identified various approaches
Congress could consider to restructure
the funding of USPS retiree health
benefits and pensions.
View GAO-14-398T. For more information,
contact Frank Todisco at (202) 512-2834 or
todiscof@gao.gov.U.S. POSTAL SERVICE
Action Needed to Address Unfunded Benefit
LiabilitiesWhat GAO Found
The extent to which the U.S. Postal Service (USPS) has funded its liabilities
varies due to different statutory funding requirements specific to each benefit
program and USPS's financial means to make payments. For example, USPS
has been required to prefund its pension benefit liability over decades, and as
shown in the table below, its pension liability is 94 percent funded. Prefunding
USPS's retiree health benefits began in 2007, and the liability is about half
funded. In contrast, USPS funds its workers' compensation benefits on a pay-as-
you-go basis, and the entire liability is unfunded. The largest unfunded liabilities,
in order of decreasing size, are $48 billion for retiree health, $19 billion for
pensions, and $17 billion for workers' compensation. The rules for calculating the
amount that USPS must fund each year differ among the pension and retiree
health programs, including variations in amortization periods, recognition of any
surpluses, use of actuarially determined versus fixed payments, and actuarial
assumptions.
Funding Levels for Liabilities in Selected USPS Benefit Programs at the End of Fiscal Year
2013(Dollars in Billions)
Pension
Retiree health
Workers'
compensationLiability $306.2 $95.6 $17.2
Fund balance 286.9 47.3 0
Percentage funded 94 49 0
Unfunded liability 19.3 48.3 17.2
Source: USPS.
GAO has previously reported that without congressional action to address
USPS's benefit funding issues and better align its costs and revenues, USPS
faces continuing low liquidity levels, insufficient revenues to make annual
prefunding payments, and increasing liabilities. Deferring funding could increase
costs for future postal ratepayers and increase the possibility that USPS may not
be able to pay for these costs. GAO has previously identified the following key
considerations related to USPS's funding of its benefits liabilities:
* Reasons for prefunding include fairly allocating costs between current and
future ratepayers, protecting USPS's future viability, providing greater benefit
security to employees and retirees, and protecting potential third parties.
* Prefunding decisions involve trade-offs between USPS's current financial
condition and its long-term prospects.
* Congress needs to modify USPS's retiree health prefunding payments in a
fiscally responsible manner, and USPS should prefund any unfunded retiree-
health benefits liability to the maximum extent that its finances permit.
* Lowering the retiree health funding target from 100 to 80 percent would have
the effect of carrying a permanent unfunded liability.
* USPS liabilities are estimated using assumptions for the federal workforce as
a whole, rather than USPS-specific assumptions. GAO supports the use of
the most accurate actuarial assumptions available, and if USPS-specific
assumptions are used, that they be recommended by an independent body.
United States Government Accountability Office
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United States. Government Accountability Office. U.S. Postal Service: Action Needed to Address Unfunded Benefit Liabilities, text, March 13, 2014; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc298541/m1/2/: accessed April 19, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.