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There are two methods for funding pensions: PAYGO (pay as you go) or funded. With a PAYGO plan, you pay current retirees out of current income, and hope that

by Lazare 15y ago

There are two methods for funding pensions: PAYGO (pay as you go) or funded. With a PAYGO plan, you pay current retirees out of current income, and hope that future income will be enough to cover future retirees. Public bodies often use PAYGO plans, in large part because they can always tax (or print) money in order to cover shortfalls if they have to. With a funded plan, you put aside money from current income to pay future retiree claims; current retiree claims are paid from money put aside in the past. Private companies often use funded plans, in large part because any shortfalls can lead to pensioners not being paid. The USPS is a very unusual hybrid of public and private and, in many ways, has the worst of both worlds. Rather than follow the "normal" rules other government agencies or other private companies follow, the USPS is "lucky" enough to get rules written especially for it by Congress. And THAT is the source of the current controversy. There's nothing unusual about prefunding retirement benefits, but there are legit questions about the precise rules that Congress has written for the USPS. They argue they're being asked to prefund too much; the counterargument is that they face unique challenges, and the prefunding requirements are sensible. It's a very very dry, very very complex issue, and honestly, I don't have a clue who's right. :) HOWEVER, I can say who's wrong: The linked article. Contrary to the article, the USPS is not making an operational profit. In FY 2010 it had an operational loss (NOT counting any pension funding) of $600 million. In FY 2011 that rose to an operational loss of $2.2 billion (again, before the disputed pension funding payments). It's projected to keep rising. The USPS is seeing collapsing mail volume in every profitable category. Their fundamental market (delivering first class mail) is vanishing before their eyes, and nobody has the slightest plan to fix it. Right now they're little more than a government subsidized catalogue delivery service with an eye-wateringly expensive retail outlet network and legacy staff costs. And THAT is the real issue. A normal company would respond by trying to change their cost base, but again, the USPS is neither fish nor fowl. They can't close post offices or fire workers the way a private business can, but they can't rely on seemingly infinite funding from the US government the way a normal government agency can. They're are, well, going broke. And that, in turn, is why the pension funding argument is so heated. Is the USPS going to be around in 40 years to pay worker pensions? If you're confident the answer is yes, then letting them leave pensions unfunded is safe, and might help get them through the current crisis. But if you're wrong, then pensioners will suddenly see checks stop coming. (We tend to think that's a Bad Thing.) So if you're afraid the USPS might not be around down the road, that makes pension funding very important. shrug Make your guesses and you get your policy outcome. :)

OpieCunningham 15y ago
Contrary to the article, the USPS is not making an operational profit. In FY 2010 it had an operational loss (NOT counting any pension funding) of $600 million. In FY 2011 that rose to an operational loss of $2.2 billion Do your figures for operational profit consider this part of the article: In addition, due to a 40-year-old accounting error, the federal Office of Personnel Management has overcharged the post office by as much as $80 billion for payments into the Civil Service Retirement System. This means that USPS has had billions of its sales dollars erroneously diverted into the treasury.
- Lazare 15y ago
  Nope, 'cause no matter what the truth (or the resolution) of that particular dispute is, it won't impact the numbers for the last two years. It might well change the numbers for FY 1961 or so though. :)
  - OpieCunningham 15y ago
    I'm not sure I follow. Are you suggesting that if there was an accounting error, the USPS lost all $80 billion in 1961? Perhaps you're simply unfamiliar with the accounting error issue as outlined in the article.
    - Lazare 15y ago
      Okay, first, operating income may or may not include pension expenses; it depends on a lot of details. According to reports, there was a historical error, and over some number of years, back in the 60s, the USPS paid in "too much" (how much? Less than $80b...how much less, nobody seems to know). If they booked that as an operating expense, that may have shown up in decreased operating income during those years. That means that, if the money was refunded, it might or might not lead to a restatement of their 60s-era operating income, depending on whether the original overpayment had been counted as an operating expense. But everyone seems to be agreed that the issue, whatever it was, ended some time ago; probably during the 70s when there was a big change in how the USPS handled pensions. And that leads us to two conclusions: 1) The overpayment is not ongoing, and is not therefore impacting current operating income numbers (assuming arguendo that it impacted operating income numbers at all. 2) And, as a corollary, if the overpayment is ever refunded, it won't impact current operating income numbers. Now, the USPS is saying that, if they got the refund, it would help them prefund their retirement as required by law. Which would be, obviously, great! But the operating income numbers don't count the prefunding, so again, this would have no impact on the operating income figures. And if we move beyond the technical accounting stuff to the big picture, the bottom line is that the USPS is currently losing money on their day-to-day operations, excluding the pension prefunding. So it doesn't matter if they get a refund, or they mug a leprecaun for his pot of gold - no one-off payment is going to change their relatively dire financial situation. To change that, they need to restructure. A private company would look to close, consolidate, downsize, embrace new technologies, and possible use bankruptcy to shed legacy debts and renogotiate labour contracts. The USPS is either prevented or seriously hampered from pursuing any one of these - and ultimately the blame for that must be laid at Congress. (Which is the same bottom line that the people upset about the pension prefunding and the earlier overpayment have. Everyone agrees that Congress has almost complete blame and responsibility.)

by Lazare 15y ago

OpieCunningham 15y ago

Contrary to the article, the USPS is not making an operational profit. In FY 2010 it had an operational loss (NOT counting any pension funding) of $600 million. In FY 2011 that rose to an operational loss of $2.2 billion Do your figures for operational profit consider this part of the article: In addition, due to a 40-year-old accounting error, the federal Office of Personnel Management has overcharged the post office by as much as $80 billion for payments into the Civil Service Retirement System. This means that USPS has had billions of its sales dollars erroneously diverted into the treasury.

Lazare 15y ago
Nope, 'cause no matter what the truth (or the resolution) of that particular dispute is, it won't impact the numbers for the last two years. It might well change the numbers for FY 1961 or so though. :)
- OpieCunningham 15y ago
  I'm not sure I follow. Are you suggesting that if there was an accounting error, the USPS lost all $80 billion in 1961? Perhaps you're simply unfamiliar with the accounting error issue as outlined in the article.
  - Lazare 15y ago
    Okay, first, operating income may or may not include pension expenses; it depends on a lot of details. According to reports, there was a historical error, and over some number of years, back in the 60s, the USPS paid in "too much" (how much? Less than $80b...how much less, nobody seems to know). If they booked that as an operating expense, that may have shown up in decreased operating income during those years. That means that, if the money was refunded, it might or might not lead to a restatement of their 60s-era operating income, depending on whether the original overpayment had been counted as an operating expense. But everyone seems to be agreed that the issue, whatever it was, ended some time ago; probably during the 70s when there was a big change in how the USPS handled pensions. And that leads us to two conclusions: 1) The overpayment is not ongoing, and is not therefore impacting current operating income numbers (assuming arguendo that it impacted operating income numbers at all. 2) And, as a corollary, if the overpayment is ever refunded, it won't impact current operating income numbers. Now, the USPS is saying that, if they got the refund, it would help them prefund their retirement as required by law. Which would be, obviously, great! But the operating income numbers don't count the prefunding, so again, this would have no impact on the operating income figures. And if we move beyond the technical accounting stuff to the big picture, the bottom line is that the USPS is currently losing money on their day-to-day operations, excluding the pension prefunding. So it doesn't matter if they get a refund, or they mug a leprecaun for his pot of gold - no one-off payment is going to change their relatively dire financial situation. To change that, they need to restructure. A private company would look to close, consolidate, downsize, embrace new technologies, and possible use bankruptcy to shed legacy debts and renogotiate labour contracts. The USPS is either prevented or seriously hampered from pursuing any one of these - and ultimately the blame for that must be laid at Congress. (Which is the same bottom line that the people upset about the pension prefunding and the earlier overpayment have. Everyone agrees that Congress has almost complete blame and responsibility.)