As we have noted previously, USPS urgently needs to restructure its networks and operations as its financial condition and outlook have reached a crisis level. USPS has experienced a cumulative net loss of nearly $20 billion over the last 5 fiscal years, including an $8.5 billion loss in 2010; and a reported net loss of $5.7 billion in the first 9 months of fiscal year 2011. By the end of this fiscal year, USPS projects that it will incur a $9 billion loss, experience a substantial cash shortfall, reach its $15 billion borrowing limit, and not make its statutorily mandated $5.5 billion retiree health benefits payment to the federal government. USPS summarized its situation as the equivalent of facing Chapter 11 bankruptcy. USPS’s financial problems are related to customers’ changed mail use— that is, mail volume is declining as people shift to electronic communications and payment alternatives rather than using USPS. Total mail volume peaked in fiscal year 2006 at 213 billion pieces and declined by almost 20 percent to about 170 billion pieces by the end of fiscal year 2010. In the first 3 quarters of this fiscal year, the volume for First-Class Mail—USPS’s most profitable product that accounted for 49 percent of USPS operating revenue—has declined by 6.5 percent compared to the same period last year. USPS has said that mail volume declines and changes in the mail mix have outpaced even its most pessimistic forecasts. USPS has projected a further drop in total mail volume to about 133 billion pieces by 2020. USPS does not now have—nor expects in the future to have—sufficient revenue to cover its costs without legislative changes. These costs include compensation and benefits for a workforce of about 653,000 total employees, a network of about 33,000 USPS-operated retail and processing facilities, and 6-day delivery services to about 150 million locations, which expands by roughly 1 million new residences and businesses each year. USPS had $67 billion in revenue in fiscal year 2010 and $75.5 billion in expenses, resulting in a loss of $8.5 billion, which it expects to grow to a $20 billion loss by 2015. USPS also faces a variety of challenges, including difficulties reducing costly excess capacity in its networks; closing facilities due to stakeholder resistance or statutory and regulatory requirements that restrict closings; and making the annual prefunding retiree health benefit payments of about $5.5 billion required since 2006. For these reasons, we placed USPS’s financial condition and outlook on our list of high-risk programs and agencies in 2009, and it remains on our updated list in 2011. We have reviewed a variety of proposals to address USPS’s ongoing financial difficulties by reducing costs and improving operational efficiency, but the overall effects of these proposals are uncertain because many questions remain. In August 2011, USPS released two discussion drafts that outline major proposals to (1) seek legislative authority to withdraw USPS from the Federal Employee Health Benefit (FEHB) program and sponsor its own program and change pension benefits for new employees, and (2) seek legislative authority to eliminate the layoff protections it negotiated with its unions in collective bargaining to accelerate network and workforce downsizing. USPS has not fully developed these proposals, so answers are not available to many of the questions that have been raised. We also reviewed other proposals including USPS proposals to seek reimbursement of the surplus in its Federal Employees Retirement System (FERS) account and reduce costs by moving to 5-day delivery, restructuring its retail network, and reducing excess capacity in its mail processing network; pending legislation, including bills introduced in the Senate by Senators Carper and Collins and in the House of Representatives by Representatives Issa and Lynch; the President’s Fiscal Year 2012 Budget Request; our recent work, including our April 2010 report on USPS’s business model which (1) concluded that this model is broken and that USPS needs to take more aggressive action to better align costs with revenues and (2) discussed a series of options that included restructuring USPS’s retiree health prefunding payments, adjusting its workforce mix to more part-time staff, closing unneeded retail and mail processing facilities, and moving to 5-day delivery; and, reports by the U.S. Postal Service Office of Inspector General (USPS OIG) and the U.S. Office of Personnel Management Office of Inspector General (OPM OIG) related to changing the funding of USPS’s pension and retiree benefits. The key considerations of the USPS benefit-related proposals include the financial impact on USPS, its employees, future hires, retirees, the federal budget, and benefit programs and USPS’s ability to administer its own program. USPS costs for participating in the federal government- sponsored pension, health benefit, and workers’ compensation programs totaled about $22 billion in fiscal year 2010, almost 30 percent of its total expenses. This total included $5.8 billion for retirement benefits (FERS, Social Security, and the Thrift Savings Plan), $12.8 billion for health benefits, and $3.6 billion for workers’ compensation expenses. USPS was not required to make any payments for Civil Service Retirement System (CSRS) pensions in fiscal year 2010. USPS currently has approximately 600,000 active employees and 480,000 annuitants participating in the FEHB program. In fiscal year 2010, USPS recorded over $12.8 billion in health care costs: $5.1 billion in costs for current employees, $2.2 billion in premium costs for current retirees, and $5.5 billion for prefunding premium costs. USPS employees paid about 20 percent of their premium costs in fiscal year 2010 as compared to about 28 percent paid by other federal employees. USPS reported in its fiscal year 2010 annual report that its Retiree Health Benefits Fund had assets of $42.5 billion. USPS’s proposal stated that these assets would cover 47 percent of all future liabilities for current and future retirees. Going forward, USPS’s health-related benefit costs will continue to face pressure from rising health care premiums, continued prefunding requirements, and increasing number of retirees (USPS estimates that about 300,000 employees will be eligible to retire over the next decade). USPS has proposed establishing and managing its own health benefits program. Its proposal briefly discusses USPS’s rationale, how it would go about creating such a program, the governance and oversight structure, and it views of the unions’ role under the proposed process. While the Postal Service believes it currently has authority to withdraw from the FEHB program pursuant to section 1005(f) of title 39 of the United States Code, it has stated that it will seek specific statutory authority to do so. USPS is authorized to vary, modify, or add to certain fringe benefits, but is prohibited from making any changes to fringe benefits that on the whole are less favorable than the fringe benefits in effect when the Postal Reorganization Act of 1970 was enacted. The Postmaster General has stated, however, that USPS may alter benefits for certain categories of employees under any health benefits program it would administer. Our April 2010 report on USPS’s business model discussed several options and related issues pertaining to assigning financial responsibility for benefits to USPS, its employees, and current and future ratepayers. Key considerations include improving USPS’s poor financial condition while keeping rates affordable, ensuring adequate funding to fulfill its financial obligations pertaining to employee benefits, and minimizing risk to the taxpayer if USPS would be unable to meet its responsibilities. USPS has said it cannot afford its required prefunding payments to the Retiree Health Benefits Fund on the basis of its significant mail volume and revenue declines, large financial losses, and difficulties in reducing costs. We have reported that Congress should consider a package of actions, which could include providing financial relief to USPS by modifying its retiree health benefit cost structure in a fiscally responsible manner. Several legislative proposals have been made to defer costs by revising statutory requirements, including extending and revising prefunding payments to the Retiree Health Benefits Fund, with smaller payment amounts in the short term followed by larger amounts later. Deferring some prefunding of these benefits would serve as short-term fiscal relief. However, deferrals also increase the risk that USPS will not be able to make future payments as its core business declines. Therefore, it is important that USPS continue to fund its retiree health benefit obligations—including prefunding these obligations—to the maximum extent that its finances permit. At this point, however, USPS will be challenged to make these payments and says it will not be able to this year. Table 1 describes health benefit-related proposals from USPS, pending legislation (bills introduced in 2011 by Senators Carper and Collins and Representatives Issa and Lynch), the President’s Fiscal Year 2012 Budget Request, GAO’s report on USPS’s business model (GAO-10- 455), and a report by the USPS OIG, along with key issues that we have identified. Some of the key questions that should be considered by Congress, USPS, and other stakeholders regarding USPS’s recent proposal to create its own health benefit program include: Legal authority – While USPS has stated that it will request legislative authority to withdraw from FEHB and start its own health benefit program, what other legal and regulatory provisions (e.g., its retiree health prefunding requirements) may be affected by such a withdrawal? Budgetary – What impact would such a move have on the federal budget, particularly transferring $42 billion in assets from the current Treasury-held Fund to the proposed Postal Service-administered health benefits program? Financial impact to USPS – What savings would USPS expect from such a shift, both in the short-term and in the longer-term?