Pension Obligations and Lower Volume Driving $5.2 Billion Postal Service Loss

The U.S. Postal Service is posting a whopping $5.2 billion loss for its June quarter. The losses are widening and its metrics keep getting worse. Concerns are growing as mail volume continues to decline and the pension obligations are overwhelming the postal carrier. The USPS showed that total mail volume was 38.5 billion pieces, a decrease of 1.4 billion pieces, or 3.6%.

Some changes being called for are as follows:

• Refund of $11 billion of pension plan overfunding needed to pay down debt and invest for future growth;
• Move to a five-day schedule of weekly mail delivery (no Saturdays);
• Eliminate prefunding for retiree health benefits with the introduction of a Postal health insurance program, independent of the current federal programs.

Back at the end of July, the Postal Service already telegraphed a default on the pension assets as it said, “The U.S. Postal Service will not make mandated prefunding retiree health benefit payments to the Treasury of $5.5 billion due Aug. 1, 2012 or the $5.6 billion payment due Sept. 30, absent legislation enacted by Congress.”

On its shaky future it also said, “The Postal Service continues to implement its strategic plan. However, comprehensive postal legislation is needed to return the Postal Service to long-term financial stability.” Will Congress really act? The Senate passed a reform bill earlier in the year but so far we have no efforts from the House of Representatives.

The public better get ready to hear about how the U.S. agency called Pension Benefit Guaranty Corporation to pay for these pensions. If the USPS cannot pay its tab, then the government will. How many pensions can the PBGC really absorb through time?

The Postal Service has just told its retirees, “Your check is in the mail.” It is better than saying, “The Postal Service pension just went Postal.”

FedEx Corp. (NYSE: FDX) and United Parcel Service Inc. (NYSE: UPS) are looking increasingly like the future every day. Unfortunately, that will be a much costlier future.

JON C. OGG