In 1971, Congress established the U.S. Postal Service (USPS) and mandated that it operate as a self-supporting, wholly governmental entity. Previously, the federal government provided postal services via the U.S. Post Office Department (USPOD), a federal agency that was financially dependent upon annual appropriations from Congress. Members of Congress were involved in many aspects of the USPOD's operations, including the selection of managers (e.g., postmasters) and the pricing of postal services. In 1971, Congress passed the Postal Reorganization Act (PRA; P.L. 91-375), which replaced USPOD with USPS—an "independent establishment of the executive branch." The PRA designed USPS to be a marketized government agency, that is, an agency that would cover its operating costs with revenues generated through the sales of postage and related products and services. Although USPS does receive an annual appropriation, the agency does not rely on appropriations. Its appropriation is approximately $90 million per year, about 0.1% of USPS's $65 billion operating budget. Congress provides this appropriation to compensate USPS for the revenue it forgoes in providing, at congressional direction, free mailing privileges to blind persons and overseas voters. Otherwise, USPS by law is directed to cover the costs of its operations from revenues deposited in the Postal Service Fund, a revolving account at the U.S. Treasury. Thus, USPS's operational costs are to be borne not by the public as a whole, but by ratepayers (i.e., those individuals and organizations who purchase postage). USPS employees are covered by, and may be eligible for, benefits under the same two pension plans that cover nearly all civilian federal workers: the Civil Service Retirement System (CSRS) for employees first hired before 1984 and the Federal Employees' Retirement System (FERS) for employees first hired in 1984 or later. In addition, by law, USPS retirees (and employees) may participate in the Federal Employees Health Benefits Program (FEHBP). USPS's recent deficits—$40 billion since FY2007—have prompted much discussion over possible reforms to the agency and its operations. USPS's retiree health benefits and pension funding policies have been part of this discussion, in part because they represent significant costs to the agency. In FY2013, prefunding USPS's retiree health benefits cost the agency $5.6 billion and funding its pensions cost $5.7 billion. This amounted to 15.7% of USPS's $72.1 billion operating expenses. In addition, there are concerns over the possible negative ramifications on postal retirees and the public were USPS to insufficiently fund its retirees' health benefits or pensions. For example, the Office of Personnel Management (OPM) reports that the U.S. Treasury (and, therefore, taxpayers) would be liable for any USPS shortfalls in funding its pensions. Since FY2007, USPS has been required to prefund its current employees' future retirement benefits. This policy was included in an omnibus postal reform law, the Postal Accountability and Enhancement Act (PAEA; P.L. 109-435 , enacted in December 2006). This prefunding policy has become contentious since USPS began posting multi-billion dollar financial losses in FY2007 and missing prepayments. The debates concerning retiree health benefits prefunding have centered on both the principle of prefunding and the PAEA's execution thereof. Hence, some in Congress have advocated abolishing the prefunding requirement entirely. Others in Congress have proposed various ways to revise the PAEA's funding schedule so as to continue prefunding but to alleviate USPS's costs in the short term. Prior to the enactment of the PAEA, USPS funded its share of retiree health premiums on a pay-as-you-go basis. Put in simple terms, formerly USPS annually tabulated the number of retirees and then paid its portion of the health premiums due for those retirees. (USPS retirees also pay a portion of their health premiums.) The PAEA required USPS to continue contributing to current retirees' benefits from the Postal Service Fund each year. The law also obliged USPS annually to set aside funds for the future retiree health benefits of current employees. Specifically, the PAEA created a 50-year payment schedule, which includes 10 years of statutorily prescribed prefunding payments (FY2007-FY2016) into the Postal Service Retiree Health Benefits Fund (RHBF). Table 1 depicts the statutorily prescribed prepayments. In FY2017, the statutorily prescribed payment amounts conclude. Between FY2017 and FY2056, however, USPS would continue to make annual payments to RHBF. The amount of these payments would be determined by OPM. Per PAEA, OPM is to compute on an annual basis, the size of current employees' future retiree healthcare benefit liability and the current RHBF balance and then to determine a schedule of annual payments to liquidate any outstanding liability by September 30, 2056. Although enacted with little, if any, ostensible criticism, the PAEA's prefunding policy subsequently has become very contentious. The criticisms of prefunding include the following: 1. For 36 years (1970-2006), USPS paid its current retiree health benefits out of pocket without incident. 2. No other federal agency prefunds its current employees' future retirement health benefits, so it is unfair to require USPS to do so. 3. Private-sector companies that prefund their future retiree health benefits do not typically fund 100% of the obligation. 4. Prefunding was primarily a policy designed to contend with a budget scoring issue caused by USPS overfunding its pensions. 5. Prefunding is financially harming USPS—it is draining USPS's cash, and it has had a significant role in producing the agency's recent deficits. Arguments advanced in favor of prefunding include the following: 1. The pay-as-you-go approach creates an inaccurate depiction of USPS's financial health. "Because the Service was ignoring a very expensive fringe benefit in its income statement, its reported costs were artificially low and its reported income artificially high." 2. The pay-as-you-go approach is inequitable in that "current [postage] ratepayers are not paying for the full costs of the services they are receiving." Instead, a portion of current employees' compensation costs will be paid by future mailers. 3. "Based on known demographic trends, the Service's share of its retirees' health insurance premiums is expected to continue rising until about 2040. Under the Service's existing accounting and rate-setting methods, more significant and frequent rate hikes are likely to be needed for future ratepayers to cover the costs of benefits that are being earned by current employees." 4. Prefunding future retirement benefits provides compensation security for current employees. 5. Prefunding future retiree health benefits protects U.S. taxpayers from a possible bailout should USPS health benefits costs exceed USPS's cash on hand. Beyond these debates, two additional issues have arisen with the PAEA prefunding policy as enacted. First USPS has not had sufficient cash to meet the current statutory RHBF payment schedule. Second there have been actuarial disputes over the size of USPS's future retiree health benefits liability and, by implication, the size of the annual FY2007-FY2016 RHBF required payments. While the principle of prefunding continues to be debated, a more recent concern is the practicality of the FY2007-FY2016 payment schedule. In short, although the law states USPS must pay more than $5 billion per year through FY2017, the agency has not had sufficient cash to make all these payments. Between FY2007 and FY2012, USPS's financial condition eroded considerably. Mail volume fell 25.1%, from 212 billion pieces to 159 billion pieces. USPS's revenue declined 12.8%, from $74.8 billion to $65.2 billion. The agency's debt grew from $4.2 billion (FY2007) to $15 billion, the maximum amount permitted by statute. The fall in revenues combined with the FY2007 and FY2008 RHBF payments have drained the agency's cash supply. USPS's difficulties in meeting the RHBF payment schedule date from FY2009, when Congress reduced that year's payment owed from $5.4 billion to $1.4 billion. This relief helped USPS have sufficient cash on hand to make the FY2010 payment. Since then, however, the agency has defaulted on the FY2011, FY2012, and FY2013 RHBF payments. In FY2012, OPM calculated USPS's future retiree health benefits liability to be $93.6 billion. OPM estimated USPS had funded $45.7 billion of this obligation, which leaves an unfunded obligation of $47.9 billion. The estimation of healthcare costs requires making certain assumptions. Thus, USPS has noted, [b]ecause calculation of this [retiree health benefit] liability involves several areas of judgment, estimates of the liability could vary significantly depending on the assumptions used. Utilizing the same underlying data that was used in preparing the [above] estimate... the September 30, 2012, unfunded obligation could range from $35 billion to $63 billion, solely by varying the inflation rate by plus or minus 1%, and the 2011 unfunded obligation would range from $34 billion to $60 billion. The size of USPS's estimated health benefits obligation is consequential; it affects the agency's reported financial results because the Postal Service is expected to pay these obligations that are owed to retirees.