USPS pension surplus now worth $12.48bn, says OIG

The US Postal Service inspector general has come back with a fresh estimate of the USPS federal pension surplus – estimating it to be worth $12.48bn. The revised figure comes after the Office of the Inspector General (OIG) suggested back in October that USPS had as much as $24bn in surplus cash in its Federal Employees’ Retirement System (FERS)

That particular figure was torpedoed by the Office of Personnel Management (OPM), which issued its own revised estimate based on lower interest rate predictions and different demographic assumptions, putting the figure as low as $3bn.

This week the OIG came back with a new figure of its own to take account of the OPM’s change in assumptions.

It said its estimate was based on Postal Service specific assumptions, rather than those of the federal government as a whole, which it claimed was more accurate than the OPM estimate. As an example, it takes mortality assumptions based on the characteristics of postal workers, who have generally different characteristics than other federal government employees, to calculate the pension fund liabilities.

The OIG calculations were put together by Virginia-based consultancy Hay Group, based on generally accepted actuarial principles and practices, it said.

The OIG said: “We asked Hay Group to update their previous estimate of the surplus to reflect the new assumptions OPM used. Hay Group also took the opportunity to update its assumptions for pay increases based on the Postal Service’s latest information.

“Hay Group found the projected surplus to be $12.48 billion as of fiscal year 2012 when Postal Service-specific assumptions are used. This is an increase of more than $9 billion from OPM $3.0 billion estimate.”

Ultimate costs

USPS recorded an annual loss of $15.9bn in the 12 months up to September 2012, and is currently right up against its legal borrowing limit of $15bn.

The Postal Service defaulted on $11.1bn worth of payments to the federal government in August and September, unable to pay required pre-funding installments for its future retiree healthcare liabilities.

The OIG said there was no legal mechanism at present to return pension surpluses to the Postal Service. It would need Congress to step in to return USPS pension surplus as part of efforts to turn around its financial crisis.

The Inspector General suggested that the USPS contribution rate ought to be adjusted to use Postal Service-specific assumptions.

“The Postal Service’s payments for retiree benefits should accurately reflect their ultimate costs,” it said.