The Postal Service halts payments to FERS, affecting nearly all workers, to conserve cash and avoid financial collapse.
Category: Business
The United States Postal Service (USPS) is taking drastic measures to stave off a cash crisis by temporarily suspending its contributions to the Federal Employees Retirement System (FERS). This decision comes after warnings that the agency could run out of cash as soon as February 2027 if immediate reforms aren’t enacted.
Effective April 10, USPS will stop making payments of approximately $200 million every two weeks to the FERS annuity, a move expected to save about $2.5 billion in the current fiscal year. The agency informed the Office of Personnel Management (OPM) of its decision on April 9, citing a severe financial crisis as the primary reason for this suspension.
USPS Chief Financial Officer Luke Grossmann reassured employees and retirees that there would be no immediate detrimental impact from this pause in payments. “The risk to the Postal Service and the American public from insufficient liquidity for postal operations dramatically outweighs any longer-term risk to the pension funds from not making the currently due payments,” Grossmann stated in a press release.
This isn't the first time USPS has suspended contributions to FERS; a similar measure was taken in June 2011 during another period of financial difficulty. In that case, the agency resumed payments after a few months and paid back what it owed to the OPM. Currently, the Postal Service is in a precarious position, having reported net losses of $118 billion since 2007, driven largely by declining mail volume and rising operational costs.
Postmaster General David Steiner has been vocal about the agency's dire financial situation. In a recent congressional hearing, he warned that without legislative intervention, USPS might not be able to deliver mail by early 2027. Steiner has proposed several potential changes to address the crisis, including raising the price of a first-class stamp to 95 cents or more, up from the current 78 cents, and possibly reducing delivery days from the standard six to five or fewer.
“Less than a year from now, the Postal Service will be unable to deliver the mail if we maintain the status quo,” Steiner said. He emphasized the need for Congress to act swiftly to prevent a total operational failure.
In addition to suspending pension payments, USPS has announced plans to increase the price of priority mail and package deliveries by 8% starting April 26, with the surcharge expected to last until January 17, 2027. This price hike is partly a response to rising transportation and fuel costs, exacerbated by external factors such as the Iran war.
USPS’s financial challenges have not gone unnoticed by lawmakers. In April 2022, Congress passed a reform bill that eliminated $57 billion in past-due payments for retiree health benefits, providing some relief. Yet, the agency is still struggling with a business model that has not adapted to the digital age, leading to a steady decline in first-class mail volume, its most profitable product.
The Postal Regulatory Commission has also granted USPS a temporary waiver that allows the agency to repurpose billions of dollars in revenue normally reserved for retiree benefits. This waiver is intended to provide USPS with some breathing room to cover operating expenses and invest in improvements to its infrastructure.
Don Maston, president of the National Rural Letter Carriers’ Association, expressed concern over the unilateral decision to pause FERS contributions, stating that the Postal Service management should have negotiated with the union beforehand. He urged Congress to take action to address USPS's financial challenges, emphasizing the need for reforms that strengthen the agency without undermining services or earned benefits.
As USPS grapples with its financial woes, it continues to assure employees that contributions to their Thrift Savings Plans, a 401(k)-style retirement savings plan, will not be affected by the suspension of FERS payments. The agency will continue to transmit employee contributions to FERS, as well as automatic and matching contributions to the Thrift Savings Plan.
In light of the impending liquidity crisis, USPS is calling for legislative action to restore its financial stability. The agency has proposed extending its borrowing limit from $15 billion to $34.5 billion, allowing it greater flexibility in managing its financial obligations. Without such measures, the future of the Postal Service remains uncertain.
As the situation develops, stakeholders are urged to treat the breathing room provided by the temporary waiver as an opportunity to work toward meaningful and lasting change. The Postal Regulatory Commission has emphasized the importance of collaboration among all parties involved to secure a sustainable future for the Postal Service.
The Postal Service's decision to halt pension contributions marks a troubling chapter in its long struggle for financial viability. As it navigates these turbulent waters, the agency's fate hangs in the balance, dependent on swift action from Congress and the support of the public it serves.
With the potential for drastic changes on the horizon, including cuts to delivery days and increased stamp prices, the future of mail delivery in the United States could look significantly different in just a few short years.