My stupid headline of the week goes the Associated Press. I’ve spoken about this particular story often in the past but it just keeps making headlines.
Postal Service had $354 million first-quarter loss screams the headline.
That includes the $1.4 billion payment the Postal Service must make to the U.S. Congress to cover the pensions of employees for the next seventy-five years. Yes, seventy-five years.
Read this blog to understand the depths of the massive fraud Congress is playing with the Postal Service and your tax dollars.
Math is not my strong suit but it’s not difficult to take 354 -1,400 to understand that the Postal Service turned a nice little quarterly profit of $1.046 billion.
But I guess Postal Service had $1,046 billion first-quarter profit isn’t such a great headline. Sigh.
Tom Liberman
Sword and Sorcery fantasy with a Libertarian Ideology
Current Release: The Spear of the Hunt
Next Release: The Broken Throne
While you may be right that the amount the post office must pre-fund retirement is too high, accounting for the accrued pension-liability in post office finance is more than fair.
At the minimum, all new accrued pension liabilities + pensions paid out that were not previously accrued would seem fair.
When post office supporters bemoan the entirety of the pension pre-funding, it mutes the possible legitimacy of discussing the appropriate size of the pre-funding because you raise the ire of the other side.
Hi Ed,
I’m against the pre-fund at all. Until the 1980’s when the budget deficit started to soar the funding was taken out of paychecks as it is for most industries. It was only pre-funded as a way to mask the deficit.
In addition, the pre-fund was based on employment levels forecast in the 1980’s. In reality postal employment has been reduced by about 25% rather than the growth that was expected, thus the ridiculous pre-fund has actually been overpaid by almost $100 BILLION. So, let’s add that to the accounting, shall we?
To make this payment the Post Service borrowed billions from the Treasury and now makes interest payments on those loans that should never have been taken in the first place. Interest payments that directly enrich bankers. It makes one wonder if the Postal Service was bankrupted intentionally to steal money from tax payers.
I’m all for open accounting, but let’s take everything into consideration.
Thank you for the comment,
Tom
The word “pre-funding” is a deceptive word. It means something completed different to different readers.
In a private sector business, the profit & loss is separate from the balance sheet and cash flow of the business. In fact, “Pre-funding” does not show up on a private sector P&L. If you “pre-fund” something, it is an asset and shows up on the balance sheet.
I don’t know much about government finance, but it would seem that since the financing all comes from “internal sources”, “pre-funding” is just a matter of semantics. And its just moving money from one pocket to the other.
Whether or not “pre-funding” is actually occurring is another fun topic.
The pensions that workers earn in 2014 need to be reflected on 2014’s P&Ls, not the P&Ls 20 years from now when the workers retire. Otherwise the operations today aren’t covering the expenses that are occurring today. And since apparently in the past the post office wasn’t doing that (I read that on the internet so it must be true), this needs to be brought forward or “caught up” as quickly as feasible.
Private sector businesses faced this same problem. Pension liability wasn’t being accrued properly across the business spectrum. Not properly accounting for pensions “benefitted’ everyone at the time. If you don’t book the pension liability, you show more profit and you can pay workers a bigger pension. It won’t be a problem for 20-40 years until payouts occur. You’ll be retired, it will be someone else’s problem to fix.
So back to the headline, to figure out the real “P&L” of the post office, you have to include pensions earned during the time period of the financial report + some % of unrecorded pensions from the past.
I did some google-kung-fu and it seems one of the big complaints is that there is this “pre-funding” of employees that aren’t even hired yet. While I question the validity of that statement, its actually not possible to occur on a private P&L. The only valid transaction is a pension liability that has occurred during that period. Any Pre-funding of future pensions would show up in the balance sheet and therefore would not cause even a 1 penny change in the Profit of the business.
Hi Ed,
I agree that trying to figure out the Profit and Loss of the Postal Service is no easy trick. It is clear that the Post Office has made that “payment” to the government ever since the 1980’s. That the estimate of that payment has been exceeded by about $100 billion. It seems impossible to me that an entity can owe money to another entity that owes it $100 billion.
The complaints about the 75 year pension mandate is the idea that the Postal Service is giving the Treasury money to put into a trust to pay for the retirement of employees 75 years from today. This is so out of whack with standard business practices that it boggles the mind.
The idea of fully funding a pension is wonderful, but what we have here is akin to the Social Security system and Congress does with other profitable agencies (Patent Office) to some degree. The Treasury simply takes this money and spends it how they will, there is not even a pretense of funding for future pensions. At least Social Security has a $2.7 trillion fund which the government is not allowed to touch.
I don’t suspect for a moment that the government instituted the Pension Mandate out of any plan to ensure the pension of Postal Workers. It was a simple money grab.
Thus I stand by the argument that the Postal Service would be on excellent financial ground if not for federal interference.
Thanks again for the interesting analysis!
Tom