This explains a lot about pensions. First, having to have the entire pension cash value up front makes pensions extraordinarily expensive: giving someone a $1k pay raise puts you over $20k out-of-pocket for that pension. Consequently, the private sector abandoned pensions because they were unaffordable. The other observation is that, because almost all public pension funds have assumed unrealistically high growth rates, so consequently their funding rates have consistently slipped.
The truth of the matter is that virtually all public-sector pensions are in exactly the same boat as USPS's pension is. It's just that the governments are more effective at sweeping their pension issues under the rug, while they have forced the USPS to have its pension issue sit in broad daylight.
We should be pushing to force the same reckoning on cities and states sooner rather than letting things deteriorate while thinking we'll magically make up lost ground in the next decade.
[1] Edit: As an addendum, the USPS is specific required to 100% fund its pension benefit. This 100% funding requirement is actually legally unique, although a decent portion of the private sector does seek to do so.
So a pay cut by another name? Because even if pensions aren't available, individuals still need money to retire on
It would be a pay cut if the modern salary plus employer match were less than the prior salary plus employer contribution to the pension fund. I do not know if this is the case (especially when you maximize the match). I also do not know to what degree companies were underfunding the pensions in the past. My suspicion is that the upper-middle-class who maximize employer match are no worse off, perhaps better off, but that the median employee is worse off.
There isn't an easy answer to balance the needs of existing liabilities (pension commitments) with financial operations - the problem with the USPS was (I believe) the catch-up funding required to meet funding requirements, and not the actual funding itself.
Pensions are funded by the next generation, just like Social Security and Welfare.
You pay for the previous generation in exchange for the next generation paying for you.
Without this kind of offset, you end up with as much as 10-15% of your population as indigent elderly, homeless and starving, who become MAJOR financial burdens on their children (and I mean MAJOR -- ask someone from China or a similar country about it) or who become homeless or die.
It's unfeasible to set aside the money all at once, and in fact hoovering that much money out of the economy and into investments would have a noticable effect on the economy. You're basically suggesting something outrageous like 5% of GDP stop being transfer payments to poor people who spend it immediately and start being investments into government treasuries and corporate bonds.
1. Governments don't put even the actuarially required amounts into pension funds that assume 7-9% rates of return on fund investments. 2. Governments have been slow to adjust their expectations on returns, since 7-9% is far less achievable than it was in the 80s and 90s when interest rates were much higher.
Permanent low interest rates, economic downturns, and underfunding pension funds together have created an untenable environment. The cash isn't there in many municipal and state pension funds, and earning that much in returns is laughably difficult or requires an inordinate amount of payments now.
Now, it's absolutely true that the USPS is being held to a ridiculous and overcorrected standard in this case. But it's not the case that our current pension obligations, in many of these local and state retirement funds, can be paid for through current employee cash receipts.
What we should actually be doing is pay as you go. You pay into the pension and you get out what you paid, plus growth. We could have switched to this model at any point over the last 70 years if American society wasn't so addicted to endlessly kicking shit down the road and punting on problems.
Social security is not an unfunded liability. If you look at your paycheck you will see a line that explicitly goes toward funding social security. It is currently underfunded due to (1) Congressional malfeasance; and (2) the $120K cap on paying into the fund.
Even the underfunding is nowhere near as bad as advertised - current funding is sufficient to pay full benefits through 2035 and about 80% of benefits from 2035-2094. If we pay back the borrowed money and remove the income cap the funding issue would resolve.
It is only underfunded due to these two reasons.
Well, which is it? If it were simple to make social security solvent at full promised benefits then surely we would?
And no, surely we wouldn't. The Republican Party wants to destroy Social Security, they aren't interested in anything that would make it stronger.
Today, many cities and states have underfunded pensions following a continually worsening trajectory. The scale is enormous. Please take a read about the state of public pensions in Illinois, for example.
But the claims of unfunded liabilities are far overstated. The worst of them assumes that you have to have the pension fully funded for a new employee on the day they start working which is ridiculous in any business.
https://www.forbes.com/sites/ebauer/2020/04/14/post-office-p...
Regardless, the “pre-funding” period is over and the fund is running a deficit as retirees are currently paid from it, so it’s a moot point.
Compute the net present value of future payments does not sound like “accrued” benefits at all. It sounds like future payments which is the opposite of accrued benefits.
I don’t know the details of USPS’s finances, but reading that bill it seems they basically got rid of pensions around 2007
“ Postal Civil Service Retirement and Health Benefits Funding Amendments of 2006 - (Sec. 802) Relieves the Postal Service of an obligation to contribute matching amounts to its employees' civil service retirement.”
but required that all existing pensions be prefunded.
That’s an extremely onerous requirement and whether the fund has been funded or not, it will still affect service drastically. Even if the fund has been paid off it’s not a moot point because that’s potentially billions of dollars that they cannot use to fund service and instead is waiting in an account somewhere to be used decades from now.
This means you calculate the total amount of added expected additional pension payments earned over the last year of work.
So, if last year you could have retired with a pension estimated to pay out $100k, and this year your pension would be estimated to pay out $120k due to the additional year of service, then that number would be $20k.
Since that $20k is not paid out all at once, but over a period of time in the future, you calculate the net present value which reduces the amount based on a “discount” rate which is the expected rate of return on your cash. So, $20k paid out over 10 years starting 10 years from now is discounted to, e.g. $14k, which is how much money you need invested today to fully fund that liability in the future.
To sum it up, in that hypothetical example, the USPS is supposed to be banking that additional $14k to find the future liability.
It’s actually exactly what anyone running a pension program absolutely should be doing.
In fact, it is somewhat of a moot point - the USPS has been accruing, but not paying. Service is being funded.
The USPS actually stopped paying meaningfully to PSRHBF back in 2011. At this point, they're somewhat over $47bn behind in payments.
Please take a look at the USPS 10-K to get the fine detail here.
> Even if the fund has been paid off it’s not a moot point because that’s potentially billions of dollars that they cannot use to fund service and instead is waiting in an account somewhere to be used decades from now
The fund is not paid off as the Post Office never actually made the vast majority of its payments. It's also not in an account waiting to be used. It is being used right now to fund current retirees and it's running deficits. The reason it's a moot point is because even if this requirement were removed today it would operate in the same way i.e. pay as you go.
They also have huge retirement —prefunding obligations which is pretty much unprecedented in either private business or government agencies.
All of these public obligations are poorly thought out and largely out of the control of the USPS itself. People bitch about USPS being inefficiently run and that’s true to some extent, but the most fundamental issues they struggle with revolve around factors beyond the control of USPS management.
In other words, they are inefficient.
TL;DR: Deliberate government action to defund them has resulted in them having way less money than you would expect.
1 - Forced to save billions over a short period of time for retirements benefits. 2 - Inability to set their own prices, like a business would.
The extra business from Amazon should have been a massive boon to USPS. But it seems the ridiculously low rate they got into, plus the couple factors above (and I am sure many others - like being required to maintain rural routes at a loss) has put them in a bad situation.