USPS Is Pausing Pension Contributions — Here’s Why

The United States Postal Service (USPS) is both an arm of the federal government and is expected to turn a profit. For almost two decades, though, it has failed to do that, and instead, has posted sometimes staggering losses.

Now, the USPS has announced that it is taking extraordinary measures to preserve its cash, pausing its contributions to a pension plan for federal workers. Here's what we know about why they're taking this step now.

According to Federal News Network, the USPS told the Office of Personnel Management (OPM) on Thursday, April 9, that it would hold off on paying its contributions to the Federal Employees Retirement System (FERS) in order to conserve cash.

This is not the first time that the USPS, which has posted losses of roughly a billion dollars every year since 2007, has resorted to these kinds of measures to conserve cash.

They previously did the same thing in June of 2011 during another moment when they were cash-strapped, although in that case the pause only lasted for a few months, and the USPS eventually paid back what it owed to OPM for the time it had missed.

Postmaster General David Steiner recently told the House Oversight and Government Reform Committee that the USPS would run out of money within the next 12 months.

“Less than a year from now, the Postal Service will be unable to deliver the mail if we maintain the status quo,” he said, adding that lawmakers would need to act soon in order to keep the agency running. The alternative, Steiner said, would be to cut delivery days or close post offices in order to conserve cash. This comes four years after legislation was signed into law that wiped out billions in USPS debt, but also required them to maintain six days of delivery.

Following news that the USPS would be halting contributions to FERS, many wanted to know whether the program is fully funded. By halting its contributions, we know that USPS will avoid paying OPM about $200 million for the FERS annuity every other week.USPS expects this pause to free up about $2.5 billion this fiscal year to cover its other costs

FERS, like many pension funds, is something that both employees and employer contribute to, and USPS has already clarified that it plans to continue sending its employee's contributions into the fund.

In the short term, because USPS is just one of many agencies contributing to the fund, this is unlikely to affect the fund's overall solvency. If USPS were to pause for several years, it might lead to issues for USPS employees.

The last time they took this measure, though, they were ultimately able to repay the back funding so that FERS could stay fully funded. It's unclear whether that will be true this time or not, but what this move clarifies is that USPS is really in a budget crisis.