During the 2000 election, “Saturday Night Live” had a field day with Al Gore’s suggestion that Social Security and Medicare be put into an “ironclad lockbox.” Congress would not be able to use the Social Security and Medicare Trust Funds “as a piggy bank for other programs.” Gore’s idea never got traction. Instead, Congress borrowed against these “trust funds” and wrote itself $4.7 trillion in IOUs. That could happen only because such federal trust funds are a fiction, since the Treasury Department keeps nothing in reserve — paying bills as they come due with funds raised through taxing and borrowing.
Today, the United States Postal Service (USPS) wants access to one of the federal government’s other “trust funds” — the federal employee pension fund — to cover its multi-billion-dollar losses and incentivize its expensive workforce to retire. The problem is, like Medicare and Social Security, federal employee pensions are financed by current contributions from employees and employers (government agencies). Past contributions weren’t saved — they were spent — since the funds are money-in, money-out operations.
Under legislation currently being considered in the Senate, the Treasury would send the Postal Service an $11 billion check from the Civil Service Retirement and Disability Fund (CSRDF). Postal Service management contends it paid too much and Uncle Sam owes it a refund. But there’s no surplus to refund and no lockbox to pry open. In reality any transfer would come from the General Treasury (i.e., from tax revenue or more borrowing).
There would only be an overpayment if USPS can pay all its future pension liabilities — an unlikely feat especially since it missed its pension payment last June and admits it will lose more than $200 billion over the next decade. If retired postal workers live a little longer than expected or bond rates rise, the actuarial surplus evaporates. Those same actuaries project that the federal government already owes $1.6 trillion in future obligations it cannot pay. It’s more of a black hole than a piggy bank.
But $11 billion won’t save the Postal Service. First-class mail is rapidly declining, as online banking and email replace hard copy communications. Advertising mail is in decline too, down 5% from last year.
The Postal Service has too many people, offices and processing plants for the business it projects to do in the months and years to come. Five years ago, USPS delivered a record 213 billion pieces of mail. Last year, the Postal Service’s mail volume fell to 168 billion and is slated to fall again to 100 billion pieces by 2020, according to McKinsey & Company.
USPS needs to right-size its network in order to meet demand and reduce its labor costs. Over 100,000 of USPS’s 550,000 employees could retire tomorrow with full pensions. Labor costs, currently 80% of USPS’s expenses, could be cut without layoffs or dislocations.