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.
A major obstacle to this painless fix is Congress and the proposed $11 billion refund. The money is earmarked for retirement incentives and pension credits. The same employees eligible for the buyout are already eligible to retire. The proposal would give each of them a $25,000 “gold watch” on their way out the door in addition to their benefits, an offer few workers anywhere would turn down. The plan would also require the Postal Service to keep the buyout on the table for two years. If nothing is done to arrest the Postal Service’s mounting losses — it posted $3 billion in red ink in the last quarter alone — taxpayers may well have to foot the bill for a massive bailout.
The current Congress is probably incapable of letting Postal Service management make the tough but necessary choices to cut costs by downsizing. Congress realized its own predilection toward meddling in 1970, when it created the modern Postal Service and barred members and other elected officials from interfering with Postal Service management on specific hiring decisions. Extending that principle of congressional non-interference to service changes and post office and facility closures would be a welcome demonstration of congressional humility and perhaps the only practical way to save the Postal Service.
Congress should not be borrowing money to pay postal workers to retire — it should just let them retire and save the Postal Service money in the meantime. Instead, Congress would be doing the taxpayers, the Postal Service and your mailman a favor if it stopped meddling and put postal pensions in a lockbox.
Sean Kennedy is a visiting fellow with the Lexington Institute in Arlington, VA.