Postal penalties? Nobody knows.


You’ll recall from this story yesterday that the Postal Service is in danger of running out of cash this year, barring new legislation from Congress. John Potter, the postmaster general, said he intends to keep paying salaries and operational expenses — but the Postal Service might have to forego its annual contribution to the retiree health benefit trust fund.

What happens then?

There won’t be an impact on retirees, because the trust fund covers future retiree benefits. The Postal Service currently spends about $2 billion annually to cover current retirees.

The more interesting question is what Congress or the Treasury Department might do. And nobody knows the answer. I’m told, via the Postal Service’s legal department, the statute that created the trust fund is vague — it doesn’t specify any penalties for missing a payment. It’s uncharted territory.


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  1. I didn’t write this but in a nutshell here is the history.

    Postal Ponzi Scheme
    Amidst all the talk of bonuses, sweetheart mortgages and micro-management at Wednesday’s oversight hearing, there was precious little discussion of the facts behind the Postal Service’s obligation to “pre-fund” its retirees’ health benefits by depositing over $5 billion a year with the US Treasury- something no other agency or corporation is required to do.
    This obligation didn’t arise out of an actual concern for those retirees- it was political expediency, pure and simple. In 2001 the Office of Personnel Management determined that the USPS had been improperly overcharged for Civil Service retirement benefits.
    There wasn’t any dispute about the mistake- everyone freely admitted that the USPS had overpaid. Unfortunately, giving the money back (and not continuing the overcharging in the future) would mean increasing the national debt (on paper), as well as increasing future budget deficits (also strictly on paper).
    So our representatives in Congress took the only course they thought reasonable: they scrambled to come up with an excuse to not only keep the money the Treasury already had, but to keep the gravy flowing! It took time to craft a rationale, so for a while we had an undefined escrow account into which the overcharge flowed. Then someone came up with the brilliant idea of using the continuing overcharge to “pre-fund” future postal retiree health benefits. How much should the USPS should set aside for the pre-funding? Amazingly enough, the amount turned out to be just about what the CSRS overcharge would have been.
    So the Treasury would still get an extra $5 billion from the USPS’s customers, decreasing (on paper) the federal deficit by that amount!
    So what’s wrong with this picture? The first problem is the voodoo accounting that allows the Treasury to count the USPS contribution as revenue. The funds the USPS contributes, regardless of whether they are overcharges for CSRS retirements, or “pre-funding” of retiree health benefits, are already totally committed to paying those charges. Counting those dollars as revenue to decrease the deficit is nothing but a shell game.
    Secondly, and more importantly, the USPS no longer has $5 billion in spare change to contribute to the Treasury every year- consider what will actually happen if the USPS has to contribute the required $5 billion to the “trust fund”:
    – The USPS will be required to pay the Treasury $5 billion.
    – The USPS doesn’t have $5 billion, so it will have to borrow the funds.
    – When the USPS needs to borrow money, it borrows it from the Treasury. So it will borrow $5 billion from the Treasury that it will then loan back to the Treasury for the “trust fund”!
    – But wait- there’s more! As you may have heard, the Treasury has no money either!. The US Government is operating at a deficit, and will be for the foreseeable future. So if it needs another $5 billion to loan to the postal service, so that the postal service can loan it back to the Treasury, guess what? The Treasury will have to borrow another $5 billion from China!
    Which shell is your (borrowed) $5 billion under?!
    If the USPS makes the RHBTF payment, it will simply be converting $5 billion in presumed future USPS obligations to an immediate $5 billion debt to the Treasury. It will also take $5 billion of the total US debt off of the federal government’s books and charge it to the USPS. It will have done nothing to insure that future retiree health benefits are actually funded.
    Charles Ponzi would have been proud of this scheme!
    (Fun fact- when the GAO’s Phillip Herr was asked during Wednesday’s hearing whether he could think of any other companies that were required to pre-fund employee health benefits, he proudly pointed out that the GAO does it! He didn’t mention the fact that when the GAO needs funds to do something like that, it doesn’t actually have to come up with the cash- it just asks Congress to appropriate it…)

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