The U.S. Postal Service, facing insolvency without approval to delay a $5.5 billion payment for worker health benefits, will suspend contributions to an employee retirement account to save $800 million this year.
The Postal Service will stop paying employer contributions to the defined-benefit Federal Employees Retirement System, which covers about 85 percent of career postal workers, it said today in an e-mailed statement. The $115 million payment, made every other week, will stop on June 24, the statement said.
Suspending payments to the retirement account will help “conserve cash and preserve liquidity,” the statement said. The agency estimates it has overpaid by $6.9 billion and has asked Congress to pass legislation to return that money.
Congress must “make bold, quick and substantive reforms,” said Art Sackler, executive director of the Washington-based Coalition for a 21st Century Postal Service, which represents corporate mail customers. “The USPS is hanging by a thread.”
The agency and U.S. Office of Personnel Management will ask the Justice Department’s Office of Legal Counsel to analyze the decision, said David Partenheimer, a Postal Service spokesman.
This is why defined benefit plans are not in the private sector; they’re unsustainable.
This also goes to a basic premise I have with regards to government subsidizing a failing or shrinking business model. Theoretically, they could just let the Postal Service fail. It’s outdated, mail volume is plummeting every year, and it’s expensive to operate (although they claim they operate autonomously, the fact that they’re millions or billions in debt prove they don’t).
The question arises: how long would the Postal Service last if it were a private entity? How long could you run millions or billions in debt and have the owners keep pumping money in as it fails? Well, if you’re a government entity, you know the answer. Forever. Why? Because the people allocating money are allocating your money, not theirs.
There are two fixes for the Postal Service:
1. Privatize it: Make it operate like an actual business that has to sustain itself. If it can’t, then goodbye.
2. Switch new employees from defined benefit plans to defined contribution plans (like 401k / 403b). That will limit future liability for payments to what was put into the system, rather than paying out way more than was taken in (which is what’s happening now).
Of course, privatizing the whole thing would probably be the best solution in my opinion, but suggestion 2 would go a long way toward solving the financial problems.