USPS is efficient and self-sufficient, congress has just done everything possible to make it look like they're failing.
If they didn't have to prepay pensions (something no other government agency, or private company in the world is required to do, or does), they'd be in great shape.
In fairness, pension pre-funding should be an expectation of all government agencies and private companies with pensions. But the way it was introduced was absurd, IIRC USPS had 10 years in which to pre-fund 50 years of pensions.
"The confusion over 75 years may be due to an "accounting" and not an "actuarial or funding" issue. They only have to fund the future liability of their current or former workforce.
I've seen this claim elsewhere but IMO it's ridiculously misleading. It's technically true that USPS is mandated to fund pensions for people that aren't alive yet. However, they're not required to actually start putting the finds away until those people grow up and start working for USPS.
EVERY company (either private or publicly traded) in the US that offers a pension is legally required to do one of two things:
1. Pre-fund the pensions of employees who aren't born yet
OR
2. Stop offering the pension before they hire the people who haven't been born yet
Some companies chose to do 2, but without an act of congress the USPS is locked into option #1. This is tautological for any long lived pension plan. It will eventually serve people who haven't been born yet. I don't see why people are so surprised by it.
It doesn't matter if it's 500 years. The farther it is into the future, the greater the time discount to fund it now. "75 years" just sounds inflammatory as a soundbite, but it's completely reasonable. If you're promising it, you should book the expense's present discounted value.
Why aren't other federal agencies subject to similar requirements? Why isn't such a practice standard in the corporate world?
> If you're promising it, you should book the expense's present discounted value.
Your argument proves way too much. There is no "promise" here. To whom is the commitment made? The beneficiaries of such pensions do not even exist at this time. The most you can say is that there is an expected future expense. But if your claim is that an entity should be presently setting aside money for all anticipatable expenses, no matter how far in the future, then I think you'll find very few CFOs to agree with you.
>Why aren't other federal agencies subject to similar requirements? Why isn't such a practice standard in the corporate world?
It is absolutely standard for corporations to be required to fund their pensions, and to include liabilities on their balance sheet that aren't due for 80 years (in what few cases those actually happen in). Edit: Do you know of a rule whereby e.g. such bonds can be left off the balance sheet? I don't.
If other federal agencies (which are different in many other ways) aren't required to fund pensions, they should be -- I agree.
>Your argument proves way too much. There is no "promise" here. To whom is the commitment made?
The workers, to provide pensions for their dependents.
>The most you can say is that there is an expected future expense. But if your claim is that an entity should be presently setting aside money for all anticipatable expenses, no matter how far in the future, then I think you'll find very few CFOs to agree with you.
It's not an "anticipatable" expense, it's one that you have specifically committed to as compensation for labor, every bit as "anticipatable" as having to make this month's payroll. Do you know a CFO that thinks it's fine not to have allocated money for that?
>Do you know a CFO that thinks it's fine not to have allocated money for that?
I can't know the state of mind of any CFO. What can I do is look at the record and find companies that have failed allocate money for that. There's no shortage of them in the USA.
This is from 2003, but is fairly indicative of the games played:
So regardless of whether or not it is "absolutely standard for corporations to be required to fund their pensions" (and I don't believe that it is anywhere near as standard or required as you portray it), the facts on the ground are that there are many, many pension funds that are underfunded by many different metrics.
I can also look at the record of corporate bankruptcy proceedings, and note how the obligations towards pensions are handled in comparison with those towards other types of debtors. TLDR: not well.
Finally, there is no specific committment by corporations to pay into a pension fund, only to pay out. They are at liberty to play whatever games they want regarding paying in. The simplest is to declare assumptions about future revenue, and pay in less (or nothing) in the present.
Yes, there is an epidemic of this problem in state/local public pensions. I was speaking of for-profit corporations, for which we collectively have gotten our act together and required it. I totally agree it needs to be fixed for state/local pensions similarly to how it's being fixed for the USPS.
>I can also look at the record of corporate bankruptcy proceedings, and note how the obligations towards pensions are handled in comparison with those towards other types of debtors. TLDR: not well.
Well, yes, that's a reason to require the pensions to be funded (at present discounted value), as the benefits are accrued -- why are you bringing this up to oppose that requirement on the USPS, except to condemn those workers to that possible fate?
>Finally, there is no specific committment by corporations to pay into a pension fund, only to pay out. They are at liberty to play whatever games they want regarding paying in.
This is false; among other places, see the Forbes overview. Many reforms have been enacted and the PBGC has requirements. This isn't the 50s anymore.
Sure, ERISA has led to a series of rules about minimum contributions.
But there are bunch of games corporations can play to reduce or avoid minimum contributions. Principle among them is to fund too much of the plan via contributions of the company's own stock (limited in scope but large enough to underfund the plan). If the underfunding is limited to 90% of the fund's liabilities, it can take 3 years before an increase in funding is required.
But rather than focus on the rules, I prefer to look at the actual on-the-ground situation. Many corporate DB plans are underfunded. It's not enough to say "the rules say they must fund liabilities as they are accrued" when many corporations demonstrably fail to do this.
Anyway, most people recognize that corporate DB plans are more or less over, so the comparison between corporate pension provisioning and public versions is going to get less and less relevant (probably).
Literally every single private company in the US is required to prepay their pension obligations. When MAP-21 changed the formula for how much prepayment is necessary, FedEx stopped offering pensions to new hires. I think UPS only offers pensions to union employees now. I think the sticking point for USPS was that they were also required to prepay the retiree medical benefits that they offer
USPS pension funding gets brought up quite a bit as some kind of a conspiracy, but that doesn't appear to be accurate.
The issue for the postal service is that the law was changed so that the USPS would start funding their retirement health care costs since they are promised to the workers and the projected costs had exploded. This was supported by a bipartisan commission, the GAO, and the Postal Service itself:
>...Although retiree health benefits are often unfunded or poorly funded, two considerations suggested the Service’s retiree health care obligations should be funded: they are as firm a commitment as the Service’s pensions, and they had become enormous (about $75 billion by 2006). In 2003, the presidential commission suggested establishing a reserve fund for these obligations, and the Postal Service itself sent Congress a proposal for creating such a fund.
>Prior to 2006, the Service simply paid retirees’ health benefit premiums when they came due. The Service put aside no money when it promised the future benefits. Paying benefits when they come due rather than funding them in advance is known as the pay-as-you-go or unfunded approach.
>Early this century, Congress, the Administration, the U.S. General Accounting Office (GAO), and a bipartisan presidential commission expressed concern about the lack of funding. Although retiree health benefits are often unfunded or poorly funded, two considerations suggested the Service’s retiree health care obligations should be funded: they are as firm a commitment as the Service’s pensions, and they had become enormous (about $75 billion by 2006). In 2003, the presidential commission suggested establishing a reserve fund for these obligations, and the Postal Service itself sent Congress a proposal for creating such a fund.
>In 2002-2003, it was discovered that the Service was contributing far more than necessary to fully fund its pensions, and Congress allowed the Service to contribute less. Congress decided the pension “savings” could help patch the retiree health benefit underfunding. In 2006, as part of the Postal Accountability and Enhancement Act (PAEA), the Postal Service Retirement Health Benefits Fund (RHBF) was established. Most of the Service’s contributions to the new fund could be paid using the pension “savings.” PAEA was bipartisan legislation with broad support.
>...If they didn't have to prepay pensions (something no other government agency, or private company in the world is required to do, or does), they'd be in great shape.
In relation to this, the USPS has posted this as part of a fact sheet:
>...More recently, the USPS Fairness Act was passed by the House. It would eliminate the requirement to prefund
retiree health benefits and forgive our current defaulted prefunding payments. However, ultimate passage of the bill will not reduce our underlying retiree health benefits liability, nor improve our cash flow or long-term financial position.
It's also something we did in Canada as well. There were good reasons to make sure that the postal office had their pensions well funded. They're most likely to be disrupted by technology. We expected email to eviscerate traditional post, and it has, but for now package delivery and spam mail are making up the shortfall. Even so, it isn't too hard to imaging a post office that runs at a fifth of the workforce once we get more competition from autonomous devices.
If they didn't have to prepay pensions (something no other government agency, or private company in the world is required to do, or does), they'd be in great shape.