oversight

Postal Pension Funding Reform: Issues Related to the Postal Service's Proposed Use of Pension Savings

Published by the Government Accountability Office on 2003-11-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to Congressional Committees




November 2003
                POSTAL PENSION
                FUNDING REFORM
                Issues Related to the
                Postal Service’s
                Proposed Use of
                Pension Savings




GAO-04-238
                a
                                                November 2003


                                                POSTAL PENSION FUNDING REFORM

                                                Issues Related to the Postal Service’s
Highlights of GAO-04-238, a report to           Proposed Use of Pension Savings
congressional committees




In April 2003, Congress enacted the             The Service’s report presented two proposals for how it would use the
Postal Civil Service Retirement                 “savings,” and GAO found both to be generally consistent with P.L. 108-18.
System (CSRS) Funding Reform                    The first proposal assumes that responsibility for military service pension
Act of 2003 (P.L. 108-18), which                costs shifts to the Treasury Department and proposes prefunding retiree
lowered the Postal Service’s                    health benefits for retirees and current employees. The second proposal
(Service) annual payment for its
CSRS obligation by over $2.5 billion
                                                assumes that the Service retains responsibility for military service pension
beginning in fiscal year 2003. P.L.             costs and proposes prefunding retiree health benefits only for new
108-18 includes requiring (1) the               employees. Both proposals assume that the Service would pay down debt
Service to begin making payments                and fund capital investment through inflation-based rate increases.
into an escrow account in fiscal
year 2006, (2) the Service to issue a           Under both proposals, the Service proposes that the escrow requirement be
report on its proposed use of                   eliminated, so that the Service would not have to include $3 billion as a
“savings” resulting from the lower              mandated incremental operating expense beginning in fiscal year 2006. The
CSRS payments, and (3) GAO to                   Service cannot use the escrow funds unless Congress eliminates the escrow
evaluate the Service’s report and               requirement or specifies by law how these funds may be used. If no action is
present its findings to Congress.               taken, the Service believes that it would have to raise rates higher than
GAO evaluated whether the                       would otherwise be necessary. The escrow requirement provides Congress
Service’s proposals were consistent             an opportunity to review how the Postal Service will address a number of
with P.L. 108-18; the impact of the             long-term challenges, such as progress toward transformation and funding
escrow account; and whether the
proposals were fair to current and
                                                its retiree health benefits obligation. Once Congress is satisfied, it could
future ratepayers, affordable, and              repeal the escrow requirement so that an escrow account is not needed.
helped achieve transformation
goals.
                                                GAO assessed the Service’s two proposals according to their fairness,
                                                affordability, and the ability to achieve transformation goals, as follows:

                                                Fairness: Proposal I strikes a more equitable balance of allocating costs
To ensure continuing progress in                between current and future ratepayers, because benefits earned by today’s
addressing the Service’s financial              employees will be built into the current rate base. Under Proposal II, much
challenges, Congress should                     of the retiree health benefits obligation would remain unfunded, thereby
consider repealing the escrow                   placing the burden of the benefits being earned today on future ratepayers.
requirement after it receives an
acceptable plan on rationalizing the            Affordability: The Service’s proposals attempt to balance short-term rate
Service’s infrastructure and                    mitigation with some level of prefunding to address its long-term obligations.
workforce. Absent an acceptable                 The first proposal would require a larger postal rate increase than the
plan, Congress could direct the                 second proposal and would prefund more of the retiree health benefits. The
Service to fund specific purposes,              second proposal focuses more on rate mitigation. Given the Service’s
such as prefunding its retiree
                                                uncertain financial future, its ability to raise revenues, reduce costs, and
health benefits obligation or
supporting the Service’s                        improve productivity and efficiency is critical to affordability.
transformation. GAO makes
                                                Transformation goals: Although the Service believes it can pay down debt
additional matters for Congress to
consider in the report.                         and fund the capital investments associated with its transformation
                                                initiatives, this is not clear because the Service has not yet presented a
                                                comprehensive, integrated infrastructure and workforce rationalization plan.
www.gao.gov/cgi-bin/getrpt?GAO-04-238.          GAO has previously recommended that the Service provide Congress with
To view the full product, including the scope
                                                such a plan and periodic reports on its transformation progress. The Service
and methodology, click on the link above.       disagrees with GAO that the escrow repeal should be tied to a plan.
For more information, contact Bernard L.
Ungar at (202) 512-2834 or ungarb@gao.gov.
Contents



Letter                                                                                                    1
                             Results in Brief                                                             4
                             Background                                                                   9
                             Both Proposals Are Generally Consistent with P.L. 108-18                    10
                             Escrow Requirement Places Pressure on Rates                                 12
                             Key Issues Used to Assess the Postal Service’s Proposals                    14
                             Issues Related to the Implementation of Proposals I and II                  24
                             Conclusions                                                                 29
                             Matters for Congressional Consideration                                     30
                             Agency Comments and Our Evaluation                                          31


Appendixes
              Appendix I:    Objectives, Scope, and Methodology                                          34
             Appendix II:    Comments from the U.S. Postal Service                                       36
             Appendix III:   GAO Contact and Staff Acknowledgments                                       38
                             GAO Contact                                                                 38
                             Staff Acknowledgments                                                       38


Table                        Table 1: Estimated Debt Repayment and Capital Investment under
                                      Proposal II                                                        22


Figures                      Figure 1: Additional Expense Generated from Proposal I                      19
                             Figure 2: Comparison of Retiree Health Premiums and “Savings”
                                       under Proposal II                                                 20




                             Page i                                 GAO-04-238 Postal Pension Funding Reform
Contents




Abbreviations

CBO          Congressional Budget Office
CSRS         Civil Service Retirement System
CSRDF        Civil Service Retirement and Disability Fund
FASB         Financial Accounting Standards Board
OPM          Office of Personnel Management
PRC          Postal Rate Commission

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Page ii                                        GAO-04-238 Postal Pension Funding Reform
A
United States General Accounting Office
Washington, D.C. 20548
                                                                                        Comptroller General
                                                                                        of the United States




                                    November 26, 2003                                                               Leter




                                    The Honorable Susan M. Collins
                                    Chairman
                                    The Honorable Joseph I. Lieberman
                                    Ranking Minority Member
                                    Committee on Governmental Affairs
                                    United States Senate

                                    The Honorable Tom Davis
                                    Chairman
                                    The Honorable Henry A. Waxman
                                    Ranking Minority Member
                                    Committee on Government Reform
                                    House of Representatives

                                    The Postal Service (Service) faces significant financial challenges,
                                    including declining mail volume, the need to fund productivity
                                    improvement and cost saving initiatives necessary to transform itself into a
                                    more efficient organization, and a growing obligation for retiree health
                                    benefits that the Service estimated will reach $54 billion by the end of fiscal
                                    year 2003. In April 2003, Congress enacted the Postal Civil Service
                                    Retirement System (CSRS) Funding Reform Act of 2003 (P.L. 108-18),
                                    which afforded the Service the opportunity to address some of these
                                    challenges by lowering the annual payment the Service is required to make
                                    into the Civil Service Retirement & Disability Fund (CSRDF) by over $2.5
                                    billion annually beginning in fiscal year 2003. The legislation specified how
                                    these savings were to be used for fiscal years 2003-2005. It also required the
                                    Service to begin making payments into an escrow account beginning in
                                    fiscal year 2006 in an amount equal to the difference between the estimated
                                    CSRS payments prior to, and after, enactment of the legislation. The
                                    amount of the payments into the escrow account would have to be
                                    included in the Service’s rate base. Under the legislation, the Service
                                    cannot use the funds in the escrow account unless Congress eliminates the
                                    escrow requirement or specifies by law how the escrow funds may be used.
                                    In our view, this escrow requirement provides Congress an opportunity to
                                    review how the Service will address a number of long-term challenges,
                                    including debt repayment, capital projects, and its unfunded retiree health
                                    benefits obligation. The legislation also required the Service to report by
                                    September 30, 2003, on how it proposes to use these pension savings and
                                    required GAO to evaluate the Service’s submission and present our findings




                                    Page 1                                   GAO-04-238 Postal Pension Funding Reform
to the appropriate oversight committees.1 The legislation states that not
later than 180 days after receiving our report, the Congress shall revisit the
issue of how the savings accruing to the Service as a result of enactment of
the legislation should be used.

P.L. 108-18 also transferred responsibility for CSRS pension benefits
attributable to military service in the amount of $27 billion from the
Department of the Treasury (Treasury) to the Postal Service. The law
required the Service, the Office of Personnel Management (OPM), and the
Treasury to prepare reports by September 30, 2003, articulating who should
be responsible for these costs in the future.2 The Postal Service’s report on
this issue recommended that the responsibility for military service costs be
transferred back to the Treasury. However, the joint report of Treasury and
OPM recommended that the Postal Service should be responsible (1) for all
pension costs related to military service for its employees that were hired
after the Service’s reorganization in 1971 and (2) for a portion of the
military service costs for employees hired before 1971. Further, the
legislation required GAO to review these reports and submit our findings to
the appropriate oversight committees, which we are providing in a separate
report (GAO-04-281) also issued on this date.3

To guide the Service in its proposed use of pension-related savings
beginning in fiscal year 2006, the legislation included specific “Matters to
Consider” and a “Sense of Congress.” The “Matters to Consider” included
the following matters: (i) debt repayment; (ii) prefunding of postretirement
health care benefits for current and former postal employees; (iii)
productivity and cost-saving capital investments; (iv) delaying or
moderating increases in postal rates; and (v) any other matter. The “Sense
of Congress” stated that




1
 U.S. Postal Service, Postal Service Proposal: Use of Savings for Fiscal Years after 2005,
P.L. 108-18, Sept. 30, 2003.
2
 U.S. Postal Service, Postal Service Proposal: Military Service Payments Requirements,
P.L. 108-18, Sept. 30, 2003. Joint report by the Office of Personnel Management and the
Department of the Treasury, Report to Congress on the Financing of Benefits Attributable
to the Military Service of Current and Former Employees of the Postal Service, Sept. 30,
2003.
3
 U.S. General Accounting Office, Postal Pension Funding Reform: Review of Military
Service Funding Proposals, GAO-04-281 (Washington, D.C.: Nov. 26, 2003).




Page 2                                          GAO-04-238 Postal Pension Funding Reform
• “the savings accruing to the Postal Service as a result of the enactment
  of this act will be sufficient to allow the Postal Service to fulfill its
  commitment to hold postage rates unchanged until at least 2006;

• because the Postal Service still faces substantial obligations related to
  postretirement health benefits for its current and former employees,
  some portion of the savings . . . should be used to address those
  unfunded obligations; and

• none of the savings . . . should be used in the computation of any
  bonuses for Postal Service executives.”

In addition, the legislation stated that the Service should also consider the
work of the President’s Commission on the United States Postal Service
(the Commission), whose report, issued in July 2003, identified the need for
the Service to operate more efficiently.4 The Commission’s report
recommended, among other things, that

• “the Service should review its current policy relating to the accounting
  treatment of retiree health care benefits, and work with its independent
  auditor to determine the most appropriate treatment of such costs in
  accordance with applicable accounting standards and in consideration
  of the Postal Service’s need for complete transparency in the reporting
  of future liabilities;

• the Postal Service should consider funding a reserve account for
  unfunded retiree health care obligations to the extent that its financial
  condition allows; and

• responsibility for funding Civil Service Retirement System pension
  benefits relating to the military service of Postal Service retirees should
  be returned to the Department of the Treasury.”

The Service’s report on the use of the savings contained two proposals that
are linked to the outcome of the military service issue. The first proposal
(Proposal I) is predicated on the assumption that the Service is relieved of
responsibility for military service costs and proposes that the Service


4
 President’s Commission on the United States Postal Service, Embracing the Future:
Making the Tough Choices to Preserve Universal Mail Service, (Washington, D.C.: July 31,
2003).




Page 3                                        GAO-04-238 Postal Pension Funding Reform
                   would prefund retiree health benefits for retirees and current employees.
                   In its second proposal (Proposal II), the Service assumes that it retains
                   responsibility for the military costs and proposes that it would prefund
                   retiree health benefits only for new employees, pay down debt, and finance
                   selected capital investments. The Service also stated that this proposal
                   would have what the Service characterized as an “indirect benefit” of
                   mitigating rate increases. By using most of the pension savings to fund
                   normal operating expenses, the only additional rate increase needed would
                   be a 0.3 percent increase over the rate of inflation to cover the prefunding
                   for its new employees.

                   This report addresses four objectives. First, it evaluates whether the Postal
                   Service’s report on the use of the pension savings is consistent with P.L.
                   108-18. Second, it evaluates the issues surrounding the impact of the
                   escrow requirement that the Service identified in its report. Third, it
                   assesses the Service’s two proposals according to the following questions,
                   which are based upon our previous work:

                   • Are these proposals fair and balanced between current and future
                     ratepayers and taxpayers?

                   • Can the Service afford to do as it proposes in light of its financial
                     challenges?

                   • Do these proposals help promote and accelerate the Service’s
                     transformation efforts, including related cost savings and productivity
                     improvement efforts?

                   Finally, our report discusses other pertinent issues, such as how the
                   proposals might be implemented, that we identified in the course of our
                   review. Our work is based on our review of Postal Service documents, the
                   report of the President’s Commission on the United States Postal Service,
                   our prior reports, and interviews with officials at the Postal Service and the
                   Congressional Budget Office (CBO). A more detailed discussion of our
                   objectives, scope, and methodology is included in appendix I. We requested
                   comments on a draft of this report from the Postal Service, and its
                   comments are discussed later in this report and reproduced in appendix II.



Results in Brief   Both proposals are generally consistent with the Sense of Congress
                   expressed in P.L. 108-18 because they address, to varying degrees,
                   prefunding the retiree health benefits obligation. They also address some of



                   Page 4                                   GAO-04-238 Postal Pension Funding Reform
the Matters to Consider outlined in P.L. 108-18, including rate mitigation
and, to a lesser degree, debt repayment and productivity and cost-saving
capital investments. In addition, the proposals are generally consistent with
the Commission’s recommendations and our previous work. In considering
the Service’s proposals, we note that this legislation, by significantly
reducing the Service’s pension costs, has provided an opportunity for the
Service to address some of its long-standing challenges, including
prefunding its retiree health obligations and accelerating its transformation
to a more efficient and viable organization. While the Service’s proposals
addressed the prefunding obligation, and the Service has indicated that it
can support its transformation initiatives through normal rate increases,
the extent to which it would be able to support or accelerate its
transformation was not clear. Consequently, careful monitoring of the
Service’s financial situation and the pace of its progress in implementing its
transformation initiatives will be necessary.

One of the issues we considered in evaluating these proposals was the
impact of the escrow requirement. The Service’s report proposes that the
escrow requirement be eliminated, because the Service cannot use these
funds unless Congress eliminates the escrow requirement or specifies by
law how the escrow funds may be used. If no action were taken, the Service
would not realize a reduction in its annual operating expense of over $3
billion beginning in fiscal year 2006. Consequently, the Service believes it
would have to raise rates higher than would otherwise be necessary. In our
view, the escrow requirement could be one means to direct funding for
specific purposes that Congress may believe to be especially important.
Once Congress is satisfied, it could repeal the escrow requirement so that
an escrow account is not needed, or it could indicate its preferences
through means other than an escrow requirement.

Moreover, it is critical to the Service’s future viability that it continue to
make progress on addressing its financial challenges, such as prefunding
retiree health obligations, repaying debt, and financing capital needed to
implement its transformation initiatives. We believe that Congress will
need to have sufficient information to determine that the Service is making
or accelerating progress in achieving its transformation goals. In this
regard, we have already recommended that the Service provide periodic
reports on the status of its transformation initiatives and other Commission
recommendations, which the Service recently provided to its congressional
oversight committees. In addition, the Chairman of the Senate Committee
on Governmental Affairs and Senator Carper sent a letter to the Postmaster
General dated November 19, 2003, asking for a comprehensive plan by



Page 5                                   GAO-04-238 Postal Pension Funding Reform
early April 2004 that lays out how the Postal Service intends to optimize its
infrastructure and workforce.

We also assessed Proposals I and II according to their fairness,
affordability, and how they address the Service’s transformation efforts,
including its cost saving and productivity improvement initiatives, as
follows:

• Fairness: Proposal I strikes a more equitable balance of allocating costs
  between current and future ratepayers because benefits being earned by
  today’s employees would be built into the current postal rate base.
  Under Proposal II, a substantial portion of the retiree health benefits
  obligation would remain unfunded, thereby placing the burden of the
  retiree health benefits being earned today on future ratepayers. Fairness
  between ratepayers and taxpayers is also an issue, because P.L. 108-18
  transferred $27 billion in pension costs related to military service from
  the Treasury Department to the Postal Service—or in effect, from
  taxpayers to ratepayers—but required further study of who should be
  responsible for these costs. This issue is discussed in more detail in
  GAO’s related report.

• Affordability: The Service’s proposals attempt to balance both short-
  term rate mitigation and some level of prefunding to address its long-
  term obligations. Given the Service’s uncertain financial future, the
  affordability of these proposals is tied to the Service’s ability to raise
  revenue, cut costs, and improve productivity and efficiency. In recent
  years, the Service has made some progress in cutting its costs and
  improving productivity but has had trouble raising sufficient revenue to
  offset declines in First-Class Mail volume. Under both proposals, the
  Service assumes that it can pay down debt and fund capital investment
  needs through periodic rate increases within normal inflationary trends.
  The Service’s proposals for prefunding some level of its retiree health
  benefits obligation would require modest additional rate increases over
  the amount needed to cover inflationary cost increases. The Service
  estimated that Proposal I would require an additional rate increase in
  fiscal year 2006 of 2 percent over the rate of inflation, while Proposal II
  would require only an additional increase of 0.3 percent over the rate of
  inflation since it is funding a smaller portion of the retiree health
  benefits obligation. The Service did not estimate the impact of either
  proposal on postal rates beyond fiscal year 2006. Furthermore, the
  Service did not propose to fully fund its retiree health benefits
  obligation in a specified time period under either proposal. However,



Page 6                                  GAO-04-238 Postal Pension Funding Reform
   even moderate rate increases to prefund some portion of the retiree
   health benefits obligation now could help the Service avoid more
   dramatic postal rate increases later.

• Transformation: In passing P.L. 108-18, several Members of Congress
  expressed the need for the Service to continue its modernization efforts
  to transform itself into a more efficient and effective organization.
  Further, the Commission and GAO have reported on the need for the
  Service to enhance its efficiency through such efforts as standardization
  of its mail processing operations, improving retail access, and
  rationalizing its infrastructure and workforce. The Service has begun
  implementing a number of its transformation initiatives to improve its
  efficiency and has made meaningful progress in a number of areas,
  including reducing its workforce, cutting costs, and improving
  productivity. To achieve additional results, sufficient capital investment
  will need to be made. Both proposals assume that the Service can raise
  sufficient capital through inflation-based rate increases. Although the
  Service has provided some information to us showing what capital
  investments it plans to make related to its transformation goals, it has
  not yet prepared a comprehensive, integrated plan showing how it plans
  to rationalize its infrastructure and workforce and the funding that
  would be needed to implement such a plan, as well as the savings or
  additional revenue the plan would be expected to generate. Without
  such a plan, and periodic updates on the status of transformation
  initiatives as we have previously recommended, as well as their cost and
  funding, it is not clear whether the Service’s planned funding would be
  sufficient.5

Under both proposals, we also identified technical issues related to
implementation of prefunding retiree health benefits obligation, including
whether the Service should explore the implications of fully funding its
retiree health benefits obligation over a specific time period; the proper
demographic and economic assumptions to employ in estimating the
obligation; and what agency should be responsible for making these
decisions.

To ensure continuing progress in addressing the Service’s financial
challenges, we suggest that Congress consider the following:


5
 U.S. General Accounting Office, U.S. Postal Service: Bold Action Needed to Continue
Progress on Postal Transformation, GAO-04-108T (Washington, D.C.: Nov. 5, 2003).




Page 7                                         GAO-04-238 Postal Pension Funding Reform
• Repealing the escrow requirement after receiving an acceptable plan
  from the Service describing how it intends to rationalize its
  infrastructure and workforce and is confident that the Service is making
  satisfactory progress on transforming itself into a more efficient
  organization and implementing its transformation goals.

• Directing the Service to fund specific purposes that Congress believes
  are especially important—such as prefunding the retiree health benefits
  obligation or supporting and possibly accelerating the Service’s
  transformation efforts—if the Service does not provide an acceptable
  plan for rationalizing its infrastructure and workforce, or show
  satisfactory progress in implementing transformation, or if Congress
  wants greater assurance that the Service will spend funds in a particular
  manner. In this regard, we have already recommended that the Service
  provide periodic reports on the status of its transformation initiatives
  and other Commission recommendations.

• Addressing implementation issues related to prefunding the retiree
  health benefits obligation. For example, one key issue that would need
  to be further explored is what options may be available that would allow
  the Service to amortize its unfunded retiree health benefits obligation
  over a specified time period (e.g., 20-40 years) and prefund the retiree
  health benefits obligation for future retirees.

In commenting on a draft of our report, the Service disagreed with our
Matters for Congressional Consideration that repeal of the escrow
requirement should be tied to an acceptable plan. We agree that
establishing an escrow account without allowing the Service to use the
funds would not be a desirable outcome and that is one of the reasons why
we suggested that Congress consider repealing the escrow requirement. On
the other hand, contrary to the Service's view, we believe the escrow
requirement is an opportunity for Congress to review how the Service plans
to address a number of long-term challenges, including debt repayment,
capital projects, its unfunded retiree health benefits obligation, and its
progress toward transformation. If the Service provides Congress with an
acceptable plan in the next several months and Congress finds the plan and
the Service’s transformation progress satisfactory, we believe Congress
should have sufficient time to repeal the escrow requirement so that an
escrow account would not be needed. Thus, the Service would not have to
include the operating expense associated with the escrow requirement in
its rate base for the next rate case filing.




Page 8                                 GAO-04-238 Postal Pension Funding Reform
Background   In April 2003, Congress enacted P.L. 108-18, which reduced the Service’s
             annual payment into the CSRS pension fund, in part, to reflect a reduction
             in the Service’s estimated unfunded obligation for prior years’ service from
             about $30 billion to about $5 billion. The difference between the Service’s
             CSRS payment required prior to enactment of P.L. 108-18 and the payment
             after enactment is labeled the “savings” in the legislation. However, P.L.
             108-18 requires the Service to use the savings in fiscal years 2003 and 2004
             to pay down outstanding debt and in fiscal year 2005 to extend the current
             rate cycle. Therefore, according to the Service, all of the overfunding
             generated by current rates will be completely consumed by the end of fiscal
             year 2005. In fiscal year 2006, the Service is required to begin making
             payments into an escrow account that it cannot use until otherwise
             provided for by law. The amount of the payments into the escrow account
             would have to be included in the Service’s rate base. The Service’s report
             recommended that the escrow requirement be repealed, and provided two
             proposals for use of the “savings.” A brief description of each proposal is
             given below.



Proposal I   Transferring the military costs from the Service to the Treasury, as detailed
             in Proposal I, increases the projected overfunding of the postal CSRS
             pension fund from $78 billion to $105 billion. This would result in an overall
             cost reassignment of $27 billion and a $10 billion overfunding of the postal
             CSRS pension fund as of the end of fiscal year 2002. The Service proposes
             that the $10 billion in overfunding would remain in the pension fund, in a
             separate account designated as the “Postal Service Retiree Health Benefit
             Fund (Retiree Health Fund).” The Service made a payment of about $1.3
             billion for its pension obligation into the CSRS pension fund in fiscal year
             2003. Under current legislation, it would continue to make payments of
             $2.2 billion in fiscal year 2004 and $2.1 billion in fiscal year 2005. If
             responsibility for all military service costs is transferred back to the
             Treasury, the resulting overfunded status would negate the need for further
             Postal Service annual CSRS payments.6 The Service proposes that the
             CSRS payments it made in fiscal year 2003, and will make in fiscal years
             2004 and 2005, remain in the CSRDF in the newly designated Retiree Health
             Fund. Beginning in fiscal year 2006, the Service proposes to make annual



             6
              Postal employees would continue to make their contributions to the CSRS fund, which are
             currently 7 percent of pay.




             Page 9                                        GAO-04-238 Postal Pension Funding Reform
                       payments into the Retiree Health Fund. This new fund would be used to
                       pay retiree health insurance premiums in the future.

                       This proposal assumes that the escrow requirement would be eliminated.
                       However, the Service estimates that the expense for prefunding retiree
                       health obligations would add $1.2 billion to its expenses in fiscal year 2006.
                       The Service estimates that this expense would require a rate increase that
                       would be 2 percent higher than would be necessary to cover inflationary
                       expense growth. Otherwise, the Service believes it can pay down debt and
                       finance its capital investment needs through its normal cycle of inflation-
                       based rate increases.



Proposal II            Proposal II, other than funding a small amount of the retiree health benefits
                       obligation, results primarily in rate mitigation. This proposal is based on
                       the assumption that the escrow requirement would be repealed and that
                       the Service would remain responsible for military service costs. Under this
                       scenario, the Service proposes to prefund the retiree health benefits cost
                       for employees hired after fiscal year 2002. It would not fund the retiree
                       health benefits cost already incurred for current and former employees,
                       which comprises most of the obligation. The Service estimates that the
                       expense created to prefund retiree health benefit costs for new employees
                       would require a rate increase in fiscal year 2006 that would be 0.3 percent
                       higher than necessary to cover normal inflationary expense growth.
                       Although the Service’s proposal stated that some funds would be used to
                       pay down debt and fund capital investments, postal officials have told us
                       that the proposed debt repayment and capital investment costs are equal to
                       what they had planned to spend regardless of enactment of P.L. 108-18.
                       Consequently, the Service believes that, absent the escrow requirement, it
                       would be able to continue to pay the retiree health premium costs for
                       current and former employees on a pay-as-you-go basis, pay down debt,
                       and finance its capital investment needs through normal rate increases that
                       would correspond with general inflation trends.



Both Proposals Are     We believe that both proposals are generally consistent with the “Sense of
                       Congress” expressed in P.L. 108-18, that some portion of the savings should
Generally Consistent   be used to address the Service’s unfunded obligations. However, Proposal I
with P.L. 108-18       goes much further in this area because it proposes prefunding a substantial
                       portion of retiree health benefits for all current and former employees,
                       while Proposal II would prefund these costs only for employees hired after



                       Page 10                                  GAO-04-238 Postal Pension Funding Reform
fiscal year 2002. Both proposals also address, to varying degrees, the
Matters to Consider, outlined in P.L. 108-18. Proposal I addresses, almost
exclusively, matter (ii)—prefunding of postretirement health benefits for
current and former employees. Proposal II addresses matter (ii) to a
limited extent, and matter (iv)—delaying or moderating increases in postal
rates. Under both proposals, the Service believes that it can address matter
(i)—debt repayment—and matter (iii)—productivity and cost saving
capital investments—through inflation-based rate increases.

The legislation also directed the Postal Service to consider the work of the
Commission. The Commission recommendations, like our previous work,
stressed the significance of funding the retiree health benefits cost to the
extent that the Service’s finances permit. The Commission pointed out that
the pension obligation is funded as benefits are earned and recovered
through rates, but the retiree health benefits obligation is funded as the
benefits are paid and not as they are earned. The Commission strongly
urged the Service to consider funding a reserve account to begin paying
down the retiree health benefits obligation so future ratepayers are not
forced to pay for costs associated with postal services delivered today. The
Commission also stated that raising rates should be the last recourse, not
the first, to cover rising costs. In our November 2003 testimony before the
Senate Committee on Governmental Affairs, we also raised concerns about
rate increases, stating that raising rates may provide an immediate boost to
the Service’s revenues but would likely accelerate the transition of mailed
communications to electronic alternatives.7 In addition, the Commission
expressed concern regarding the Service’s ability to repay its debt and
stressed the importance of the Service improving its operational efficiency.
Another important recommendation of the Commission was that the
Service should review its current policy relating to the accounting
treatment of retiree health care benefits, and work with its independent
auditor to determine the most appropriate treatment of such costs in
accordance with applicable accounting standards and in consideration of
the Postal Service’s need for complete transparency in the reporting of
future liabilities. We have also discussed these issues in our previous
work.8 Proposal I addresses the issue of funding retiree health benefits to a


7
GAO-04-108T.
8
 U.S. General Accounting Office, Major Management Challenges and Program Risks: U.S.
Postal Service, GAO-03-118 (Washington, D.C.: January 2003); and U.S. Postal Service:
Deteriorating Financial Outlook Increases Need for Transformation, GAO-02-355
(Washington, D.C.: Feb. 28, 2002).




Page 11                                      GAO-04-238 Postal Pension Funding Reform
                     greater extent than Proposal II, while Proposal II addresses the matter of
                     mitigating rates to a greater extent than Proposal I.9 Both proposals
                     address the issue of debt repayment and capital investment through
                     inflation-based rate increases.



Escrow Requirement   The Service recommended in its report that Congress eliminate the escrow
                     requirement, because of its negative impact on postage rates and the
Places Pressure on   mailing industry, the general public, and the economy as a whole. The
Rates                Service estimates that it would need an additional rate increase of 5.4
                     percent, including 2 cents on the 37-cent First-Class stamp, in order to
                     generate the $3.2 billion required to be placed in an escrow account in
                     fiscal year 2006. This is because P.L. 108-18 requires all “savings”
                     attributable to fiscal years after 2005 to be considered an “operating
                     expense” and placed into an account that the Service cannot use until
                     Congress specifies how the funds may be used. All of the “savings”
                     accruing under current rates would likely be expended or absorbed by
                     inflationary cost increases by the end of fiscal year 2005. Thus, in order to
                     pay this “operating expense” the Service would need to include the $3.2
                     billion in its rate base in fiscal year 2006 and collect the money from its
                     ratepayers or lower expenses by a corresponding amount. The Service has
                     taken steps to reduce its total expenses over the past 2 fiscal years, and we
                     believe it is important for the Service to continue its cost-cutting efforts.
                     However, setting aside unused funds in an escrow account that must be
                     considered an “operating expense” would serve to lessen the financial
                     benefits of the Service’s cost-cutting efforts.

                     For fiscal years after 2006, an increasing amount—estimated to eventually
                     reach a peak of $8.7 billion—would have to be placed annually in the
                     escrow account. This would be in addition to its operating expenses, such
                     as compensation and retiree health premiums, as well as any amounts
                     needed to pay down debt or fund capital investments. The Service
                     estimates that it would require additional biannual rate increases between
                     1 percent and 1.5 percent to cover the required escrow amount. Frequent
                     rate increases of this magnitude would likely hasten the decline in First-



                     9
                      It should be noted that Proposal I, by funding retiree health benefits for current and former
                     employees only if it is relieved of responsibility for military service costs, also addresses
                     rate mitigation because funding this obligation for current and former employees, while
                     retaining responsibility for military service costs, would result in even higher rate increases.




                     Page 12                                           GAO-04-238 Postal Pension Funding Reform
Class Mail volume and increase the risk of volume declines in other mail
classes.

In our view, the escrow requirement could be viewed as one means to
direct funding for specific purposes that Congress may believe to be
especially important. We also believe it is critical to the Service’s future
viability that it continue to make progress on addressing its financial
challenges, such as prefunding retiree health obligations, repaying debt,
and financing capital needed to implement its transformation initiatives.
Several options include (1) tying the repeal of the escrow requirement to
congressional review of the Service’s progress on transformation, which
could include the Service providing Congress with an acceptable plan for
realigning its infrastructure and workforce; (2) repealing the escrow
requirement but specifying the use of funds; or (3) repealing the escrow
requirement and allowing the Service to fund activities as specified in its
proposals. Another option would be to retain the escrow requirement and
direct funding for specific purposes, which would likely require Congress
to periodically revisit the use of funds. We believe this option could be
problematic if an impasse arose, which could make the funds unavailable
to the Service to spend on specific purposes.

If Congress does not want to specify by law the purposes and amounts that
should be funded, but rather permit the Service to decide which activities
to fund, we believe that Congress would need to have sufficient
information to determine that the Service is making or accelerating
progress in achieving its transformation goals. In this regard, we have
already recommended that the Service provide periodic reports on the
status of its transformation initiatives and other Commission
recommendations that fall within the scope of its existing authority. The
Chairman of the Senate Committee on Governmental Affairs, along with
Senator Carper, requested in a letter to the Postmaster General dated
November 19, 2003, that the Service provide the Committee with a
comprehensive plan that lays out how the Service intends to optimize its
infrastructure and workforce. Further, the letter requested biannual
updates on the status of implementing transformation initiatives and
recommendations of the Presidential Commission. In November 2003, the
Service provided the congressional oversight committees with a progress
report on its transformation initiatives.




Page 13                                 GAO-04-238 Postal Pension Funding Reform
Key Issues Used to    We also assessed the Service’s two proposals in the context of three key
                      issues emerging from our previous work and the Commission’s
Assess the Postal     recommendations. The first issue is whether the proposals are fair and
Service’s Proposals   balanced between current and future ratepayers regarding who pays for
                      employee benefits earned today. Another aspect of this issue is fairness
                      between ratepayers and taxpayers regarding responsibility for military
                      service costs and the effect of the proposals on the federal budget. The
                      second issue is whether the proposals are affordable in light of the
                      Service’s current financial situation. Given declining First-Class Mail
                      volume, rising compensation costs, and a significant retiree health benefits
                      obligation, if the Service’s proposals greatly exacerbate these financial
                      challenges, affordable universal service could be jeopardized. The third
                      issue is how these proposals assist the Service in achieving or accelerating
                      its transformation initiatives. The importance of this issue lies in the need
                      for the Service to become a more efficient and effective organization in
                      order to remain financially viable.



Fairness Issues       One factor that should be kept in mind when evaluating these proposals is
                      the issue of maintaining an equitable balance between the postal costs paid
                      for by current and future ratepayers and the impact of these proposals on
                      taxpayers. As we noted in our November 2003 testimony, under the
                      Service’s current accounting and rate-setting methods, current ratepayers
                      have not fully covered the total costs of the postal services they have
                      received.10 Further, future ratepayers are likely to face more significant and
                      frequent rate increases to cover the cost of benefits being earned by
                      current employees. The equity of this arrangement should be considered in
                      evaluating these proposals. Likewise, the effects of these proposals on the
                      federal budget—which specifies the spending and financing of the federal
                      government—and whether these effects are equitable to both ratepayers
                      and taxpayers, should also be considered.

                      Proposal I strikes a better balance between current and future ratepayers
                      by prefunding the retiree health benefits obligation for both retirees and
                      current employees and providing a mechanism for better aligning current
                      expenses with current revenues. Therefore, benefits being earned by
                      today’s employees would be built into the current rate base.



                      10
                           GAO-04-108T.




                      Page 14                                  GAO-04-238 Postal Pension Funding Reform
                           While Proposal II does partially address the issue of striking a balance
                           between current and future ratepayers in regard to the retiree health
                           benefits obligation, it does not go as far as Proposal I in this area. By only
                           prefunding the retiree health benefits cost for new employees, it leaves a
                           sizable portion of this obligation unfunded. This means that future
                           ratepayers will still be required to pay for most of the retiree health benefits
                           earned by today’s workforce. In addition, mailers argue that prior to
                           enactment of P.L. 108-18, they were paying too much for the CSRS
                           obligation; therefore, mitigating rate increases now is merely recompense.
                           However, while mailers may have been paying more than necessary to fund
                           the pension obligation, they were paying less than necessary to fund the
                           retiree health benefits obligation.



Fairness between           Another important consideration is the effect these proposals would have
Ratepayers and Taxpayers   on the federal budget and, therefore, the taxpayer. An issue currently
                           before Congress is who should be responsible for paying the military
                           service pension costs of postal employees covered by CSRS. Proposal II is
                           predicated on the assumption that current ratepayers pay for pension costs
                           related to military service, much of which was vested prior to creation of
                           the Postal Service and had already been paid by Treasury. If Congress
                           decides that the Service should retain responsibility for these costs, the
                           postal ratepayers would bear the costs. If Congress determines that the
                           Treasury should be responsible for these costs, then the costs would be
                           borne by taxpayers. The Service has stated that the impact on the federal
                           budget of transferring these costs under Proposal I would likely be
                           minimal. The budgetary effects of the Service’s proposals have not been
                           scored by CBO. However, based on its scoring of the Postal Civil Service
                           Retirement System Funding Reform Act, we believe that Proposal I might
                           be scored as having little effect on the deficit in the short term. In the long
                           term, it could have an effect when the Service’s cash flow changes in later
                           years as the prefunded benefits are paid. However, insufficient detail has
                           been provided on both proposals to determine their overall budget effects.

                           The CBO is required to “score,” or estimate, the budgetary effects of
                           legislation reported out of committees, so it has not scored the Service’s
                           proposals. However, the CBO scoring report on the bill that resulted in the
                           pension legislation provides some insight into how this proposal might be
                           scored.

                           CBO scoring considers both on-budget and off-budget effects of legislative
                           proposals. As an off-budget entity, any payments that the Service makes to



                           Page 15                                   GAO-04-238 Postal Pension Funding Reform
the retirement trust fund (an on-budget entity) are considered offsetting
receipts; reducing those payments would reduce on-budget receipts. Under
P.L. 108-18, after fiscal year 2005, savings resulting from the act are to be
considered operating expenses of the Service. Therefore, these expenses
would be included in rate setting, even though the Service’s actual
expenses would decline by the amount placed in escrow. As a result, net
off-budget outlays of the Postal Service would decline by the same amount
as the savings from lower pension payments, beginning in fiscal year 2006.
This is reflected in the CBO scoring report. These lower off-budget outlays
would offset the on-budget impact of lower payments to CSRS. Thus, any
proposal that uses the escrowed savings could affect the overall federal
budget deficit.

Scoring of the Service’s proposals hinges on what the Service would do
with the escrowed savings. Proposal I, in shifting the cost of military
service back to the Treasury, would result in a reduction in on-budget
receipts. But Proposal I, in using most of the savings to prefund retiree
health benefits, would also keep those amounts in a separate CSRS
account. 11 The combined impact might be scored as having little effect on
the deficit in the short term. However, in the long term, it could have an
effect because at some point, the prefunded benefits would be paid out,
resulting in changes in cash flows in later years. In addition, Proposal I
would use a small amount of the savings for debt reduction, which would
cause on-budget interest receipts to be lower.

Under Proposal II, which assumes that the Service would retain
responsibility for the military service costs, the Service said it would fund
its retiree health benefits obligation only for its employees hired after fiscal
year 2002 and then fund, in priority sequence, debt repayment and capital
investments to improve productivity and cost-savings. This proposal also
raises issues related to the federal budget. The continuation of payments
for military service costs would mean that there would be no reduction in
on-budget receipts. In the short term, prefunding some retiree health
benefits could have a small positive effect on the budget, because the
Service would be collecting revenue that would not be immediately paid
out. In general, any reduction in the Service’s debt would reduce on-budget
interest receipts. Any additional capital investments would increase off-
budget outlays. However, if the Service can provide credible support that


11
  Proposal I specifies that any overfunding not be withdrawn from the separate account. If
it were withdrawn, there would also be on-budget outlays.




Page 16                                        GAO-04-238 Postal Pension Funding Reform
                                the investments would result in cost savings, the scoring may show
                                increased outlays initially and savings subsequently.



Affordability of Proposals Is   The Service believes that its proposals are affordable, meaning they would
Unclear                         not cause rate increases that irreparably harm volume, or hinder the
                                Service’s ability to sustain current operations and implement
                                transformation initiatives. We are concerned that the Service may not be
                                able to achieve all of these goals if its financial situation worsens.
                                Therefore, we believe it is imperative for the Service to continue
                                addressing its key financial challenges—long-term obligations and debt,
                                difficulty raising revenue, and aggressive cost-cutting measures—to the
                                extent that it is able. The Service faces a difficult challenge in trying to
                                balance all of these issues. The Service’s proposals attempt to balance both
                                short-term rate mitigation and some level of prefunding of retiree health
                                obligations to address its long-term obligations, while also providing for
                                debt repayment and capital investment. However, the Service did not
                                present an analysis of how its proposals would affect the overall financial
                                condition of the Postal Service. Consequently, it is difficult to assess which,
                                if either, of these proposals would improve the long-term financial situation
                                of the Postal Service or ensure its future financial viability. Therefore, we
                                believe that the Service’s financial situation will need to be closely
                                monitored to ensure that its proposals are indeed affordable.

                                The affordability of these proposals to ratepayers is also a consideration, as
                                is the effect of rate increases on volume because, as we have previously
                                reported, the Service faces uncertainty regarding its future revenue
                                stream.12 Since fiscal year 2000, the Service’s total mail volume has declined
                                by almost 6 billion pieces and is estimated to continue declining. In a report
                                for the Commission, the Institute for the Future developed a mail volume
                                estimate that shows a gradual 10 percent decline from 202.8 billion pieces
                                in fiscal year 2002 to 181.7 billion pieces in 2017. Also, First-Class Mail
                                volume, which provides the bulk of the Service’s revenue, has been
                                declining and shows no sign of rebounding. Declines in First-Class Mail are
                                particularly troublesome to the Service, because First-Class Mail pays
                                almost 70 percent of the Service’s institutional costs. These costs, which
                                are approximately 40 percent of all postal expenses, include some
                                administrative, facility, postmaster, and supervisor costs, and a large


                                12
                                     GAO-04-108T.




                                Page 17                                  GAO-04-238 Postal Pension Funding Reform
portion of the expanding delivery network costs. Therefore, if First-Class
Mail volume continues to decline, it would become more difficult for the
Service to fund its institutional costs without raising postal rates.

Historically, when the Service has raised postal rates, mail volume growth
declined in the fiscal year immediately following the rate increase but
rebounded in the next fiscal year. However, over the last 3 years this has
not been the case. The Service raised rates twice in fiscal year 2001 and
once in fiscal year 2002. Total estimated mail volume at the end of fiscal
year 2003 was almost 6 billion pieces lower than total mail volume was in
fiscal year 2000. In this climate, rate increases may lead to further volume
declines, which in turn would necessitate additional rate increases and
begin a cycle often referred to as the “death spiral.”

The Service’s first proposal would require a larger rate increase than the
second proposal. Under Proposal I, the Service estimates that prefunding
retiree health benefits would add $1.2 billion to its expenses in fiscal year
2006 compared with its expenses in that year under the current law,
assuming the escrow requirement were eliminated. According to the
Service, this additional expense would require a rate increase in fiscal year
2006 that is 2 percent higher than the increase that would be necessary due
to inflationary expense growth alone. In fiscal years after 2006, the Service
would continue to make these additional payments and future rate
increases would likely be marginally higher than would be necessary to
reflect inflationary pressures alone.13 Figure 1 shows the annual additional
amount the Service proposes to spend on prefunding under Proposal I.




13
 It is important to note, however, that rate increases would not be higher than they would
have been if P.L. 108-18 had not lowered the Service’s annual CSRS pension payments.




Page 18                                         GAO-04-238 Postal Pension Funding Reform
Figure 1: Additional Expense Generated from Proposal I




                                         If the Service’s mail volume continues to decline and the Service is unable
                                         to cut costs accordingly, or if the Service is faced with higher retiree health
                                         premium costs than estimated, the Service may not be able to afford to
                                         continue prefunding the retiree health benefits obligation. Therefore, the
                                         Service’s financial condition must be carefully monitored under this
                                         proposal.

                                         Proposal II would require a lower rate increase than Proposal I in fiscal
                                         year 2006, and thus would likely have less of an impact on postal volumes
                                         in the short term. However, in the long-term it may require larger rate
                                         increases that could have a negative impact on future volumes. As seen in
                                         figure 2, the estimated retiree health premium expense will eventually
                                         outpace the estimated difference between the CSRS payment prior to
                                         enactment of P.L. 108-18 and the payment required under the legislation.
                                         Consequently, in order to pay the retiree health premiums in the future, the



                                         Page 19                                  GAO-04-238 Postal Pension Funding Reform
                                         Service would need to raise additional revenue through rate increases or
                                         lower its operating expenses.



Figure 2: Comparison of Retiree Health Premiums and “Savings” under Proposal II




                                         The Postal Service is required to pay the retiree health premiums
                                         regardless of whether it prefunds some or all of these costs, and the annual
                                         costs are expected to increase over the next 20 years. If prefunding retiree



                                         Page 20                                  GAO-04-238 Postal Pension Funding Reform
health benefits for new employees proves to be more costly than estimated,
or if the premiums for current retirees continue to grow rapidly, the Service
could find itself facing a significant obligation at a time when revenues are
shrinking. It seems prudent to set aside funds now, while they are available,
to address escalating future costs rather than waiting until costs are higher
and adequate revenue may not be forthcoming. Because Proposal II would
result in a smaller rate increase in fiscal year 2006 than Proposal I, it raises
the question of whether it would be possible for the Service to increase its
proposed level of prefunding retiree health benefits under Proposal II. By
setting aside an additional $1 billion in funding for this obligation, the
Service would need an additional rate increase of 2 percent, the same
increase the Service proposes under Proposal I. The Service has stated that
the decision to prefund only retiree health benefits for new employees
arose from the desire to have a logical basis for its funding proposal.
Because the legislation was enacted in fiscal year 2003, the Service decided
to begin prefunding with a corresponding time period. While this may
provide a baseline, we agree with the Commission that the Service should
address its retiree health benefits obligation to the extent that its financial
situation allows. Again, we believe the Service’s financial situation will
have to be carefully monitored to ensure that this option remains
affordable.

Another factor associated with the affordability of the proposals concerns
how they address the Service’s outstanding debt level, which in fiscal year
2002 was close to statutory limits and was threatening the Service’s ability
to fund capital improvements. The Service made significant progress in
reducing its outstanding debt in fiscal year 2003, from $11.1 billion to an
estimated $7.3 billion, and plans to continue paying down its debt in fiscal
years 2004 and 2005. The Service has estimated that debt outstanding as of
the end of fiscal year 2005 will be $3 billion. Under both proposals, the
Service proposes to repay the same amount of debt in fiscal years 2006-
2010. As seen in table 1, the Service estimates that its outstanding debt will
be paid off by 2010. These estimates assume that the Service would raise
rates when necessary to break even for each of the fiscal years 2006
through 2010. If this break-even assumption is not correct, or if the Service
faces unforeseen financial problems, the Service may not be able to pay
down the amount of debt it proposes, and may, in fact, have to borrow
more.




Page 21                                   GAO-04-238 Postal Pension Funding Reform
Table 1: Estimated Debt Repayment and Capital Investment under Proposal II

Dollars in millions
                               Beginning debt     Estimated debt
Fiscal year                           balance           payment Ending debt balance
2006                                   $3,000               $776                 $2,224
2007                                    2,224                540                  1,684
2008                                    1,684                612                  1,073
2009                                    1,073                521                    552
2010                                     552                 559                     (7)
Source: U.S. Postal Service.


The affordability of these proposals is also tied to a separate matter
currently before Congress—who should bear responsibility for military
service pension costs and how these costs should be determined. If
Congress determines that the Treasury should bear responsibility for
military service costs, then the Service believes that it can afford to prefund
retiree health care costs for all of its current and former employees. If
Congress determines that the Service should retain responsibility for the
military service costs, then the Service believes that it can only afford to
prefund the retiree health benefits cost for employees hired after fiscal year
2002, which would leave the obligation for current and former employees
unfunded.

As both the Commission and we have noted, the Service has had limited
success in its pursuit of new revenue streams. Therefore, to counter the
loss in revenue due to declining mail volume without resorting to frequent
rate increases, the Service must aggressively cut costs. To its credit, the
Service has decreased work hours, reduced its workforce, and closed some
facilities. However, we do not believe that these incremental savings will
be enough to ensure a financially viable Postal Service over the longer
term, especially if mail volumes continue to decline. For this reason, we
believe the Service must continue to make progress in implementing its
transformation goals.




Page 22                                         GAO-04-238 Postal Pension Funding Reform
Transformation Issues   In assessing these proposals, we also considered how the Service would be
                        able to fund cost saving and productivity initiatives needed to successfully
                        transform itself into a viable organization for the 21st century. In April 2002,
                        in response to a GAO recommendation14 and a request by the Senate
                        Committee on Governmental Affairs, the Postal Service prepared a
                        Transformation Plan that outlined strategies for transforming the
                        organization into an efficient and performance-based entity. Among those
                        initiatives were plans to standardize operations, increase customer access,
                        and realign the processing and distribution network. The Commission’s
                        report also made suggestions for improving postal efficiency. We agree with
                        the Commission that the Service must continue to pursue aggressive cost-
                        cutting strategies and productivity gains in an effort to become more
                        efficient. We also believe that the mandate for the Service to report on the
                        potential use of savings from P.L. 108-18 was an opportunity for the Service
                        to present its plans in this area, and the Service’s proposals must be
                        evaluated with the need for cost-cutting and productivity gains in mind.

                        Under both proposals, the Service believes it can finance capital
                        investments related to upgrading existing assets and the investment needed
                        to implement transformation initiatives through inflation-based rate
                        increases. We are concerned that the Service’s financing plan may not be
                        adequate to provide for its capital investment needs, because historically,
                        the Service has found it problematic to finance its capital needs with
                        operating revenues. Thus, it has often resorted to borrowing to finance its
                        capital needs. In contrast, under both proposals, the Service would finance
                        its capital needs while continuing to pay down debt through inflation-based
                        rate increases. Another possible source of capital funds could be the
                        proceeds from the sale of excess property. However, the Service did not
                        discuss this issue in its report.

                        We are also concerned with the Service’s lack of specifics on capital
                        investments under both proposals. While the Service stated that its capital
                        investments for productivity gains and cost saving initiatives were related
                        to its Transformation Plan, it has provided little detail on any of these
                        initiatives in its pension savings report, its Five-Year Strategic Plan FY 2004-
                        2008, or its Five-Year Strategic Capital Investment Plan 2004-2008. The
                        Service did provide a breakdown of some capital investments related to its
                        Transformation Plan initiatives, but did not provide sufficient back-up data


                        14
                             GAO-01-598T.




                        Page 23                                   GAO-04-238 Postal Pension Funding Reform
                        or description to enable us to determine to what transformation initiatives
                        these investments were related or to what extent they would meet
                        transformation goals.

                        In our November 2003 testimony, we also noted our concern that since the
                        Service issued its Transformation Plan in April 2002, it has not provided
                        adequate transparency on its plans to rationalize its infrastructure and
                        workforce; the status of initiatives included in its Transformation Plan; and
                        how it plans to integrate the strategies, timing, and funding necessary to
                        implement its plans.15 While the Postal Service is moving forward with its
                        Transformation Plan initiatives, and has made meaningful progress in a
                        number of areas, it is not clear how it will be able to finance these
                        initiatives within inflation-based rate increases, especially if mail volume
                        continues to decline. Therefore, we recommended in our November
                        testimony that the Postmaster General develop a comprehensive and
                        integrated plan to optimize the Service’s infrastructure and workforce, in
                        collaboration with its key stakeholders, and make it available to Congress
                        and the general public. We also recommended that the Postmaster General
                        provide periodic reports to Congress and the public on the status of
                        implementing its transformation initiatives and other Commission
                        recommendations that fall within the scope of its existing authority. Postal
                        officials have agreed to develop a comprehensive and integrated plan to
                        optimize its infrastructure and provide periodic reports on the
                        implementation of its transformation initiatives and make them available to
                        Congress and the public. As previously mentioned, the Service provided its
                        congressional oversight committees with a progress report on its
                        transformation initiatives in November 2003. The infrastructure and
                        workforce plan and the periodic reports on the status of transformation
                        initiatives will be critical to oversight in this area.



Issues Related to the   During our review, we identified implementation issues that Congress may
                        want to consider if it determines that the Service should prefund some or
Implementation of       all of its retiree health benefits obligation. Under Proposal I,
Proposals I and II      implementation issues involve the method that would be used to fund the
                        retiree health benefits, and the demographic and economic assumptions
                        that would be used to determine the amount of the total obligation as well
                        as the annual funding amount. Under Proposal II, the question arises as to


                        15
                             GAO-04-108T.




                        Page 24                                 GAO-04-238 Postal Pension Funding Reform
                              how the annual cost of retiree health benefits for employees hired after
                              fiscal year 2002 would be calculated. In addition, neither proposal ensures
                              that the Service would continue to prefund the retiree health benefits
                              obligation. Additional questions arise about the Service’s accounting
                              treatment for retiree health benefits under both proposals.

                              If Congress decides to accept one of the proposals, technical issues related
                              to implementing the proposal would need to be addressed. Under Proposal
                              I, the Service would fund the retiree health benefits obligation by making
                              payments into a fund currently maintained by OPM. Postal officials raised
                              questions about which agency—the Service or OPM—should determine the
                              amount of the obligation, and what economic and demographic
                              assumptions should be used. In addition, we have questions about the
                              Service’s proposed funding mechanism, because it does not amortize the
                              obligation over a specific time period. In Proposal II, the Service would
                              maintain control of the retiree health benefits fund. Under both proposals,
                              the Service would continue to make payments into the respective funds
                              after 2010; however, under P.L. 108-18, the Service would be under no
                              obligation to prefund the retiree health benefits obligation.



Technical Issues Related to   One issue pertains to the assumptions used by the Service to estimate its
Proposal I                    retiree health benefits obligation. If these assumptions change, then the
                              future funded status of the obligation would also change. This estimated
                              obligation is based on several assumptions, such as premium costs,
                              retirement rates, termination rates, mortality assumptions, disability
                              assumptions, plan enrollment, and coverage election that could change
                              annually and may differ between the Postal Service and other agencies.
                              These assumptions materially affect the future funded status of the
                              obligation. An illustration of the practical effect of using different
                              assumptions can be seen in the estimate of the Service’s total retiree health
                              benefits obligation. A postal estimate of its retiree health benefits
                              obligation as of the end of fiscal year 2003 differs from an estimate for the
                              same period prepared by OPM by about 4 percent, or $2.2 billion.
                              According to the Service, the difference in these two estimates is primarily
                              due to differences in the measurement date, the discount rate, the health
                              care trend rate, the cost basis, and the attribution method used. The
                              Service’s estimate was actuarially certified as reasonable. However, a
                              different set of results could also be considered reasonable actuarial
                              results, because the actuarial standards describe a “best-estimate range”
                              for each assumption rather than a single best-estimate value.




                              Page 25                                 GAO-04-238 Postal Pension Funding Reform
In addition, the Service said it would not amortize the retiree health
benefits obligation within a specified time frame. Instead, the proposed
funding that the Service calculates to address its retiree health benefits
obligation is the amount that would be required to fund the annual retiree
premium cost plus the estimated future cost of retiree health premiums for
current employees (service costs), and interest expense on both the
outstanding obligation and the new service cost. According to the Postal
Service, while it is the Service’s intention to eventually fully fund its retiree
health benefits obligation under Proposal I, this proposal does not fully
fund all prior years’ service costs—the $54 billion obligation—within a
specified time period. In fact, because the proposed funding under
Proposal I includes a beginning asset balance of $10 billion, but does not
amortize any of the retiree health benefits obligation, approximately $45
billion of the obligation would not be funded. The Service’s proposed
funding for the retiree health benefits obligation is modeled after the
funding method used by some utilities to prefund their retiree health
benefits. However, other options might allow the Service to amortize its
existing obligation and prefund the retiree health benefits obligation for
future retirees. While postal officials indicated that under these proposals
the Service intends to make annual payments for prefunding, the Service
would be under no obligation to do so. Consequently, if Congress wanted to
ensure that the Service prefunds its retiree health benefits, legislative
action would be required.

In considering Proposal I, we identified the following unresolved questions:

• Should prefunding Postal Service retiree health benefits be mandated by
  Congress, or left to the Service’s discretion?

• Should the Postal Service, OPM, or another entity determine the amount
  of the Service’s total retiree health benefits obligation?

• Who should determine the proper funding mechanism for the retiree
  health benefits obligation?

• Should the Postal Service be required to amortize its prior years’ service
  obligation within a set time frame? If so, what is the appropriate time
  frame?

• What economic and demographic assumptions should be used to
  determine the current obligation, service costs, and asset balance, and
  future estimates of these amounts? Furthermore, how often should



Page 26                                   GAO-04-238 Postal Pension Funding Reform
                                 these assumptions be updated, and what process should be used to
                                 update future estimates?

                              • What recourse, if any, should parties have if they disagree with this
                                funding mechanism?

                              • What oversight, if any, is needed in this area?



Technical Issues Related to   According to postal officials, unlike Proposal I, in Proposal II the Service
Proposal II                   would maintain control of the funds used to prefund the retiree health
                              benefits cost for new employees. These officials have also stated that the
                              Service would be responsible for determining the proper economic and
                              demographic assumptions to be used in calculating the annual fund
                              amount. However, questions arise about how the Service estimated these
                              costs for fiscal years 2006-2010. For example, the Service provided us with
                              estimates of these costs that ranged from $214 million in fiscal year 2006 to
                              $687 million in fiscal year 2010. The Service then adjusted these numbers
                              downward to $100 million for fiscal year 2006 and to $300 million for fiscal
                              year 2010. According to postal officials, this downward adjustment was
                              made to reflect attrition. Although we attempted to verify the method used
                              to lower these estimated costs, we were unable to obtain the necessary
                              data in the time available to complete our work. As with Proposal I, while
                              the Service has said that it intends to fund this obligation for employees
                              hired after fiscal year 2002, it is not currently required to prefund.
                              Questions similar to those raised in Proposal I would also relate to
                              consideration of this proposal, including the following:

                              • Should prefunding retiree health benefits for new employees be
                                voluntary or legislatively mandated?

                              • How should the annual funding amount be determined?

                              • What oversight, if any, is needed in this area?



Questions Remain about the    Regardless of which proposal is adopted, questions remain about how the
Accounting Treatment of       retiree health benefits obligation should be reflected in the Service’s
                              financial statements. The Service currently uses a pay-as-you go basis of
the Retiree Health Benefits
                              accounting for its retiree health benefits obligation. We previously reported
Obligation                    that we believe the Service should consider whether the accrual basis of
                              accounting is both the acceptable and appropriate method for this


                              Page 27                                 GAO-04-238 Postal Pension Funding Reform
obligation, especially considering the importance of giving full
consideration to economic realities as the Service attempts to transform
itself in order to respond to major operational and financial challenges.16
Postal Service management and the Board of Governors, the Postal Rate
Commission, Congress, and other stakeholders need to have a clear
understanding of the Service’s true financial condition as difficult
transformation decisions are being considered.

It is our understanding that the Service would not adopt the accrual basis
of accounting under either of the proposals presented, but would disclose
the amount of its retiree health benefits obligation in the footnotes to its
financial statements. While enhanced disclosure would be a positive step,
we continue to believe that accrual accounting is needed in order to
provide all stakeholders with the soundest and most transparent basis for
decisionmaking. In our view, the enactment of P.L. 108-18 could be viewed
as a significant event that triggers the need to reassess the accounting
treatment currently used by the Service with respect to these obligations,
and even more strongly reinforces our view that full accrual accounting
should be adopted for financial statement reporting purposes. Given the
unique nature of the Postal Service retiree health benefits obligation and
the impact of P.L. 108-18, it may be prudent for the Service and its auditors
to consult with the Financial Accounting Standards Board (FASB) on the
appropriate accounting treatment for this obligation for financial statement
reporting purposes.

A postal official has expressed concern that accrual accounting for this
obligation would result in immediate rate increases of significant
magnitude. We recognize that such an approach may initially result in
higher rate increases than would otherwise be the case under a pay-as-you-
go basis; however, rate increases would likely be more moderate in the
longer term. Various options may exist for addressing the effect of
recognizing this obligation, including possible amortization of any current
unfunded obligation over a reasonable time period, such as 20-40 years. To
further explore these options, we believe that the Service should work with
the Postal Rate Commission and other appropriate stakeholders to
determine options for phasing in any potential effect on postal rates.




16
 See U.S. General Accounting Office, U.S. Postal Service: Accounting for Postretirement
Benefits, GAO-02-916R (Washington, D.C.: Sept. 12, 2002).




Page 28                                       GAO-04-238 Postal Pension Funding Reform
              We will be assessing the impact of the accounting treatment for the retiree
              health benefits obligation for whichever proposal is adopted, as well as for
              the Service’s pension obligation, as part of our ongoing work.



Conclusions   The Service faces an uncertain future. First-Class Mail volume continues to
              decline, and new revenue sources are not apparent. The Service faces
              significant unfunded obligations, the largest of which is for retirees, which
              must be addressed. Further, decisions must be made as to whether current
              or future ratepayers, or taxpayers, should be responsible for paying these
              obligations. The Service has acknowledged that it needs to reduce its
              operating costs to deal with the decline in First-Class Mail volume and meet
              its obligations. The most direct way for the Service to do this is to become
              more efficient by standardizing its operations and reducing excess capacity
              in its network as part of an integrated strategy to rationalize its
              infrastructure and workforce. The Service has stated that it plans to reduce
              its debt and finance capital investment necessary to transform itself from
              rate increases within the rate of inflation. It also proposes to prefund at
              least some of its retiree health benefits obligation. However, it is not clear
              based upon available information from the Postal Service whether it can
              accomplish these goals. If sufficient funding for transformation initiatives
              is not available, or if it does not achieve additional cost savings, significant
              additional efficiency gains may not be achieved. In addition, if larger postal
              rate increases are needed, further declines in mail volume could result.
              These scenarios could thereby threaten the Service’s future financial
              viability.

              It is against this backdrop of fairness to current and future ratepayers and
              taxpayers, affordability, and the ability of the Service to achieve its
              transformation goals that the Service’s proposal to eliminate the escrow
              requirement and its two funding proposals must be weighed. We believe
              that the continuation of the escrow requirement after fiscal year 2005
              without allowing the Service to use the funds has the potential for
              significantly raising postal rates unnecessarily. Rate increases of the
              magnitude necessary to fund this escrow requirement in the future may
              precipitate further declines in mail volume and could hinder the Service’s
              ability to achieve other financial goals. Furthermore, Congress has other
              means by which it can direct or guide the Service in its use of funds if it
              chooses to do so.

              Both funding proposals presented by the Service are generally consistent
              with the provisions of P.L. 108-18. Proposal I, which is preferred by the



              Page 29                                   GAO-04-238 Postal Pension Funding Reform
                Service, hinges on transferring the responsibility for military service
                pension costs from the Service to the Treasury. Proposal I would result in a
                greater postal rate increase and would shift more of the responsibility for
                the retiree health benefits obligation to current ratepayers. Proposal II, on
                the other hand, would require less of a postal rate increase, focus more on
                rate mitigation, and shift less of the responsibility for the retiree health
                benefits obligation to current ratepayers than Proposal I. This would leave
                future postal ratepayers with more of the burden of paying for costs
                unrelated to products and services they receive.

                Under both proposals, a portion of the retiree health benefits obligation
                would remain unfunded, and the Service currently does not intend to
                account for or report on its retiree health benefits obligation on an accrual
                basis under either proposal. Thus, the full extent of the Service’s obligation
                would not be recognized on its financial statements. Finally, the Service
                anticipates that it will be able to pay down debt and fund capital
                investments through inflation-based rate increases under both proposals.
                In our view, the Service needs to begin addressing its retiree health benefits
                obligation as soon as it can afford to do so, and to the extent it can. The
                most substantive way it will be able to do this, as well as enhance its overall
                financial viability, is by effectively implementing the transformation goals it
                and the President’s Commission set forth, particularly by becoming more
                efficient and rationalizing its infrastructure and workforce. It is therefore
                critical for the Service to have the capital funding needed for
                transformation. Although the Service believes it would be able to generate
                enough funds, this is not clear because the Service has not yet presented a
                comprehensive integrated infrastructure and workforce rationalization
                plan. However, the Service has agreed to do so, as well as report
                periodically on its progress in implementing its Transformation Plan.
                Finally, a number of technical issues need to be considered that are
                associated with the Service’s two funding proposals, including the
                implementation of any prefunding of the Service’s retiree health benefits
                obligation and the manner in which the Service should amortize and report
                on its obligation.



Matters for     To ensure continuing progress in addressing the Service’s financial
                challenges, we suggest that Congress consider the following:
Congressional
Consideration   • Repealing the escrow requirement after receiving an acceptable plan
                  from the Service describing how it intends to rationalize its
                  infrastructure and workforce and is confident that the Service is making



                Page 30                                  GAO-04-238 Postal Pension Funding Reform
                         satisfactory progress on transforming itself into a more efficient
                         organization and implementing its transformation goals.

                      • Directing the Service to fund specific purposes that Congress believes
                        are especially important—such as prefunding the retiree health benefits
                        obligation or supporting and possibly accelerating the Service’s
                        transformation efforts—if the Service does not provide an acceptable
                        plan for rationalizing its infrastructure and workforce, or show
                        satisfactory progress in implementing transformation, or if Congress
                        wants greater assurance that the Service will spend funds in a particular
                        manner. In this regard, we have already recommended that the Service
                        provide periodic reports on the status of its transformation initiatives
                        and other Commission recommendations.

                      • Addressing implementation issues related to the retiree health benefits
                        obligation. For example, one key issue that would need to be further
                        explored is what options may be available that will allow the Service to
                        amortize its unfunded retiree health benefits obligation over a specified
                        time period (e.g., 20-40 years) and prefund the retiree health benefits
                        obligation for future retirees.



Agency Comments and   The Postal Service provided comments on a draft of this report in a letter
                      from the Chief Financial Officer dated November 21, 2003. These
Our Evaluation        comments are summarized below and reproduced in appendix II. The
                      Service’s letter stated the following:

                      • It was pleased that our report found its proposals to be consistent with
                        P.L. 108-18, and that its preferred proposal presented a more equitable
                        balance of costs between current and future ratepayers.

                      • It would have to raise rates to generate funds for the escrow
                        requirement.

                      • The issue of the affordability of the proposals should be viewed as a
                        question of whether the ratepayers can afford them.

                      • It was concerned with our recommendation that Congress repeal the
                        escrow requirement after it receives an acceptable plan from the Service
                        concerning rationalization of its infrastructure and workforce, and if
                        Congress believes that the Service is making satisfactory progress on its
                        transformation goals.



                      Page 31                                 GAO-04-238 Postal Pension Funding Reform
• The Service believes that it already provides adequate information to
  Congress for reviewing its plans and progress on transformation. Thus,
  the Service believes that using the escrow as an oversight mechanism is
  not necessary and will result in forcing the Service to raise rates.

• It believes that its Proposal I is in the best interest of the taxpayers and
  postal stakeholders.

In response to the Service’s comment regarding the affordability issue, we
agree that affordability to ratepayers is an important consideration and
discuss the impact of these proposals on rate increases and volume. We
have also added language to our report to clarify this point.

Regarding the Service’s concern about tying the escrow requirement to an
acceptable infrastructure and workforce rationalization plan, we
understand the Service’s concern that if the escrow requirement is not
repealed, it would have to raise rates unnecessarily. We agree that
establishing an escrow account without allowing the Service to use the
funds would not be a desirable outcome, and that is one of the reasons why
we suggested that Congress consider repealing the escrow requirement. On
the other hand, contrary to the Service’s view, we believe the escrow
requirement is an opportunity for Congress to review how the Service plans
to address a number of long-term challenges, including debt repayment,
capital projects, an unfunded retiree health benefits obligation, and its
progress toward transformation. If the Service provides Congress with an
acceptable plan in the next several months and Congress finds the plan and
the Service’s transformation progress satisfactory, we believe Congress
should have sufficient time to repeal the escrow requirement so that an
escrow account would not be needed. Thus, the Service would not have to
include the operating expense associated with the escrow requirement in
its rate base for the next rate case filing. Alternatively, if Congress is not
satisfied, it could direct the Service to fund specific activities or purposes
through means other than an escrow requirement.

Finally, the Service believes that using the escrow requirement for
additional oversight is not needed, because it has provided Congress with
adequate information on its plans and progress toward transformation.
While we agree that the Service provides a variety of reports and plans to
Congress, including its November 2003 Transformation Plan Progress
Report, the Service has not provided Congress with a comprehensive and
integrated infrastructure and workforce rationalization plan. We believe
such a plan is needed because the Service’s rationalization of its



Page 32                                  GAO-04-238 Postal Pension Funding Reform
infrastructure and workforce is among the most important initiatives in the
Service’s Transformation Plan since it will significantly affect the Service as
well as so many employees, mailers, and communities. Recognizing the
widespread interest and potential controversy associated with any changes
in this area, it is critical that the Service inform Congress and the public
about its rationalization strategies and plans. We, as well as the President’s
Commission, believe that these initiatives are also key to the Service’s
efforts to cut costs and become more efficient. Accordingly, we believe
oversight in this area is necessary, and that information related to the cost
of these initiatives and the Service’s ability to fund them will be needed to
assure Congress that the Service is continuing to make progress in
implementing its Transformation Plan.


We will send copies of this report to the Chairmen and Ranking Minority
Members of the House and Senate Committees on Appropriations, as well
as Representative John M. McHugh, Chairman of the House Special Panel
on Postal Reform and Oversight; Representative Danny K. Davis, Senator
Daniel K. Akaka, Senator Thomas R. Carper, the Postmaster General, the
Secretary of the Treasury, the Director of the Office of Personnel
Management, the Director of the Office of Management and Budget, the
Chairman of the Postal Rate Commission, and other interested parties. We
will also make copies available to others on request. In addition, this report
will be available at no charge on GAO's Web site at http://www.gao.gov.

Staff acknowledgments are included in appendix III. If you have any
questions about this report, please contact Bernard L. Ungar, Director,
Physical Infrastructure Issues, at (202) 512-2834 or at ungarb@gao.gov.




David M. Walker
Comptroller General of the United States




Page 33                                  GAO-04-238 Postal Pension Funding Reform
Appendix I

Objectives, Scope, and Methodology                                                            AA
                                                                                               ppp
                                                                                                 ep
                                                                                                  ned
                                                                                                    n
                                                                                                    x
                                                                                                    id
                                                                                                     e
                                                                                                     x
                                                                                                     Iis




              Our objectives for this report were to fulfill our legislative mandate to
              evaluate the Postal Service’s proposal for use of the savings accruing to the
              Service from enactment of pension reform legislation. We evaluated the
              report based on its consistency with P.L. 108-18. We also addressed the
              escrow requirement that the Service identified as an issue in its report, and
              identified issues based upon our previous work that Congress may want to
              consider in assessing the Service’s proposals, including the fairness and
              affordability of the proposals, and the ability of the proposals to help the
              Service achieve its transformation goals. Finally, we discussed other
              pertinent issues that we identified in the course of our review.

              To assess whether the proposals were consistent with the provisions of P.L.
              108-18, we reviewed the legislative history of P.L. 108-18. We then assessed
              how well each of these proposals addressed the Sense of Congress and the
              Matters to Consider expressed in that legislation. We also reviewed the
              Commission recommendations to determine if the proposals were
              consistent with this work.

              To assess the escrow requirement, we reviewed the Service’s report,
              interviewed postal officials, and analyzed the Postal Service’s financial data
              to assess the impact of the escrow requirement on the Service’s financial
              situation. We also interviewed congressional staff to discuss the purpose of
              this account.

              To identify issues we had previously reported on, we reviewed our previous
              work. To assess how well each proposal addressed fairness issues, we
              reviewed Postal Service documents and interviewed Postal Service
              officials. We also assessed the affordability of each proposal by obtaining
              and analyzing Postal Service documents, including the Five-Year Strategic
              Plan FY 2004-2008, the Integrated Financial Plan for Fiscal Year 2004, the
              Five-Year Strategic Capital Investment Plan 2004-2008, annual reports, and
              materials provided by the Service in support of its proposals. We did not
              independently verify any of the financial data provided by the Postal
              Service. We also reviewed actuarial reports regarding the retiree health
              benefits obligation, and analyzed the Service’s proposed funding
              mechanism. We did not independently verify any of the actuarial reports.
              We also reviewed the Service’s April 2002 Transformation Plan to assess
              progress in this area. To assess the impact on the federal budget, we
              reviewed the federal budget and documents prepared by the Congressional
              Budget Office related to the effect of P.L. 108-18 on the federal budget, and
              we conducted interviews with officials from the Congressional Budget
              Office.



              Page 34                                  GAO-04-238 Postal Pension Funding Reform
Appendix I
Objectives, Scope, and Methodology




To identify other pertinent issues that Congress may want to consider, we
reviewed Postal Service documents, the Commission’s report, and our
previous work. We also conducted interviews with congressional staff,
OPM, and Postal Service officials.

The Service raised another issue in its report that was not within the scope
of our review. The Service has expressed concern with the method that
OPM used to determine the amount of the postal CSRS fund. The Service
believes that OPM’s methodology assigns an unreasonably low portion of
the retirement benefit to the federal government, so it provided OPM with
two alternatives to consider. OPM did not agree with the first alternative
and did not respond to the second alternative. P.L. 108-18 required OPM, in
consultation with the Postal Service, to develop the methodology used to
determine the amount of the postal CSRS fund. The law also afforded the
Service the opportunity to appeal OPM’s methodology to the Board of
Actuaries of the Civil Service Retirement System, which the Service is
currently considering. Thus, we did not include this issue in the scope of
our review.

We conducted our review at Postal Service headquarters in Washington,
D.C., from October 1, 2003, through November 25, 2003, in accordance with
generally accepted government auditing standards.




Page 35                                 GAO-04-238 Postal Pension Funding Reform
Appendix II

Comments from the U.S. Postal Service                               Appendx
                                                                          Ii




              Page 36        GAO-04-238 Postal Pension Funding Reform
Appendix II
Comments from the U.S. Postal Service




Page 37                                 GAO-04-238 Postal Pension Funding Reform
Appendix III

GAO Contact and Staff Acknowledgments                                                          Appendx
                                                                                                     iI




GAO Contact       Bernard L. Ungar, (202) 512-2834.



Staff             Teresa L. Anderson, Alan N. Belkin, Christine Bonham, Margaret Cigno,
                  Nikki Clowers, Kathy Gilhooly, and Kenneth E. John made key
Acknowledgments   contributions to this report.




(543081)          Page 38                               GAO-04-238 Postal Pension Funding Reform
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