Estimates suggest the U.S. Postal Service would need to contribute as much as $3.7 billion annually until fiscal year (FY) 2021 to address its unfunded other post-employment benefits (OPEB).
Like most states and most of the federal government, the Postal Service traditionally funded OPEB on a pay-as-you-go basis, paying expenses in the year incurred. This changed in 2006 when Congress passed the Postal Accountability and Enhancement Act to prefund the Postal Service’s growing OPEB liabilities.
The Postal Service first supported the move, embarking on a 10-year prefunding strategy with annual contributions of $5.5 billion. Unfortunately, the Great Recession hit, and the Postal Service struggled to make OPEB payments while remaining solvent. Just four years after starting the new payment schedule, the Postal Service began defaulting on payments.
In a recent report from the Center for State and Local Finance, researcher Alex Hathaway discusses the Postal Service’s ongoing struggles to fund retiree benefits and offers lessons that states can learn, as they are battling many of the same OPEB challenges.
For state governments, Hathaway’s OPEB research highlights that even the best-funded plans in the South hover around a 30 percent funding ratio. Ever-increasing costs are pushing some states to try reform efforts, such as limiting retiree health care benefits for new employees. Debate, however, has been contentious. Other states are moving toward pre-funding, which would reduce issues of intergenerational equity.
In addition to Hathaway’s work on OPEB, he also has authored additional reports on fiscal integrity and transparency in the southern states, including a specific report on best practices employed in Georgia.
“The state budget affects every citizen in some way, but understanding how states maintain a balanced budget can be a very complex task,” Hathaway said. “Our research offers a clearer picture of the fiscal practices in the South and around the nation.“We hope our research spurs state governments to improve transparency practices and leads to greater citizen trust and engagement.”
To learn more about CSLF’s fiscal transparency work, visit: https://cslf.gsu.edu/balancing-budget-cslf-volcker-alliance/.
This article was submitted by:
Joy L. Woodson
Assistant Director, Marketing and Communications
Center for State and Local Finance