They have to pre-fund the benefits they already owe employees. It’s perfectly reasonable. Without it, they’d come begging to the feds for money in a couple decades. A private enterprise, on the other hand, would only hurt creditors if it can’t pay a pension.
>It's funded by insurance premiums paid by companies that offer pensions, not by taxes,
It's not much different than the post office itself in that regard. It's losing money every year. At some point congress will step in and bail them out. Any time a company goes bankrupt and forces them to take over pension obligations they lose more money.
That's one of the purposes of the PBGC--to prevent people from losing their pensions when companies have problems. Look at the history of the PBGC and bankruptcy. Companies routinely use bankruptcy to benefit creditors at the expense of the PBGC. Basically creditors get paid, while the PBGC gets stuck footing the bill for pensions.
There is a difference between a company going bankrupt and not able to meet pension obligations and deciding not to fund a pension necessary to meet defined benefits.
If PBGC allowed this then companies could abuse it by promising 200% pensions and then only contributing $1 and defaulting.
Funding defined benefit pensions is very expensive, USPS wants to save money by not funding it in order to pay benefits. I’m not sure their argument other than “we don’t have that much money.” It seems they need to reduce pensions or live with sinking tons into it. Not paying pensions shouldn’t be an option, I think.
>Funding defined benefit pensions is very expensive, USPS wants to save money by not funding it in order to pay benefits. I’m not sure their argument other than “we don’t have that much money.”
This is their argument.
1. They are forced to prefund the retiree medical fund in addition to the pension fund. No private company is forced to do this. If a private company runs out of money for retiree medical, they will just stop paying--the post office can't just stop offering this benefit without an act of Congress.
Additionally the retiree medical fund is forced to invest only in U.S. Treasuries, so the interest rate is much lower than it should be--meaning that they need to invest more money than should be necessary to prefund.
2. They were forced to prefund over a 10 year period. When the law was passed in 1974 that forced private companies to prefund plans that had been pay as you go, they gave them 40 years to do so.
Thanks for the description of their argument. They are different than private companies because government account is different than corporate accounting.
I think the issue I have is that this requirement is correcting a previous practice of not funding properly.
I don’t think it’s accurate to compare USPS vs private companies as they are very different. I think it’s more accurate to compare them to other federal agencies who all also have to prefund pensions, including medical pensions. Although federal agencies have reduced pension and medical in the past decades to reduce costs.
>I think it’s more accurate to compare them to other federal agencies who all also have to prefund pensions, including medical pensions.
Other Federal agencies don't have to finance their own operations, so it makes no sense to compare them to the USPS. In most cases congress just allocated more money to the agency so that pensions could be prefunded.
The closest thing I can think of is if congress had told NASA: "You need to come up with 75 years worth of pensions and health plans within the next 10 years and we weren't going to give you any extra money to do so. Oh and you can't reduce benefits, and you must maintain the exact same level of services. And if you can't do this we are going to sell off your assets and privatize your agency."
If congress had done this it would obviously be because their goal was to privatize NASA. This has never been done to any other agency.
