“Eliminating the prefunding requirement temporarily alleviated the Postal Service’s financial burden, but did not change the fact that once the [Postal Service Retiree Health Benefits Fund] runs out of funds, the Postal Service is responsible for funding its share of the healthcare premium costs for its retirees as the costs are incurred,” it said. Image: PJ McDonnell/Shutterstock.com
By: FEDweek StaffAn inspector general report has cited some positives for USPS finances but also notes that its financial picture in recent years has benefitted from several special infusions of funding from Congress that it called “unique events.”
As in other prior reports, the latest one charts financial pressures on the USPS over the last 25 years including the decline in First Class mail revenue amid increasing electronic communications; an obligation under a 2006 law to pre-fund future health care expenses for its retirees; and a cap under that law on what it could charge for “market-dominant” products such as First-Class mail, periodicals and marketing mail. One result was that by 2012, the USPS started defaulting annually on the prefunding obligation, it said.
However, over those years revenue from “competitive” products such as package delivery increased, and was further boosted by the pandemic. While the USPS at first saw that as only a “surge,” the report said, “it will likely remain popular with customers, sustaining some elevated package demand into the future.”
The USPS further benefitted from several pandemic relief laws, including one giving it a one-time $10 billion appropriation and another giving it $3 billion to buy zero-emission delivery vehicles and related infrastructure. In 2021 the Postal Regulator Commission allowed for more flexibility in pricing and in the following year the Postal Service Reform Act struck $57 billion in unpaid retiree healthcare liabilities from the Postal Service’s balance sheet.
“However, the Postal Service was not immune when the United States experienced a period with high levels of inflation after the pandemic, specifically impacting employees’ compensation and benefits, which contain COLAs,” it said. “Over this period, competitive products and rate increases kept growing revenue; however, expenses grew as well, primarily from the impact of inflation on compensation and benefits. The Postal Service ended FY 2024 with a $9.5 billion net loss, its largest since FY 2012.”
First Class mail volume “is not expected to return to levels previously seen in the early part of the 20th century,” it said, and “ultimately, future retirement obligations will need to be funded.”
“Eliminating the prefunding requirement temporarily alleviated the Postal Service’s financial burden, but did not change the fact that once the [Postal Service Retiree Health Benefits Fund] runs out of funds, the Postal Service is responsible for funding its share of the healthcare premium costs for its retirees as the costs are incurred,” it said.
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