What You Need to Know About the U.S. Postal Service’s ‘Severe Financial Crisis’

(SeaPRwire) –   On Thursday, the U.S. Postal Service announced it is suspending payments to a federal pension plan and seeking to raise stamp prices as it contends with a “severe financial crisis.”

The Postal Service stated it has notified federal budget officials of its intention to temporarily stop its employer contributions for the defined benefit portion of the Federal Employees Retirement System (FERS). Also on Thursday, USPS filed a notice with regulators to increase postage rates, which includes a 4-cent hike for a First-Class Mail Forever stamp.

The agency cited its current financial difficulties as the reason for both moves. Postmaster General David Steiner warned last month that without significant changes, the Postal Service is projected to exhaust its cash reserves by 2027.

Below is an overview of the announced changes and the persistent financial crisis at the Postal Service.

What changes is USPS making to its pension contributions?

The Postal Service announced it will temporarily halt its employer contributions for the defined benefit portion of FERS, a retirement plan for its employees and other federal staff, “to conserve cash and preserve liquidity due to its ongoing, severe financial crisis.” A defined benefit plan offers retired employees fixed monthly payments, with the amount calculated by a formula that considers factors like salary and years of service.

“Temporarily withholding normal FERS cost payments will not have any immediate negative consequences for our current or future retirees,” said Postal Service Chief Financial Officer Luke Grossmann in a statement. “The danger to the Postal Service and the public from a lack of operational funds far exceeds any long-term risk to the pension funds from missing the current payments.”

This change, effective Friday, is expected to save the agency around $2.5 billion in the present fiscal year, according to USPS. The Postal Service confirmed it will continue to process employees’ own contributions to FERS and will still send both employer and employee contributions to the Thrift Savings Plan, another federal retirement savings program.

In a Thursday statement, Brian Renfroe, president of the National Association of Letter Carriers, said the decision “is necessitated” by the agency’s financial problems “and is a direct result of continued inaction by Congress to fix the legislative constraints that inhibit the Postal Service’s ability to invest in its infrastructure and modernize to meet the needs of its employees and the American people.”

What changes is USPS making to postage rates?

The proposed rate adjustments, which require regulatory approval, would increase prices for mailing services products by approximately 4.8%. This would raise the cost of a First-Class Mail Forever stamp from 78 cents to 82 cents, and an international postcard from $1.70 to $1.75, along with other increases.

USPS stated the new rates are scheduled to take effect on July 12.

The Postal Service also said the price for each additional ounce for single-piece letters will remain at 29 cents.

“Facing a severe financial crisis and continually rising operational costs, the Postal Service is employing all available means, including its regulatory pricing authority, to guarantee we can continue to meet our universal service obligation and serve the American public,” USPS said in a statement.

“The Postal Service typically does not receive tax dollars for operating expenses and depends on revenue from postage, products, and services to finance its operations,” the statement continued. “Even with this change, the Postal Service’s mailing prices are still among the most affordable globally.”

Steiner had previously suggested USPS was considering a more significant price hike, informing lawmakers last month that the agency was contemplating raising the price of a First-Class Forever stamp to up to 95 cents. He added, however, that this price would still be considerably lower than stamp costs in many other countries.

Why is USPS in a financial crisis?

Steiner detailed the seriousness of the Postal Service’s financial situation in a written statement submitted before his Congressional testimony in March.

“I am uncertain if the American public realizes the Postal Service is at a critical point,” he said. “I was unaware of the full scale of the problem before assuming this position, but at our current pace, and if we keep meeting our required obligations as we have recently, we will deplete our cash in under 12 months. Therefore, if the status quo is maintained, the Postal Service will be incapable of delivering mail in less than a year.”

According to Steiner, the financial troubles originate from “the drastic reduction in the use of mail.”

“Our system has declined from a historic peak of 213 billion pieces annually in 2006 to 109 billion pieces today, meaning we have lost over 104 billion pieces each year,” he explained. “To put this in context, if that lost volume were valued at the current stamp price of 78 cents, it amounts to roughly $81 billion. No business could withstand such a massive revenue decline. For example, if UPS or FedEx suffered a similar loss, they would not survive.”

The agency has faced financial difficulties for many years. Steiner remarked that after USPS hit its peak mail volume in 2006, the agency “was thrown overboard and instead of tossing us a life jacket, we were thrown an anchor.” The Postal Service has managed to continue operations by borrowing money from the U.S. Treasury and has previously deferred certain pension payments.

However, Steiner noted in his statement that federal law prohibits the agency from borrowing additional funds.

“Our borrowing limit is $15 billion, a cap we reached years ago,” Steiner said.

“To secure our survival past next year, we must have our borrowing capacity increased to avoid a cash shortage,” he stated. “Failure to achieve this could result in the end of the Postal Service in its current form.”