Sure, I’ve written concerning the Submit Workplace earlier than, each again a 12 months in the past and initially of the month. This text makes an attempt to distill the difficulty into fundamentals, a TL;DR model of these articles, as issues about america Postal Service’s short- and long-term viability proceed. Additionally, I’m discussing neither the final enterprise mannequin nor hypothesis as to the Trump administration’s intentions. Bearing that in thoughts, let’s start:
MYTH: The Submit Workplace is required to fund pensions upfront in a way applies to no different private-sector firm.
FACT: ALL corporations are required to fund any pension guarantees they make to their workers. (The one exceptions are for high executives, who can lose their pensions if an organization goes bankrupt, and for entities that aren’t truly “corporations” – state and native governments and church buildings.) NONE of them are permitted to take a “pay as you go” method however should contribute to a pension fund an quantity equal to what a employee has accrued that 12 months in profit guarantees, no matter how far into the long run that employee shall be retiring, and should make up for any shortfalls resulting from asset losses or different causes. The USPS and personal sector corporations use the identical normal actuarial ideas to take action, although there are variations in assumptions, particulars of the calculations, and so on.
What’s distinctive concerning the USPS is that, a a results of the 2006 Postal Accountability and Enhancement Act (PAEA), they’re additionally required to pre-fund their retiree medical guarantees. Nonetheless, what can be distinctive is that any private-sector firm might merely cancel its retiree medical advantages at any time; the funding requirement for the USPS exists as a result of solely an act of Congress would allow them to chop these advantages.
Nonetheless, even right here, once more, all corporations which promise retiree medical advantages should account for them of their monetary reporting even when they don’t prefund.
MYTH: The requirement to fund retiree medical advantages in such a brief time period was particularly burdensome and unfair.
FACT: Sure, the 10-year contributions specified within the 2006 regulation had been particularly excessive as a result of they aimed to “soar begin” the fund — and since the quantities had been meant to match anticipated financial savings from decreased pension contributions. (See extra at this “primer”.) Ought to Congress have been extra versatile when the USPS first began operating into bother with the Nice Recession and the shift from snail to e-mail, slightly than its miserly one 12 months’s funding reduction in 2009? Most probably. Did they refuse to take action as a result of they wished to pressure privatization? I don’t care to invest.
However that 10 12 months interval led to 2016, so it might probably’t be blamed for present USPS woes. We are actually within the follow-on interval wherein the USPS is meant to be amortizing its remaining unfunded legal responsibility over 40 years, to 2056. And this 40 12 months interval is strictly the identical size of time as private-sector employers got to treatment underfunding ranges when pension funding necessities had been first carried out with ERISA in 1974.
MYTH: With out these burdensome necessities, the USPS would neither be dropping cash nor experiencing its present and/or pre-COVID cashflow crunch.
FACT: First, the PAEA contributions don’t have any bearing on cashflow as a result of the USPS shouldn’t be making these contributions.
Within the aftermath of the Nice Recession, Congress decreased the 2009 contribution, and, when it refused to make any additional adjustments, the USPS merely defaulted, that’s, refused to pay the contributions mandated by the PAEA. That continues to be the case immediately. Because it states in its 10-Ok, with respect to retirement advantages, “the Postal Service didn’t make any of those [required pension funding] funds with the intention to protect liquidity to make sure that the power to meet the first common service mission was not positioned at undue threat”; with respect to contributions to the retiree medical fund, the USPS states, “As indicated above, the Postal Service recorded an expense for these quantities however didn’t make these funds with the intention to protect liquidity to make sure that the power to meet the first common service mission was not positioned at undue threat.”
As well as, with respect to monetary reporting, listed here are the important thing figures for 2019:
Healthcare advantages paid out of the Profit Fund: $three.7 billion.
Regular prices scheduled to be paid into the Profit Fund to cowl present 12 months’s present workers’ retiree healthcare price accruals: $three.775 billion.
Amortization funds scheduled to be made into the fund: $789 million.
Total web loss for the 12 months: $eight.eight billion.
The maths simply doesn’t work responsible retiree healthcare contributions for the USPS’s losses. The quantity they’re recording on their P&L for retiree healthcare prices (which, once more, they aren’t paying out in money) — $four.564 billion — is solely reasonably extra ($800 – $900 million, relying on rounding) than the quantity that they might be paying out immediately for pay-as-you-go advantages had the PAEA by no means been carried out.
MYTH: the USPS is required to fund pensions for the following 75 years, for staff who haven’t even been born.
“[T]he PAEA required the Postal Service to calculate all of its doubtless pension prices over the following 75 years, after which sock away sufficient cash between 2007 and 2016 to cowl most of them.” The Week, April 16, 2018.
FACT: the actuarial valuation strategies utilized by the USPS are primarily based solely on accruals attributed to previous service, no completely different than another such valuation.
The Postal Service Retiree Well being Profit Fund (PSRHBF) is a USPS-specific fund, and its 10-Ok report specifies that it makes use of the “mixture entry age regular acturarial price technique.” For pension advantages, workers take part within the CSRS and FERS normal civil servant pensions, utilizing the identical technique. On this technique, sure, the actuary calculates the worth of all advantages to be paid out sooner or later, resulting from previous and future service, after which subtracts out the worth of the long run accruals, to calculate the actuarial legal responsibility. As well as, the Civil Service Retirement and Incapacity Fund calculates a projection of liabilities 75 years into the long run in its annual report, however this doesn’t imply that 75 years’ value of future accruals are advance-funded, solely that the long-term sustainability of the system is measured over a 75-year interval.
Once more, if you’d like extra particulars, I encourage you to dig into my prior articles.
And all of this begs the query. Nobody is speaking about the truth that retiree medical for the USPS is so excessive as a result of its staff don’t (essentially) take part in Medicare. In precept, they opted out of paying Medicare FICA taxes and must suck it up and settle for the implications. But when Congress needs to repair this side of the USPS’s financing woes, a shift to Medicare and a discount in USPS retiree healthcare advantages has certainly bought to be a key first step.
As at all times, you’re invited to remark at JaneTheActuary.com!