The US Postal Service may have hit its $15bn borrowing limit in the last month, but it now has a federal pension fund over-funded by as much as $24bn, according to a new report from the USPS Inspector General.
Research commissioned from management consulting firm Hay Group explains that the overfunding comes because USPS is required to fund its pension programmes in a similar way to other federal agencies, but is a very different organisation than the rest of the federal government.
Official estimates suggest that the USPS pension surplus is currently more than $13.1bn and still growing – due to the fact that postal salaries are not increasing as fast as federal economists have predicted when calculating USPS pension contributions.
The Hays Group report suggested that if the government used Postal Service characteristics when calculating pension liabilities, the USPS Federal Employees’ Retirement System would actually be overfunded to the tune of $24bn.
This would mean the entire pension obligation is funded by more than 137%.
The US Postal Service has just completed its 2012 fiscal year, with expectations that the year’s results will comprise an annual loss of more than $15bn, although $11bn of this will be hypothetical, since USPS has refused to hand over that amount to the federal government to cover mandated retiree healthcare benefit system payments.
The healthcare and pension payment system established by the US Congress back in 2006 effectively now has the Postal Service borrowing billions from the US Treasury to pay straight back to the US Treasury with added interest, but USPS cannot touch its massive pension surplus without a change in the law.
The Federal Employees’ Retirement System has been running since 1984, with federal agencies and their employees contributing amounts related to the employees’ salaries throughout their employment periods. USPS pays the same rates into the FERS as other federal agencies, paying about $3bn into the fund in its 2011 fiscal year.
Hay Group said USPS workers have received smaller pay increases than was predicted in calculating USPS contributions to the FERS fund, while postal employees go through fewer steps in their pay scale compared to other federal agency staff.
The report suggested 70% of postal craft employees have reached the top of their pay scales, but federal assumptions are that their salaries will continually increase.
Other differences compared to other federal agencies included the fact that USPS workers are less likely to take early retirement than other federal workers and will therefore generally withdraw less from the pension fund.
Hay Group concluded that the postal work force was large enough to support the development of a contribution calculation based on USPS-specific characteristics.
“Recalculating the Postal Service’s liability estimate based on Postal Service-specific assumptions increases the FY 2011 surplus from $11.4bn to $24bn. Most of the increase in the surplus is attributable to the change in the salary growth assumptions,” said the report.
The report said that there is currently no mechanism in the federal government for addressing a FERS pension surplus once it has built up.
“The Postal Service cannot afford to make pension contributions that are not necessary for future benefits,” it warned.