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Postal Service Defaults On Payment, What Does That Mean?

8:42 PM, Aug 2, 2012   |    comments
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Greensboro, NC-- This week the United States Postal Service defaulted on a $5-billion payment to the government retirement fund.

It a payment that is mandates by congress and dates back to a law passed in 2006. It is set up to fund the retirement health care benefits of future employees of the Postal Service.

USPS is not an arm of the United States federal government. It does not run on tax dollars but rather, money it makes from selling postage and other mail services.

So how can congress set up such a mandate?

When the Nixon administration allowed the company to reorganize in 1971, went from a cabinet department to a quasi-government company.

That means postal workers receive health care and retirement benefits are through the government. And that's where the default is coming from.

The 2006 law requires the Postal Service to set money aside to shore up retirement health benefits for future postal service employees until the fund is solvent in 2016.

According to the USPS, no other businesses have to do that and neither does the government itself. The problem with the annual payments is that the postal service's makes $65 billion a year but annual losses average $5 billion.

A spokesperson with USPS corporate office tells News 2 that there are three reasons why the company hasn't turned profits since 2007.

-- Declining use - people are using email and online bill payments which means mail volume is down.

-- First class postage is the company's biggest source of money. In 2002 Americans sent 102 billion pieces of First Class mail.
Compare that to 2011, with the popularity of the internet and email: that number dropped 29 billion to 73 billion First Class letters.

-- The other reasons, according to USPS, are the down economy and the yearly pre-funding health care payment congress mandated.

USPS insists this default, which was deferred from last year, will have no effect on your mail and no effect on current and retired employee's paychecks and health benefits.

But there's a September 30th deadline looming for another $5.6 billion which would cover this year's contribution.

WFMY News 2

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