U.S. POSTAL SERVICE

Key Considerations for 

Restoring Fiscal 

Sustainability

Statement of Lori Rectanus, Director, Physical 

Infrastructure Issues

Testimony 

Before the Committee on Oversight and 

Government Reform, House of 

Representatives

For Release on Delivery 

Expected at 10 a.m. ET

Tuesday, February 7, 2017

GAO-17-404T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-17-404T, a testimony

before the Committee on Oversight and 

Government Reform, House of 

Representatives

February 7, 2017

U.S. POSTAL SERVICE

Key Considerations for Restoring Fiscal 

Sustainability

Why GAO Did This Study

USPS is a critical part of the nation’s 

communication and commerce, 

delivering 154 billion pieces of mail in 

fiscal year 2016 to 156 million delivery 

points. However, USPS’s mission of 

providing prompt, reliable and efficient 

universal services to the public is at 

risk due to its poor financial condition.

USPS’s net loss was $5.6 billion in 

fiscal year 2016, its tenth consecutive 

year of net losses. At the end of fiscal 

year 2016, USPS had $121 billion in 

unfunded liabilities, mostly for retiree 

health and pensions, and debt—an 

amount equal to 169 percent of 

USPS’s revenues.

In July 2009, GAO added USPS’s 

financial condition to its list of high-risk 

areas needing attention by Congress 

and the executive branch. USPS’s 

financial condition remains on GAO’s 

High-Risk List. In previous reports, 

GAO has identified strategies and 

options for USPS to generate revenue, 

reduce costs, increase the efficiency of 

its delivery operations, and restructure 

the funding of USPS pension and 

retiree health benefits. GAO has also 

previously reported that a 

comprehensive package of actions is 

needed to improve USPS’s financial 

viability.

This testimony discusses (1) factors 

affecting USPS’s deteriorating financial 

condition, (2) USPS’s ability to make 

required retiree health and pension 

payments, and (3) considerations and 

choices Congress faces in addressing

USPS’s financial challenges. This 

testimony is based primarily on past 

GAO work that has examined USPS’s 

financial condition—including its 

liabilities—and updated USPS financial 

information for fiscal years 2016 and 

2017.

What GAO Found

The U.S. Postal Service’s (USPS) deteriorating financial condition is 

unsustainable as a result of trends including:

• Declining mail volume: First-Class Mail—USPS’s most profitable product—

continues to decline in volume as communications and payments migrate to 

electronic alternatives. USPS expects this decline to continue for the 

foreseeable future. 

• Growing expenses: Key USPS expenses such as salary increases and work 

hours continue to grow, due in part to growth in shipping and packages, 

which are more labor-intensive. Compensation and benefits comprise close 

to 80 percent of USPS’s expenses.

USPS’s financial condition makes it unlikely it will be able to fully make its 

required retiree health and pension payments in the near future. In fiscal year 

2016, when USPS was required to make $13.0 billion in retiree health and 

pension payments, it made $7.0 billion in payments—mainly due to not making a 

required retiree health payment of $5.8 billion. USPS’s required payments have 

been restructured for fiscal year 2017 and are estimated to total $10.3 billion.

USPS’s ability to make these 2017 payments will be further challenged due to:

• Expiration of a temporary “exigent” rate surcharge: USPS has said the April 

2016 surcharge expiration is reducing its revenues almost $2 billion annually.

• No new major cost savings initiatives planned: USPS made efforts in recent 

years to right-size its operations, but has no current plans to initiate major 

new initiatives to achieve cost savings in its operations.

Large unfunded liabilities for postal retiree health and pension benefits—which 

were $73.4 billion at the end of fiscal year 2016—may ultimately place taxpayers, 

USPS employees, retirees and their beneficiaries, and USPS itself at risk. As 

GAO has previously reported, funded benefits protect the future viability of an 

enterprise such as USPS by not saddling it with bills after employees have 

retired. Further, with USPS retirees participating in the same health and pension 

benefit programs as other federal retirees, if USPS ultimately does not 

adequately fund these benefits and if Congress wants these benefits to be 

maintained at current levels, funding from the U.S. Treasury—and hence the 

taxpayer—would be needed to maintain the benefit levels. Alternatively, 

unfunded benefits could lead to pressure for reductions in USPS benefits or pay.

Congress faces difficult choices and tradeoffs to address USPS’s financial 

challenges. The status quo is not sustainable. Considerations for Congress 

include the (1) level of postal services provided to the public and the affordability 

of those services, (2) compensation and benefits for USPS employees and 

retirees in an environment of revenue pressures, and (3) tension between 

USPS’s dual roles as an independent establishment of the executive branch 

required to provide universal delivery service and as a self-financing entity 

operating in a business-like manner.

View GAO-17-404T. For more information, 

contact Lori Rectanus at (202) 512-2834 or 

rectanusl@gao.gov.
Letter

Page 1 GAO-17-404T U.S. Postal Service

Chairman Chaffetz, Ranking Member Cummings, and Members of the 

Committee:

I appreciate the opportunity to be here today to discuss the varied 

challenges facing the U.S. Postal Service (USPS) and choices Congress 

faces in addressing USPS’s ongoing financial challenges. USPS is a 

critical part of the nation’s communication and commerce, delivering 154 

billion pieces of mail in fiscal year 2016 to about 156 million delivery 

points, and with about 640,000 employees. USPS, however, continues to 

face a serious financial situation with insufficient revenues to cover its 

expenses, putting its mission of providing prompt, reliable, and efficient 

universal services to the public at risk.1 USPS continues to incur deficits 

that are unsustainable. Moreover, at the end of fiscal year 2016, USPS 

had about $121 billion in unfunded liabilities and debt, most of which were 

for retiree health and pension benefits.2 USPS continues to have $15 

billion in outstanding debt—the statutory limit. These unfunded liabilities 

and debt are a large financial burden, increasing from 99 percent of 

USPS revenues in fiscal year 2007 to 169 percent of revenues in fiscal 

year 2016. USPS also recorded a net loss of $5.6 billion in fiscal year 

2016—its tenth consecutive year of net losses totaling over $62 billion.

In July 2009, we added USPS’s financial condition to our list of high-risk 

areas needing attention by Congress and the executive branch. USPS’s 

financial condition continues to deteriorate and remains on our High-Risk 

List.3 We have previously issued a number of reports that identified 

strategies and options for USPS to generate revenue, reduce costs, 

increase the efficiency of its delivery operations, and restructure the 

funding of USPS pension and retiree health benefits.4 We continue to 

believe that a comprehensive package of actions is needed to improve 

USPS’s financial viability.

 1 39 U.S.C. § 101(a).

2 Unfunded benefit liabilities are the estimated amount USPS has not sufficiently set aside 

to cover the benefits earned by its current and retired employees that are attributable to 

service already rendered.

3 GAO, High-Risk Services: An Update, GAO-15-290 (Washington, D.C.: February 2015). 

An updated GAO high-risk report will be issued later this month.

4 For example, our December 2012 report analyzed five different approaches for funding 

retiree health benefits and discussed the differing impacts that each alternative would 

have on USPS’s future annual payments and unfunded liabilities. GAO, U.S. Postal 

Service: Status, Financial Outlook, and Alternative Approaches to Fund Retiree Health 

Benefits, GAO-13-112 (Washington, D.C.: Dec. 4, 2012).

Letter
Page 2 GAO-17-404T U.S. Postal Service

This testimony discusses: (1) factors affecting USPS’s deteriorating 

financial condition, (2) USPS’s ability to make required retiree health and 

pension payments, and (3) considerations and choices Congress faces in 

addressing USPS’s financial challenges. This testimony is based primarily 

on our past reports and testimonies that examined USPS’s financial 

condition, including its liabilities.5 The reports and testimonies cited in this 

statement contain detailed information on the methods used to conduct 

our work. For this testimony, we updated USPS’s financial information 

with reported results for fiscal year 2016, which ended September 30, 

2016. In addition, we reviewed testimony and reports prepared by USPS 

and the Postal Regulatory Commission in 2016 and USPS estimates of 

retiree health and pension payments that USPS will be legally required to 

make in fiscal year 2017. We found these estimates to be sufficiently 

reliable for providing a general description and estimate for the large 

pending payments USPS faces. The work upon which this testimony is 

based was conducted in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives.

 5 GAO, U.S. Postal Service: Continuing Financial Challenges and the Need for Postal 

Reform, GAO-16-651T (Washington, D.C.: May 11, 2016); U.S. Postal Service: Financial 

Challenges Continue, GAO-16-268T (Washington, D.C.: Jan. 21, 2016); U.S. Postal 

Service: Action Needed to Address Unfunded Benefit Liabilities, GAO-14-398T 

(Washington, D.C.: Mar. 13, 2014); U.S. Postal Service: Health and Pension Benefits 

Proposals Involve Trade-offs, GAO-13-872T (Washington, D.C.: Sept. 26, 2013); U.S. 

Postal Service: Proposed Health Plan Could Improve Financial Condition, but Impact on 

Medicare and Other Issues Should be Weighed before Approval, GAO-13-658 

(Washington, D.C.: July 18, 2013); U.S. Postal Service: Status, Financial Outlook, and 

Alternative Approaches to Fund Retiree Health Benefits, GAO-13-112 (Washington, D.C.: 

Dec. 4, 2012); Federal Employees’ Compensation Act: Analysis of Proposed Program 

Changes, GAO-13-108 (Washington, D.C.: Oct. 26, 2012); U.S. Postal Service: Allocation 

of Responsibility for Pension Benefits between the Postal Service and the Federal 

Government, GAO-12-146 (Washington, D.C.: Oct. 13, 2011); and U.S. Postal Service: 

Strategies and Options to Facilitate Progress toward Financial Viability, GAO-10-455 

(Washington, D.C.: Apr. 12, 2010). 
Page 3 GAO-17-404T U.S. Postal Service

After about 30 years of relatively steady growth, USPS’s expenses began 

consistently exceeding revenues in fiscal year 2007—a trend that has 

continued through fiscal year 2016 (see fig. 1). As a result, USPS has lost 

a total of $62.4 billion since fiscal year 2007.

Figure 1: U.S. Postal Service Revenue and Expenses, Fiscal Years 1972-2016 

As we testified last year,6 the continued deterioration in USPS’s financial 

condition is due primarily to two factors.

1. Declining First-Class Mail volumes: The long-term decline of FirstClass Mail volume, which USPS expects to continue for the

foreseeable future, has fundamental implications for USPS’s business

model because this remains USPS’s most profitable class of mail.

Domestic First-Class Mail volume declined by 2 percent in fiscal year

2016 from the previous fiscal year to 61 billion pieces—a level 41

percent below its peak in fiscal year 2001, and the smallest level since

fiscal year 1981 (see fig. 2). USPS recently reported that First-Class

6 GAO-16-651T and GAO-16-268T. 

Declining Mail 

Volume and Growing 

Expenses Contribute 

to USPS’s 

Deteriorating 

Financial Condition
Page 4 GAO-17-404T U.S. Postal Service

Mail volume is declining as major commercial mailers actively 

promote the use of online services, and although the rate of decline 

has slowed, will continue to decline in future years with the migration 

to electronic alternatives resulting from technological changes.7 In the 

long run, USPS also faces the possibility of a future economic 

downturn that could have an additional impact on First-Class Mail 

volume.

Figure 2: U.S. Postal Service First-Class Mail Volume, Fiscal Years 1972-2016 

Note: This chart shows domestic First-Class Mail volume.

2. Growing Expenses: USPS expenses increased by $3.1 billion in fiscal

year 2016 from the previous year, outpacing the $2.6 billion increase

in revenues. Increasing compensation and benefits expenses were a

key driver of expense growth. USPS reported that compensation and

benefits for active employees increased by $1.2 billion, due to

contractually obligated salary escalations and additional work hours

associated in large part with growth in the more labor-intensive

7 United States Postal Service, 2016 Report on Form 10-K (Washington, D.C: Nov. 15, 

2016).
Page 5 GAO-17-404T U.S. Postal Service

Shipping and Packages business.8 In this regard, USPS reported a 14 

percent growth in Shipping and Packages volume in fiscal year 2016.9

However, to accommodate the surge in this volume and to minimize 

service disruptions during the holiday season, USPS reported 

increasing Sunday delivery service and adding non-career employees 

for the holiday season. This contributed to growth in USPS work hours 

in fiscal year 2016 from the previous year, when the number of USPS 

career employees increased by 17,000 and the number of non-career 

employees increased by 1,000. Over the past 3 years, the size of 

USPS’s total workforce has increased by about 22,000, including 

career and non-career employees; this growth contrasts with the trend

from fiscal years 1999 through 2013, when the workforce decreased 

by more than 288,000 (see fig. 3). Compensation and benefits 

comprise close to 80 percent of total USPS expenses. Thus, 

expenses will continue to grow if increases in salaries and work hours 

continue.10,11

8 The Shipping and Packages category includes Priority Mail, Priority Mail Express, Parcel 

Select, First-Class Package Service, Standard Mail Parcel Service Parcel Return Service, 

and Package Services such as Bound Printed Matter, Media Mail, and Library Mail.

9 Growth in the volume of Shipping and Package Services and Standard Mail in fiscal year 

2016 offset the decline in First-Class Mail volume. As a result, total mail volume increased 

by 0.1 percent in fiscal year 2016 to 153.9 billion pieces, which was 28 percent below its 

peak in fiscal year 2006. 

10 USPS has budgeted for a $0.4 billion increase in compensation and benefits for fiscal 

year 2017 based on a number of factors, including an anticipated number of work hours 

similar to fiscal year 2016.

11 USPS’s Total Factor Productivity (TFP) slightly declined in fiscal year 2016—the first 

time productivity declined since fiscal year 2009. TFP is an index that measures how 

efficiently USPS uses resources (inputs) to handle all aspects of its workload. See USPS, 

FY2016 Annual Report to Congress (Washington, D.C.: December 2016). 
Page 6 GAO-17-404T U.S. Postal Service

Figure 3: Total Number of U.S. Postal Service Employees, Fiscal Years 1972-2016

Note: This graphic includes both career and non-career employees.

As previously discussed, USPS’s unfunded liabilities and debt have 

become a large financial burden,12 increasing from 99 percent of USPS 

revenues at the end of fiscal year 2007 to 169 percent of revenues at the 

end of fiscal year 2016. These unfunded liabilities and debt—totaling 

about $121 billion at the end of fiscal year 2016—consist mostly of retiree 

health and pension benefit obligations for which USPS has not set aside 

sufficient funds to cover. 

 12 USPS’s unfunded liabilities and debt as a percentage of its revenues declined to 169 

percent at the end of fiscal year 2016 from 176 percent (an updated estimate) at the end 

of fiscal year 2015, largely due to growth in USPS revenues, which increased $2.6 billion 

in fiscal year 2016 from the previous year to $71.5 billion. In addition, USPS’s unfunded 

liabilities and debt of $120.7 billion at the end of fiscal year 2016 was $0.9 billion less than 

the comparable figure at the end of the previous year. These totals included the latest 

Office of Personnel Management (OPM) estimates of unfunded USPS liabilities for postal 

pension benefits (projections for fiscal year 2016 and a revised estimate for fiscal year 

2015), OPM valuations of unfunded liabilities for postal retiree health benefits, USPS 

estimates of liabilities for postal workers’ compensation benefits, USPS debt, and other 

liabilities on USPS’s balance sheet. 
Page 7 GAO-17-404T U.S. Postal Service

When the Postal Accountability and Enhancement Act (PAEA) 

established the Postal Service Retiree Health Benefits Fund, it required 

USPS to begin prefunding health benefits for its current and future postal 

retirees, with annual payments of $5.4 billion to $5.8 billion from fiscal 

years 2007 through 2016, followed by actuarially determined prefunding 

payments beginning in 2017 and every year thereafter.13 As of the end of 

fiscal year 2016, USPS’s liability for retiree health benefits was about 

$104.0 billion and the Postal Service Retiree Health Benefits Fund 

balance was $51.9 billion, with a resulting unfunded liability of $52.1 

billion. USPS has missed a total of $33.9 billion in required prefunding 

payments, which represent about half of its total losses since fiscal year 

2007.14 However, USPS would have still lost $10.6 billion during this time 

period even without the annual prefunding requirement.

USPS will remain unlikely to fully make its required retiree health and 

pension payments in the near future. Beginning this fiscal year (2017), 

USPS is no longer required to make fixed prefunding payments. Instead, 

under the requirements established by PAEA, it is required to start 

making annual payments based on actuarial determinations of the 

following component costs:

• a 40-year amortization schedule to address the unfunded liabilities for 

postal retiree health benefits,

• the “normal costs” of retiree health benefits for current employees,15

and

 13 Pub. L. No. 109-435, § 803, 120 Stat. 3198 (2006), codified at 5 U.S.C. § 8909a. Under 

the prefunding mechanism established by PAEA, as implemented by the Office of 

Personnel Management (OPM), USPS payments into the Postal Service Retiree Health 

Benefits Fund (PSRHBF) would be projected to fund the liability over a period in excess of 

50 years, from fiscal years 2007 through 2056 and beyond (with rolling 15-year 

amortization periods after 2041). PAEA established “fixed” prepayment amounts—

meaning that the amounts were set by statute and did not vary with actuarial 

measurements of the cost of the benefits—in the first 10 years, from fiscal years 2007 

through 2016, with actuarially determined payments thereafter. However, the payments 

required by PAEA were significantly “frontloaded,” with the fixed payment amounts in the 

first 10 years exceeding what actuarially determined amounts would have been using a 

50-year amortization schedule. For more detail, see GAO-13-112.

14 For financial reporting purposes, missed prefunding payments are treated as USPS’s 

expenses and reported as a liability on its balance sheet.

15 The “normal cost” is the annual expected growth in liability attributable to an additional 

year of employees’ service.

USPS Will Remain 

Unlikely to Fully Make 

Required Retiree 

Health and Pension 

Payments
Page 8 GAO-17-404T U.S. Postal Service

• a 27-year amortization schedule to address the unfunded liabilities for 

postal pension benefits under the Civil Service Retirement System 

(CSRS).16

These payments are in addition to annual payments USPS is already 

required to make to finance its pension benefits under the Federal 

Employees Retirement System (FERS)17, which consists of a 30-year 

amortization schedule to address any unfunded liabilities, and the normal 

costs of FERS benefits for current employees. USPS will find it very 

difficult to make all of these required payments given its financial 

condition and outlook. As table 1 below shows, in fiscal year 2017, USPS 

will be required to make an estimated total of $10.3 billion in payments for 

retiree health and pension benefits under CSRS and FERS—about $3.3

billion more than what USPS paid in fiscal year 2016 for these benefit 

programs.

 16 CSRS is a defined benefit, contributory retirement system for certain federal 

employees. It was replaced by the Federal Employees Retirement System (FERS) for 

federal employees who first entered covered service on and after January 1, 1987.

17 In addition to providing an annuity at retirement based on years of service and “high-3”

average pay, FERS also consists of Social Security and the government’s Thrift Savings 

Plan (TSP).
Page 9 GAO-17-404T U.S. Postal Service

Table 1: U.S. Postal Service (USPS) Payments for Retiree Health and Pensions, 

Fiscal Years 2016 and 2017 (Dollars in Billions)

USPS payment

Fiscal year 2016 -

Required

Fiscal year 2016 -

paid

Fiscal year 2017 -

required (estimate)

Retiree health benefits

Health premiums $3.3 $3.3 Not applicable 

Fixed prefunding $5.8 $0 Not applicable

Normal cost Not applicable Not applicable $2.9

Amortization Not applicable Not applicable $2.6

Pension benefits

Civil Service 

Retirement System 

(CSRS)

Amortization Not applicable Not applicable $1.2

Federal Employees

Retirement System 

(FERS)

Normal cost $3.7 $3.7 $3.3

Amortization $0.2 $0a $0.2

Total $13.0 $7.0 $10.3b

Source: U.S. Postal Service. | GAO-17-404T

Note: Fiscal year 2017 estimates may change later this year when the Office of Personnel 

Management (OPM) provides USPS with the amounts of these required payments.

a

USPS has not made its fiscal year 2016 FERS amortization payment and has a pending request that 

OPM reconsider this amount.

b

Data do not add exactly to the total due to rounding.

In addition to declining mail volumes and increased expenses, USPS’s 

ability to make its required payments for these retirement programs will 

be further challenged due to:

• Expiration of a temporary rate surcharge: USPS has reported that the 

April 2016 expiration of a 4.3 percent “exigent” surcharge that began 
Page 10 GAO-17-404T U.S. Postal Service

in January 2014 is reducing its revenues by almost $2 billion 

annually.18

• No new major cost-savings initiatives planned: USPS has made 

efforts in recent years to right-size its operations to better adapt to 

declining mail volumes that are adversely affecting its financial 

position. For example, in fiscal year 2015, USPS reduced the hours of 

over 13,000 post offices to better match retail service with demand 

and reduced its physical footprint by consolidating 36 mail processing 

facilities, and instituted operational changes to better utilize resources.

However, USPS has no current plans to initiate new major initiatives 

to achieve cost savings in its operations. According to USPS, it will 

continue to implement operational initiatives to contain costs and take 

actions to maintain liquidity,19 but as we testified last year,20 such 

actions will not be enough to stave off future losses and stabilize its 

finances. Although USPS has faced stakeholder resistance to its rightsizing efforts, in the absence of such efforts, USPS will continue to 

face challenges to appropriately match resources with mail volume 

and help address its compensation and benefits costs. 

USPS has reported that without structural change to its business model 

and legislative change, it expects continuing losses and liquidity 

 18 In December 2013, the Postal Regulatory Commission (PRC) approved USPS’s 

request for an “exigent surcharge” which allowed USPS to raise postal rates for most mail 

above the statutory price cap that is generally limited to the rate of inflation, except under 

extraordinary or exceptional circumstances that necessitate a larger rate increase. In July 

2015, PRC ruled that USPS could continue the surcharge until it collected $4.6 billion in 

incremental revenue, which represents USPS’s approximate loss due to the suppression 

of mail experienced during the Great Recession. This surcharge was discontinued April 

10, 2016, resulting in the reduction of many postal rates, including the rate for a FirstClass Mail stamp that was reduced from 49 to 47 cents. On January 22, 2017, the FirstClass Mail stamp rate was increased to 49 cents as part of USPS pricing changes 

implemented under the statutory price cap. However, the January 2017 increase did not 

mitigate the continuing fiscal effects of the expiration of the exigent increase, which was 

an increase over the inflation-based cap.

19 To improve liquidity in recent years, USPS has reported conserving cash by spending 

only what it believed was essential to maintain its existing facilities and service levels. For 

example, although USPS said it must invest in upgrades of letter sorting equipment that is 

at or near the end of its useful life and also in equipment to fully capitalize on business 

opportunities in the growing package delivery market, it deferred facilities maintenance to 

conserve cash in instances where this could be done without adversely impacting 

employee health or safety issues. 

20 GAO-16-651T.
Page 11 GAO-17-404T U.S. Postal Service

challenges for the foreseeable future.21 According to USPS, it has 

maintained adequate liquidity only by not making required payments to 

prefund retiree health benefits and deferring needed capital investments. 

Looking forward, USPS has reported that, if circumstances leave it with 

insufficient cash, it may prioritize payments to its employees and 

suppliers ahead of some payments to the federal government, as it has 

done in the past.

Large unfunded liabilities for postal retiree health and pension benefits—

which were $73.4 billion at the end of fiscal year 2016—may ultimately 

place taxpayers, USPS employees, retirees and their beneficiaries, and 

USPS itself at risk. As we have previously reported, funded benefits 

protect the future viability of an enterprise such as USPS by not saddling 

it with bills after employees have retired.22 Further, since USPS retirees 

participate in the same health and pension benefit programs as other 

federal retirees, if USPS ultimately does not adequately fund these 

benefits and if Congress wants these benefits to be maintained at current 

levels, funding from the U.S. Treasury, and hence the taxpayer, would be 

needed to continue the benefit levels. According to USPS’s testimony last 

year, “absent fundamental legislative reform, we face the prospect of 

having to continue to default on these prefunding payments [for retiree 

health benefits] in order to continue paying our employees and suppliers 

and to provide postal services to the American public. This increases the 

risk that taxpayers may ultimately be called on to fund these benefits.”23

Alternatively, unfunded benefits could lead to pressure for reductions in 

benefits or in pay. Thus, the timely funding of benefits protects USPS 

employees, retirees and their beneficiaries, taxpayers, and the USPS 

enterprise.

 21 For example, USPS has proposed statutory changes that would require postal retirees 

to participate in Medicare when they become eligible. This proposal would reduce USPS’s 

expenses—and unfunded liability—for retiree health benefits because Medicare would 

become the primary insurer for all postal retirees.

22 GAO-13-112. 

23 USPS, Statement of Megan J. Brennan, Postmaster General and Chief Executive 

Officer, United States Postal Service, Before the Senate Homeland Security and 

Governmental Affairs Committee (Washington, D.C., Jan. 21, 2016).
Page 12 GAO-17-404T U.S. Postal Service

USPS’s financial situation leaves Congress with difficult choices and 

trade-offs to achieve the broad-based restructuring that will be necessary 

for USPS to become financially sustainable. USPS’s ability to make its 

required retiree health and pension payments requires a decrease in 

expenses or increase in revenues, or both. Although USPS needs to take 

further action to reduce costs and increase revenues, USPS’s actions 

alone under its existing authority will be insufficient to achieve sustainable 

financial viability; comprehensive legislation will be needed. 

Congressional decisions about how to address the following issues will 

shape USPS’s future role, services, operations, networks, and ability to 

adapt to changes in mail volume. In making these decisions, Congress 

could consider, among other things, the following factors:

• The level of postal services and the affordability of those services:

USPS’s growing financial difficulties combined with vast changes in 

how people communicate provide Congress with an opportunity to 

consider what postal services will be needed in the 21st century. 

Specifically, Congress could consider what postal services should be 

provided on a universal basis to meet customer needs and how these 

services should be provided. Congress also could consider trade-offs 

in reducing the level of postal services, such as providing USPS with 

the authority to reduce the frequency of letter mail delivery to enable 

USPS to reduce its expenses. A key factor in any consideration to 

reduce postal services would include potential effects on postal 

customers, mail volumes, and employees. In particular, Congress 

could consider the quality of postal service—such as the frequency 

and speed of mail delivery and the accessibility and scope of retail 

postal services—in considering any service reduction. For example, 

as part of its efforts to reduce excess capacity, in January 2015 USPS 

revised its standards for on-time mail delivery by increasing the 

number of days for some mail to be delivered and still be considered 

on time. Even with the revised standards, on-time delivery 

performance declined significantly, particularly for the second quarter 

of fiscal year 2015, a decline USPS attributed to operational changes 

implemented in January 2015 and adverse winter weather. 

Performance has rebounded since then, facilitated in part by 

increases in workforce and mail transportation capacity and costs.

• Compensation and benefits in an environment of revenue pressures:

Key compensation and benefits costs for USPS employees have 

increased and continue to increase, while the volume for First-Class 

Mail—USPS’s most profitable product—has declined and continues to 

decline. To put USPS’s situation into context, many private sector 

companies (such as automobile companies, airlines, mail preparation 

Congress Faces 

Difficult Choices to 

Address USPS’s 

Financial Condition
Page 13 GAO-17-404T U.S. Postal Service

and printing companies, and major newspapers) took far-reaching 

measures to cut costs (such as reducing or stabilizing workforce, 

salaries, and benefits) when demand for their central product and 

services declined. However, although USPS has taken some steps to 

improve its financial situation, USPS has stated that its strategies to 

increase efficiency and reduce costs are constrained by statutory, 

contractual, regulatory, and political restrictions. USPS is subject to 

requirements to maintain 6-day delivery, limit rate increases for most 

mail within an inflation-based price cap, and participate in federal 

benefit programs. Most USPS employees are covered by collective 

bargaining agreements with four major labor unions which have 

established salary increases, cost-of-living adjustments, and the 

percentage of health insurance premiums paid by employees and 

USPS. When USPS and its unions are unable to agree, the parties 

are required to enter into binding arbitration by a third-party panel. 

There is no statutory requirement for USPS’s financial condition to be 

considered in arbitration. Considering USPS’s unsustainable financial 

condition and the competitive environment, we continue to believe—

as we reported in 201024—that Congress should consider revising the 

statutory framework for collective bargaining to ensure that USPS’s 

financial condition be considered in binding arbitration.

• USPS’s dual role of providing affordable universal service while 

remaining self-financing: As an independent establishment of the 

executive branch, USPS has long been expected to provide 

affordable, quality, and universal delivery service to all parts of the 

country while remaining self-financing. USPS and other stakeholders 

have considered a range of different business models to address 

USPS’s financial difficulties. For example, USPS’s 2002 

Transformation Plan included a range of alternatives from a publicly 

supported model to a business model with a corporate structure 

supported by shareholders. Any alternative business model would 

need to address the level of any costs that would be transferred from 

USPS, which is financed by postal ratepayers, to the federal 

government, which is funded by taxpayers. In addition, if Congress 

requires eligible postal retirees to participate in Medicare, as USPS 

has previously proposed, it should consider the tradeoffs for the 

federal budget deficit and Medicare’s financial condition, as well as 

the implications for affected employees.25

 24 GAO-10-455. 

25 GAO-13-658. 
Page 14 GAO-17-404T U.S. Postal Service

Finally, a fully functioning USPS Board of Governors is needed to support 

USPS’s ability to carry out its critical responsibilities, as certain powers 

are reserved to the nine presidentially-appointed Governors who must be 

confirmed by the Senate. Because the last serving Governor left the 

Board in December 2016 due to term limits, the 11-member Board 

currently consists of only the Postmaster General and the Deputy 

Postmaster General. According to USPS, the critical responsibilities 

reserved to the Governors include setting postal prices, approving new 

products, and appointing or removing the Postmaster General and the 

Deputy Postmaster General. USPS stated last year that, in the event no 

Governors are in place, these critical duties may not be able to be 

executed, potentially leaving USPS without the ability to adjust its prices 

as needed, introduce new products, or appoint or replace its two most 

senior executive officers.

USPS management, unions, the public, community leaders, and 

Members of Congress need to take a hard look at what level of postal 

services residents and businesses need and can afford. The status quo is 

not sustainable.

Chairman Chaffetz, Ranking Member Cummings, and Members of the 

Committee, this concludes my prepared statement. I would be pleased to 

answer any questions that you may have at this time.

For further information about this statement, please contact Lori 

Rectanus, Director, Physical Infrastructure Issues, at (202) 512-2834 or 

rectanusl@gao.gov. Contact points for our Congressional Relations and 

Public Affairs offices may be found on the last page of this statement. In 

addition to the contact named above, Frank Todisco, Chief Actuary, FSA, 

MAAA, EA, Applied Research and Methods; Derrick Collins, Assistant 

Director, Physical Infrastructure Issues; Samer Abbas; Antoine Clark; 

Kenneth John; Josh Ormond; Crystal Wesco; and Chad Williams made 

important contributions to this statement. Mr. Todisco meets the 

qualification standards of the American Academy of Actuaries to render 

the actuarial opinions contained in this testimony.

Conclusion

GAO Contact 

and Key 

Acknowledgments
Appendix I: U.S. Postal Service (USPS) 

Financial Obligations and Related Information

Page 15 GAO-17-404T U.S. Postal Service

Table 2: Selected U.S. Postal Service (USPS) Liabilities and Outstanding Debt (Dollars in Billions) 

Selected USPS liabilities (included 

on USPS balance sheet)

Funded status of Retiree Health 

and Pension Funds (not fully 

included on USPS balance sheet) Totals

Fiscal 

year

Outstanding 

debt

Workers’ 

compensation 

liabilities

Other 

liabilities

Funded 

status for 

retiree 

health 

benefits 

(unfunded)

Funded 

status for 

CSRS 

(unfunded)

Funded 

status for 

FERS 

(unfunded)

Total 

USPS 

balance 

sheet 

assets

Total 

USPS 

liabilities, 

debt, and 

unfunded 

obligations

Total 

USPS 

revenue

Unfunded 

obligations, 

liabilities, 

and debt as 

percentage 

of revenue

2007 (4.2) (7.8) (12.7) (55.0) (3.1) 8.4 25.8 (74.3) 75.0 99%

2008 (7.2) (8.0) (12.5) (53.5) (9.0) 6.5 26.0 (83.7) 75.0 112%

2009 (10.2) (10.1) (13.2) (52.0) (7.3) 6.9 28.1 (85.9) 68.1 126%

2010 (12.0) (12.6) (13.6) (48.6) 1.6 10.9 24.3 (74.3) 67.1 111%

2011 (13.0) (15.1) (14.2) (46.2) (17.8) 2.6 23.4 (103.7) 65.7 158%

2012 (15.0) (17.6) (13.7) (47.8) (18.8) 0.9 22.6 (112.1) 65.2 172%

2013 (15.0) (17.2) (12.5) (48.3) (17.8) (0.1) 21.6 (110.9) 67.3 165%

2014 (15.0) (18.4) (12.5) (48.9) (19.4) (3.6) 23.0 (117.8) 67.9 174%

2015 (15.0) (18.8) (12.5) (54.8) (16.7) (3.8) 24.0 (121.6) 69.0 176%

2016 (15.0) (20.0) (12.3) (52.1) (17.5) (3.8) 25.2 (120.7) 71.5 169%

Source: U.S. Postal Service (USPS) Form 10-K Statements. | GAO-17-404T

Note: This table provides data on selected USPS liabilities and outstanding debt at the end of each 

fiscal year as reported by USPS and the Office of Personnel Management (OPM). Key terms include 

the following:

Selected USPS liabilities include outstanding debt and workers’ compensation liabilities, and other 

miscellaneous liabilities on USPS’s balance sheet such as deferred revenue-prepaid postage, 

payables and accrued expenses, compensation and benefits liabilities (e.g., wages that have been 

earned but not yet paid as of the end of the fiscal year), and the value of employees’ accumulated 

leave. Not included is the current liability for the statutory Postal Service Retiree Health Benefits Fund 

(PSRHBF) payments not yet paid by USPS, which is a component of the unfunded liability for retiree 

health benefits, and is also highlighted in table 4 in the “Total” line for the column labeled “Missed 

USPS prefunding payments.”

Outstanding debt is total USPS short-term and long-term debt.

USPS liabilities for workers’ compensation are the actuarial present value of future workers’ 

compensation payments that USPS is estimated to have to make for injuries that have already 

occurred.

Unfunded actuarial liabilities for retiree health benefits are OPM estimates as of the end of each 

fiscal year. The unfunded liabilities are the excess of liabilities over funded assets. The liabilities 

represent the actuarial present value of the cost of the portion of future retiree health premiums for 

which USPS is responsible and that are attributable to past service; these liabilities reflect all such 

projected future costs for current retirees and beneficiaries and a portion of such projected future 

costs for current workers. The portion ($33.9 billion) of the fiscal year 2016 $52.1 billion unfunded 

liability that is attributable to the missed prefunding payments is reflected as such on USPS’s balance 

sheet; the remainder ($18.2 billion) of the $52.1 billion unfunded liability is not on USPS’s balance 

sheet.

Unfunded Civil Service Retirement System (CSRS) and Federal Employee Retirement System 

(FERS) actuarial liabilities are OPM estimates as of the end of each fiscal year. The unfunded 

liabilities are the excess of liabilities over funded assets. The liabilities represent the actuarial present 

value of the cost of future retiree pension benefits for which USPS is responsible and that are 

Appendix I: U.S. Postal Service (USPS) 

Financial Obligations and Related 

Information
Appendix I: U.S. Postal Service (USPS) 

Financial Obligations and Related Information

Page 16 GAO-17-404T U.S. Postal Service

attributed to past service; these liabilities reflect all such projected future costs for current retirees and 

beneficiaries and a portion of such projected future costs (in excess of worker contributions) for 

current workers.

Unfunded obligations, liabilities, and debt are the sum of the unfunded actuarial liabilities 

(obligations), USPS liabilities, and debt shown in this table.

Total USPS revenue consists of total USPS operating revenue plus interest and investment income 

for each fiscal year.

Total assets consist of current assets including cash and noncurrent assets largely comprising 

property and equipment measured at historic purchase value after depreciation. This does not include 

assets funding the retiree health and pension benefits.

Table 3: Funded Status of U.S. Postal Service (USPS) Pension Obligations (Dollars in Billions)

CSRS funded status FERS funded status

Total USPS 

Pension funded status

Fiscal year CSRS 

assets

CSRS 

actuarial 

liabilities

Net CSRS 

funded 

Status 

(unfunded)

FERS 

assets

FERS 

actuarial 

liabilities

Net FERS 

funded 

status 

(unfunded)

Pension 

assets

Pension 

actuarial 

liabilities

Total pension 

funded status 

(unfunded)

2007 193.8 196.9 (3.1) 63.5 55.1 8.4 257.3 252.0 5.3 

2008 195.1 204.1 (9.0) 69.3 62.8 6.5 264.4 266.9 (2.5)

2009 195.3 202.6 (7.3) 75.2 68.3 6.9 270.5 270.9 (0.4)

2010 194.6 193.0 1.6 80.8 69.9 10.9 275.4 262.9 12.5 

2011 193.0 210.8 (17.8) 86.6 84.0 2.6 279.6 294.8 (15.2)

2012 190.7 209.5 (18.8) 91.7 90.8 0.9 282.4 300.3 (17.9)

2013 186.6 204.4 (17.8) 96.5 96.6 (0.1) 283.1 301.0 (17.9)

2014 182.1 201.5 (19.4) 100.9 104.5 (3.6) 283.0 306.0 (23.0)

2015 177.4 194.1 (16.7) 105.2 109.0 (3.8) 282.6 303.1 (20.5)

Projected 2016 174.4 191.9 (17.5) 112.1 115.9 (3.8) 286.5 307.8 (21.3)

Source: U.S. Postal Service (USPS) Form 10-K Statements. | GAO-17-404T

Note: This table provides the Office of Personnel Management’s (OPM) estimation of the funded 

status of the Civil Service Retirement System (CSRS) and Federal Employee Retirement System 

(FERS) programs for USPS, as of the end of each fiscal year. Data are actual amounts for fiscal 

years 2007—2015 and projected amounts for fiscal year 2016. Key terms include the following:

Assets include securities of the Civil Service Retirement and Disability Fund (CSRDF). Although 

CSRDF is a single fund that does not maintain a separate account for each participating U.S. 

government employer, PAEA requires certain disclosures regarding obligations and changes in net 

assets as if the funds were separate.

Actuarial liabilities are actual amounts for fiscal years 2007—2015 and projected amounts for fiscal 

year 2016, as of the end of each fiscal year. These data are prepared by OPM and represent the 

actuarial present value of the cost of future retiree pension benefits for which USPS is responsible 

and that are attributed to past service; these liabilities reflect all such projected future costs for current 

retirees and beneficiaries and a portion of such projected future costs for current workers.

Net funded status equals assets minus liabilities.
Appendix I: U.S. Postal Service (USPS) 

Financial Obligations and Related Information

Page 17 GAO-17-404T U.S. Postal Service

Table 4: U.S. Postal Service (USPS) Retiree Health Benefits Funded Status (Dollars in Billions)

Fiscal 

year

Beginning 

of year 

assets

One-time 

transfer 

from CSRS 

pension 

fund

One-time 

transfer 

from USPS 

escrow

USPS 

prefunding 

payment

Interest 

earned

End of 

year 

assets

End of year 

actuarial 

liabilities

End of year 

net funded 

status 

(unfunded)

Missed USPS 

prefunding 

payments

2007 0.0 17.1 3.0 5.4 0.3 25.7 0.0

2008 25.7 5.6 1.3 32.6 86.1 (53.5) 0.0

2009 32.6 1.4 1.5 35.5 87.5 (52.0) 0.0

2010 35.5 5.5 1.5 42.5 91.1 (48.6) 0.0

2011 42.5 0.0 1.6 44.1 90.3 (46.2) 0.0

2012 44.1 0.0 1.6 45.7 93.6 (47.9) 11.1

2013 45.7 0.0 1.6 47.3 95.6 (48.3) 5.6

2014 47.3 0.0 1.5 48.9 97.7 (48.9) 5.7

2015 48.9 0.0 1.5 50.3 105.2 (54.8) 5.7

2016 50.3 0.0 1.5 51.9 104.0 (52.1) 5.8

2017 51.9 N/A N/A N/A N/A N/A N/A

Total N/A 17.9 13.9 N/A N/A N/A 33.9

Source: U.S. Postal Service (USPS) Form 10-K Statements. | GAO-17-404T

Note: This table provides the Office of Personnel Management’s (OPM) estimation of the funded 

status of USPS obligations for retiree health benefits. Data for assets, liabilities, and net funded status 

are actual amounts for fiscal years 2007—2016. Key terms include the following:

Assets include securities of the PSRHBF, which is managed by OPM.

Actuarial liabilities represent the actuarial present value of the cost of the portion of future retiree 

health premiums for which USPS is responsible and that are attributable to past service; these 

liabilities reflect all such projected future costs for current retirees and beneficiaries and a portion of 

such projected future costs for current workers.

Net funded status equals assets minus liabilities.

One-time transfer from the Civil Service Retirement System (CSRS) Pension Fund: The Postal 

Accountability and Enhancement Act (PAEA) established the PSRHBF and directed OPM to 

determine any USPS surplus for CSRS obligations as of Sept. 30, 2006, and to transfer this amount 

from the Civil Service Retirement and Disability Fund (CSRDF) into the PSRHBF by June 30, 2007. 

Pub. L. No. 109-435 (2006).

One-time transfer from USPS Escrow Fund: PAEA required USPS to transfer the escrow funds 

resulting from the Postal Civil Service Retirement System Funding Reform Act of 2003 (Pub. L. No. 

108-18), which reduced USPS’s CSRS payments and required these reductions to be placed into 

escrow.

USPS prefunding payments are statutory payments established by PAEA that are due from USPS 

to the PSRHBF. Subsequent congressional action reduced the 2009 prefunding requirement from 

$5.4 billion to $1.4 billion and delayed $5.5 billion from fiscal year 2011 to fiscal year 2012, resulting 

in a requirement to pay $11.1 billion in fiscal year 2012. See 5 U.S.C § 8909a(d)(3)(A).

Missed Prefunding Payments have not been made by USPS and remain as current liabilities on 

USPS’s balance sheet. These amounts are reflected in this table through a lower asset total and 

higher net unfunded liability than would have occurred if the prefunding payments were made.
Appendix I: U.S. Postal Service (USPS) 

Financial Obligations and Related Information

Page 18 GAO-17-404T U.S. Postal Service

Table 5: Summary of U.S. Postal Service (USPS) Pension and Retiree Health Benefit (RHB) Funds (Dollars in Billions)

Total USPS Pension funded status USPS RHB fund status Total Pension & RHB summary

Fiscal 

year

Total 

pension 

assets

Total 

pension 

actuarial 

liabilities

Total pension 

funded status 

(unfunded)

RHB 

assets

RHB 

actuarial 

liabilities

RHB funded 

status 

(unfunded)

Total

assets

Total 

actuarial 

liabilities

Pension and 

retiree health 

benefit funded 

status (unfunded) 

2007 257.3 252.0 5.3 25.7 80.8 (55.0) 283.0 332.8 (49.7)

2008 264.4 266.9 (2.5) 32.6 86.1 (53.5) 297.0 353.0 (56.0)

2009 270.5 270.9 (0.4) 35.5 87.5 (52.0) 306.0 358.4 (52.4)

2010 275.4 262.9 12.5 42.5 91.1 (48.6) 317.9 354.0 (36.1)

2011 279.6 294.8 (15.2) 44.1 90.3 (46.2) 323.7 385.1 (61.4)

2012 282.4 300.3 (17.9) 45.7 93.6 (47.9) 328.1 393.9 (65.8)

2013 283.1 301.0 (17.9) 47.3 95.6 (48.3) 330.4 396.6 (66.2)

2014 283.0 306.0 (23.0) 48.9 97.7 (48.9) 331.9 403.7 (71.9)

2015 282.6 303.1 (20.5) 50.3 105.2 (54.8) 332.9 408.3 (75.4)

2016 286.5 307.8 (21.3) 51.9 104.0 (52.1) 338.4 411.8 (73.4)

Source: U.S. Postal Service (USPS) Form 10-K Statements. | GAO-17-404T

Note: This table provides the Office of Personnel Management’s (OPM) estimation of the funded 

status of USPS obligations for pensions and retiree health benefits. Data for assets, liabilities, and net 

funded status are actual amounts for fiscal years 2007—2016 for retiree health benefits, and actual 

amounts for fiscal years 2007—2015 and projected amounts for fiscal year 2016 for pension benefits, 

as of the end of each fiscal year. Key terms include the following:

Assets include securities of the Civil Service Retirement and Disability Fund (CSRDF) and the Postal 

Service Retiree Health Benefits Fund (PSRHBF). Although CSRDF is a single fund that does not 

maintain a separate account for each participating U.S. government employer, PAEA requires certain 

disclosures regarding obligations and changes in net assets as if the funds were separate. 

Actuarial liabilities are actual amounts for fiscal years 2007—2016 for retiree health benefits, and 

actual amounts for fiscal years 2007—2015 and projected amounts for fiscal year 2016 for pension 

benefits, as of the end of each fiscal year. These data are prepared by OPM and represent the 

actuarial present value of the cost of future retiree pension and health benefits costs for which USPS 

is responsible and that are attributed to past service; these liabilities reflect all such projected future 

costs for current retirees and beneficiaries and a portion of such projected future costs for current 

workers.

Net funded status equals assets minus liabilities.

(101462)
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