pension333: U.S. Postal Service Pension Suspends $800 MM Contribution

Let me start out by saying that the persons at my local post office are courteous, helpful and generally terrific people. That said, like most, I was surprised at the news about a suspension of nearly a billion dollars owed to this federal pension plan.

I guest blogged about this issue for CNBC on June 23, 2011. My commentary is reproduced below.

No Pension Checks for the Postman to Deliver?

The mail gets delivered in rain or snow but it might not include pension checks for postal workers. According to a June 22, 2011 press release from the United States Postal Service, it intends to suspend what it owes to its pension plan as a way to “conserve cash and preserve liquidity.” By doing so, it frees up $800 million in cash for the current fiscal year.

This federal plan sponsor is not alone.

In what seems like an unending stream of bad news on the government pension front, countless cities and states are making adjustments to their existing pension and health care plans for retirees.

Two legislative bills in Minnesota would freeze public pensions as of July 1. Following an arbitration, City of Detroit policemen will see smaller payouts. Florida teachers are suing over a new retirement income tax. Congress is seeking more transparency about public pension plan IOUs and has talked about how large scale municipal bankruptcies related to retirement plan liabilities could adversely impact the financial landscape.

While some sources say that the underfunding crisis is improving for states and cities, others angst that the problem is getting worse and that major reforms are needed now. As we head into an election year, politicos are atwitter about the funding gaps associated with entitlements like Social Security and Medicare. Add underfunded public and corporate plans to the mix and things get scary fast.

Some retirement plans are trying to make up for losses by investing in riskier assets. Absent a robust risk management infrastructure, taking on more risk could worsen funding problems later on.

There are solutions but someone has to lead the way. Raising taxes and/or rescinding benefits is unhappy news to voters. More likely to occur is a legislative mandate to pass the retirement plan hot potato onto Corporate America.

Unfortunately, individuals are unlikely to escape unscathed. The tax man cometh almost surely. Joe Q Citizen may end up footing the bill for someone else’s pension plan even if his doesn’t offer one. The gap in funding for entitlements, public plans and personal savings makes for a trifecta with few winners unless material changes are made soon.

Note to Readers: