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USPS Retirement Determined to be Almost Fully Funded, Could Stabilize Rates

Press release from the issuing company

WASHINGTON (November 5, 2002) — Postmaster General John E. Potter said today a new financial analysis of the Postal Service portion of the federal government’s retirement fund disclosed that postal payments have almost fully funded all future retirement obligations for its employees and retirees enrolled in the Civil Service Retirement System (CSRS). In comments at the Postal Service’s monthly Board of Governors meeting, Potter said the financial analysis was made by actuaries and others at the Office of Personnel Management (OPM) and validated by subsequent Office of Management and Budget (OMB) and Department of Treasury reviews. The acturial review, according to Potter, provides new assurance that the Postal Service will be able to close the gap between its total CSRS retirement obligation and the amount already funded. The Postal Service makes an annual payment for this obligation as calculated and directed by OPM. Prior to this review, and based on current federal statutes, the Postal Service maintains a deferred liability of $32 billion to reflect the retirement obligation and makes annual payments budgeted to fund the liability over 30 years. The new analysis, based on postal CSRS participant data, shows that the funding gap is only $5 billion. However, new legislation will be necessary to effect the results of this new analysis. According to Potter, the actuarial review, which was based on actual and projected outlays for postal retirees as well as the postal payments into the fund since 1971, has the potential impact of allowing the Postal Service to: * reduce the Postal Service’s deferred retirement liability for CSRS to about $5 billion; * dynamically pay any further retirement liabilities for current employees in CSRS in the same way that postal employee retirement costs under the newer Federal Employee Retirement System (FERS) are presently fully funded; * increase the amount available for debt reduction in fiscal year 2003 from $800 million to more than $3 billion; and, * stabilize current postage rates to 2006 (previously, postal officials said another general rate hike would be required in 2004). The new financial analysis has no impact on current postal employee retirement contributions or future benefits, nor does it affect current CSRS postal retiree annuities. “All these positive financial outcomes for our ratepayers depend on statutory change,” said Potter, who indicated that OPM has drafted such a legislative change and sent it to OMB. He believes the Administration will support the change and OMB, OPM and Department of the Treasury have offered their support to brief lawmakers on Capitol Hill. “A lot of credit goes to OPM director Kay Coles James and OMB director Mitch Daniels and their staffs,” continued Potter. “Both understand the long-term financial challenge the Postal Service faces and approach the issue of postal retirement liabilities with a fresh perspective and open mind as part of our Transformation Plan activities.” Said Potter, “I admire their courage and professionalism in surfacing the issue as quickly as they did. It enables the governors of the Postal Service and management to look at rapidly approaching ratemaking decisions in a new light if the legislation were enacted in the near future.” Potter also sent a strong message that the positive postal financial news of recent months and today’s news do not in any way obviate the fundamental flaws in the Postal Service business model under the 30-year-old Postal Reorganization Act. For a number of years, postal management has underscored that for universal service as it exists today to continue at affordable levels for consumers and businesses, a fresh look at the laws structuring the Postal Service is required. With legislative change on the current funding of the retirement provision, Potter said the Postal Service will be able to extend the rate cycle and provide customers with a "dividend" they deserve. "Customers will be able to focus on growing their use of the mail," he said. “No one should be lulled into a sense of complacency that all is right with the nation’s postal system,” said Potter. “That’s simply not true.” "The nation still faces a long-term challenge to continue postal services to everyone, everywhere while financing the costs of our growing nationwide delivery network," said Potter. "We want to do it as we have for the past 20 years -- through postal revenues and without tax dollars.” Robert Rider, chairman of the Presidentially-appointed Board of Governors of the Postal Service, underscored the Postmaster General’s message. He noted that the Board remains fully committed to the need for long-term postal reform and “welcomes any effort to examine and make recommendations for the Postal Service’s long-term future.” Rider said the governors will continue their work with lawmakers on Capitol Hill to bring about constructive and progressive legislation in the near term and to work with a Presidential Commission should one be named. Potter also said he would maintain management’s focus on providing excellent service, increasing productivity, continuing smart cost cutting activities, and streamlining postal operations through the use of existing technologies. “I remain committed to the Postal Service’s Transformation Plan commitment of taking $5 billion out of our operating expenses through 2006, over and above the savings we expect to realize by implementing the legislative changes connected with our CSRS funding,” he said. FACT SHEET: CSRS RETIREMENT LIABILITY * New financial analysis shows USPS payments have almost fully funded CSRS obligations * Analysis was made by actuaries at Office of Personnel Management * Validated by Office of Management and Budget and the Department of the Treasury * Prior to review and based on current statutes, USPS maintains $32 billion deferred liability for CSRS obligation * New OPM analysis shows actual funding gap is only $5 billion * Change in USPS payment schedule will require legislation, which has been drafted by the Administration * Would have USPS fully fund CSRS in same way as FERS. (Dynamic funding, no further deferred liabilities.) * This would enable USPS to hold postage rates steady until at least 2006 * Without statutory change, USPS would have to raise rates in 2004 * Without statutory change, postal customers would overpay USPS retirement costs * Will enable USPS to reduce debt by more than $3 billion FY 2003, compared to the planned debt reduction of $800 million * Change in USPS retirement payment schedule will not harm current or future USPS retirees * No changes to benefits or employee contributions * USPS would remain committed to implementing Transformation Plan * USPS would remain committed to reducing $5 billion in costs through 2006, above and beyond the savings if this legislation is enacted * USPS would remain committed to providing excellent service, increasing productivity, continuing smart cost-cutting activities and streamlining postal operations * Pleased to have opportunity to extend rate cycle and provide our customers with stable rates for a longer period of time and to fully fund retirement obligations in the year they occur