PAEA also established the RHB Fund as a new fund in the U.S.  Treasury for USPS to deposit money into, and specified that beginning in  fiscal year 2017, the fund would be used by OPM to pay USPS’s share of  postal retiree premiums for health benefits. USPS has missed  approximately $38 billion in payments to the fund since fiscal year 2010,  and the fund’s balance is declining. Beginning in fiscal year 2017, OPM  started drawing from the fund to pay USPS’s share of premiums for postal  retirees’ health benefits. As long as USPS continues to miss its annual payments—which  were nearly $4.3 billion in fiscal year 2017 and are $4.5 billion in fiscal  year 2018—the fund is on track to be depleted in fiscal year 2030 based  on OPM projections requested by us (see fig. 1). 2). The outlook for the RHB Fund is poor as USPS has inadequate resources  to cover its required payments to the RHB Fund and, in our view, based  on past practices and USPS statements, appears unlikely to make partial  payments. USPS has repeatedly testified that its required payments to  the RHB Fund are “unaffordable” relative to its current financial situation  and outlook. According to USPS officials, USPS  did not make these payments in order to preserve liquidity and cover  operational costs. However, PAEA does not address how funding will be provided or  whether benefits will be provided if the fund becomes depleted and USPS  does not make payments to cover its share of premiums. Depletion of the fund could affect postal retirees—who have  provided a vital service to the nation—as well as USPS, postal customers  and other stakeholders, including the federal government. According to the report, “These cost- saving programs provide states with financial subsidies from the  federal Medicare program to provide Medicare plus wraparound  benefits.”

	Various Policy Approaches to Address the Sustainability of Postal Retiree Health Benefits Could Have Wide-Ranging Effects

We identified eight potential policy approaches to address the financial  sustainability of postal retiree health benefits, primarily based on a review  of legislative proposals and pertinent literature on actions that were taken  by private companies and state governments and are discussed above. Some Approaches Would Reduce Benefits or Increase Costs to Postal Retirees and/or Employees

Tighten eligibility or reduce or eliminate retiree health benefits: As some  companies and state governments have done, eligibility restrictions could  be tightened for postal retiree health benefits, or other actions could  reduce the level of benefits or even eliminate benefits, such as making  new hires ineligible to receive retiree health benefits. This approach would require changes to current  law and regulations that prescribe the federal government’s financial  contribution to FEHBP. Some Approaches Would Change How Benefits Are Financed

Reduce the required level of prefunding: Proposed legislation includes an  80 percent funding target for postal retiree health benefits instead of the  100 percent target established by current law. We continue to believe that as long as USPS is required by law to pay its  share of retiree health benefits premiums, it is important for USPS to  prefund its retiree health benefit liability to the maximum extent that its  finances permit. All of these  approaches have different potential effects, and it is up to Congress to  consider the merits of the approaches and determine the most  appropriate action to take. It would be preferable to take action when  careful consideration is possible, rather than wait until lack of adequate  funding could disrupt postal retiree health benefits. Matter for Congressional Consideration

Congress should consider passing legislation to put postal retiree health  benefits on a more sustainable financial footing. In its written response, USPS stated that it concurred with our matter for  congressional consideration that congressional action is necessary to  achieve a financially sustainable Postal Service Retiree Health Benefits  Fund (RHB Fund). Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report.
Why GAO Did This Study

USPS is required to prefund its share of health benefits costs for its retirees. To do so, USPS is required to make payments into the RHB Fund, which is administered by OPM. However, USPS has not made any payments to the fund since fiscal year 2010. At the end of fiscal year 2017, USPS had missed $38.2 billion in payments, leaving the fund 44 percent funded. Pursuant to law, beginning in fiscal year 2017, OPM started drawing from the fund to cover USPS's share of postal retirees' health benefits premiums. GAO was asked to review issues related to the sustainability of the RHB Fund.
This report examines (1) the financial outlook for the RHB Fund and (2) policy approaches for postal retiree health benefits, among other topics. GAO evaluated financial projections for the RHB Fund from OPM. GAO reviewed laws and regulations and identified policy approaches primarily by identifying legislative proposals, and literature on actions of companies and state governments to address retiree health benefits. These approaches are not exhaustive or mutually exclusive. GAO also interviewed experts in retiree health benefits and postal stakeholders, chosen on the basis of relevant publications and prior GAO work, and interviewed and obtained written responses from OPM and USPS officials.

What GAO Found

The financial outlook of the Postal Service Retiree Health Benefits Fund (RHB Fund) is poor. At the end of fiscal year 2017, the fund's assets declined to $49.8 billion and unfunded liabilities rose to $62.2 billion. Based on Office of Personnel Management (OPM) projections requested by GAO, the fund is on track to be depleted in fiscal year 2030 if the United States Postal Service (USPS) continues to make no payments into the fund. Annual payments of $1 billion or $2 billion into the fund would extend the projected depletion date by 2 to 5 years (see figure). USPS has said that its required payments to the fund are unaffordable relative to its current financial situation and outlook. For the past 11 years USPS has incurred large operating losses that it expects will continue. Additionally, USPS has stated that its opportunities for revenue generation and cost-cutting are limited. USPS reported that it did not make required fund payments in 2017 in order to preserve liquidity and cover operational costs. If the fund becomes depleted, USPS would be required by law to make the payments necessary to cover its share of health benefits premiums for current postal retirees. Current law does not address what would happen if the fund becomes depleted and USPS does not make payments to cover those premiums. Depletion of the fund could affect postal retirees as well as USPS, customers, and other stakeholders, including the federal government. About 500,000 postal retirees receive health benefits and OPM expects that number to remain about the same through 2035.
GAO identified three categories of policy approaches for postal retiree health benefits, based on legislative proposals and pertinent literature. First, some approaches, such as generally requiring eligible postal retirees to participate in Medicare, would shift costs to the federal government. Second, some approaches would reduce benefits or increase costs to postal retirees and/or employees. Third, some approaches would change how benefits are financed (see table). All of these approaches have different potential effects and would require congressional action. Thus, it is up to Congress to consider the merits of different approaches and determine the most appropriate action to take. It would be preferable to take action when careful consideration is possible, rather than wait until lack of adequate funding could disrupt postal retiree health benefits.

What GAO Recommends

Congress should consider passing legislation to put postal retiree health benefits on a more sustainable financial footing. USPS agreed that congressional action is needed and offered views on some policy approaches discussed in this report.