Postal Service defaults on $5.5 billion payment after Congress refuses to intervene

The U.S. Postal Service defaulted on $5.5 billion in retiree health care payments Wednesday, raising new calls for a drastic restructuring of the mail system and Congressional intervention.

The service is struggling to find ways to cut costs. But it cannot take steps such as eliminating Saturday delivery, as it wants to, without Congressional approval. Without the help of Congress, post office officials said the service would likely keep defaulting on future benefit payments, including $5.6 billion that’s due in September.

The Postal Service had been hemorrhaging money ever since customers began switching to email and electronic bill payments in the 1990s.

But much of the recent debt incurred by the post office also has its roots in a 2006 law. To help cover the growing health care costs for retired postal workers, the law required the service to pay $5.5 billion in prepayments each year for a decade.

Post office officials are calling for Congressional action, including a restructuring of the pre-fund, something the House of Representatives appears unwilling to do. 

“It’s still a poor connection to the current postal business plan no matter how you look at it,” said Don Soifer, executive director of the Consumer Postal Council. “But it would have provided that relief.”

The pension program has become increasingly strained as more and more postal workers retire. Though prepaying for government retirement plans is unusual, Soifer says, the Postal Service will have to pay for them eventually.

“They’re going to have to find a way to pay for that one way or another,” he said, “or there are going to be an awful lot of unhappy retirees.” 

While Congressional leaders appear unwilling to intervene, the Postal Service has been unable to come up with viable solutions on its own.

“Realistically, the business plan is badly broken,” he said. “Any solution is going to have to address both the cost and revenue side.”

Soifer said that on the cost side Congress needed to find a way to allow the Postal Service to cuts its costs with a more efficient business plan. As for revenues, he added, the the service needed to figure out a way to take advantage of its massive infrastructure.

“We have more post offices than McDonalds, Starbucks and Walmarts combined,” Soifer said. “We need to find ways to leverage that infrastructure to gain new revenue one way or the other, or the plan just isn’t going to work.”