Court Opinion

ID: 9960414
Source: CourtListenerOpinion
Date Created: 2024-04-16 14:00:22.455281+00
Date Added: 2024-06-11T08:19:26.559162
License: Public Domain

(Slip Opinion)

        Whether the United States Postal Service Bears
       Responsibility for the Cost of Certain Civil Service
           Retirement Benefits Paid to Its Employees
The United States Postal Service is responsible for the full cost of retirement benefits
  owed to its employees under the Civil Service Retirement System attributable to pay
  increases that USPS granted on and after the date it was established, including with
  respect to increases in benefits accrued during those employees’ years of service at
  USPS’s predecessor, the Post Office Department.

                                                                        March 26, 2024

          MEMORANDUM OPINION FOR THE GENERAL COUNSEL
               OFFICE OF PERSONNEL MANAGEMENT

  In 1970, Congress abolished the Post Office Department (“POD”)
and replaced it with the United States Postal Service (“USPS”). Postal
Reorganization Act, Pub. L. No. 91-375, 84 Stat. 719 (1970); see 39
U.S.C. § 201. POD employees, like most other federal employees at
the time, participated in the Civil Service Retirement System
(“CSRS”), a defined-benefit pension plan. See 5 U.S.C. § 8331 et seq.
You have asked us whether USPS is “required to pay the full cost” of
CSRS benefits “attributable to pay increases” on and after the date
USPS was established, for USPS employees who also accrued CSRS
benefits through service with POD. Letter for Christopher H.
Schroeder, Assistant Attorney General, Office of Legal Counsel, from
Webb Lyons, General Counsel, Office of Personnel Management
(“OPM”) at 1 (Feb. 22, 2023) (“OPM Letter”). For the reasons ex-
plained below, we conclude that USPS is so required.

                                           I.

                                          A.

   The U.S. Government calculates CSRS benefits using two factors: em-
ployees’ years of creditable federal service, and their “high-three” sala-
ry—meaning their average pay during the three consecutive years of
employment when they were highest paid. 5 U.S.C. § 8339; see id.
§ 8331(4). Specifically, employees covered by CSRS get an annual pen-
sion equal to their high-three salary multiplied by an amount established

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                           48 Op. O.L.C. __ (Mar. 26, 2024)

by statute, which for most employees is 1.5 percent for the first five years
of employment, 1.75 percent for the next five, and 2 percent after that. Id.
§ 8339(a).
   This formula helps explain the stakes of the dispute over who must pay
the cost of CSRS benefits “attributable to [post-1971] pay increases.”
OPM Letter at 1. When USPS grants a pay increase to an employee who
previously worked at POD and that pay increase sets a new high-three
salary, that high-three salary applies to all the employee’s years of ser-
vice, including at POD. Consider a hypothetical employee who worked
for the federal government for 30 years—15 at POD and 15 at USPS—
whose high-three salary was $19,165 at POD and $30,000 at USPS. 1
Thanks to the USPS-granted pay raises, the employee’s high-three salary
would be $30,000 for all their years of service, including the 15 years at
POD, and the employee would receive an annual benefit of $16,875. 2
   Significant financial implications flow from the method of allocating
responsibility between USPS and POD for the greater pension costs
resulting from USPS-granted pay raises. One approach would be to make
USPS responsible for the entire cost of the pay raise, including any in-
crease resulting from the higher pay being applied to the years of service
at POD. This approach can be implemented via what is known as the
“frozen benefit” methodology, which identifies the “frozen benefit” an
employee would have earned had they retired the day POD ceased to exist
(June 30, 1971) and makes USPS responsible for the remainder. Applying
that approach to our hypothetical employee, POD would be responsible
for just under $5,031 of the annual benefit, 3 and USPS would be respon-
sible for the remaining $11,844.

   1 These amounts assume that the employee had an overall high-three salary of $30,000

and received a 3.25 percent raise every year between their start date at USPS (July 1,
1971) and retirement 15 years later. See Hay Group, U.S. Postal Service: Evaluation of
the USPS Postal CSRS Fund for Employees Enrolled in the Civil Service Retirement
System at 9 (Jan. 11, 2010).
   2 This annual pension is equal to $30,000 multiplied by the statutory amounts noted in

the text—specifically, $2,250 for the first five years of service at POD (5 x 0.015 x
$30,000); $2,625 for the second five years of service at POD (5 x 0.0175 x $30,000);
$3,000 for the final five years of service at POD (5 x 0.02 x $30,000); and $9,000 for the
15 years of service at USPS (15 x 0.02 x $30,000).
   3 This annual pension is equal to $19,165, the hypothetical employee’s high-three sala-

ry at POD, multiplied by the statutory amounts noted in the text—specifically, $1,437.38

                                            2
           Responsibility for the Cost of Certain USPS Retirement Benefits

   An alternative approach, known as the “service ratio” approach, would
split the costs of USPS-granted pay raises according to the “percentage of
civilian service before and after July 1971.” Letter for Kay Cole James,
Director, OPM, from Richard J. Strasser, Jr., Chief Financial Officer &
Executive Vice President, USPS, Re: Postal Service Comments and
Request for Reconsideration of OPM Draft Plan for Computation of
Amounts Saved Under Public Law 108-18, at 2 (July 22, 2003) (“2003
Strasser Letter”). Using this approach, USPS would be responsible for
half of our hypothetical employee’s retirement benefit—$8,437.50—
because the employee spent half their career at USPS. Other allocations
are also possible. But the “frozen benefit” and “service ratio” approaches
helpfully frame the leading options and demonstrate the significance of
the choice.
   Funding for CSRS benefits comes from two main sources: pay deduc-
tions, 5 U.S.C. § 8334(a)(1)(A), (c), and agency matching contributions,
id. § 8334(a)(1)(B)(i). These amounts go into the Civil Service Retirement
and Disability Fund (“Fund”), where they earn interest—which also
becomes part of the Fund. See id. §§ 8334(a)(2), 8348. But these sources
typically do not cover the full cost of benefits, see, e.g., OPM, Civil
Service Retirement and Disability Fund Annual Report: Fiscal Year
Ended September 30, 2021, at 25 (Mar. 2022), with the shortfall known as
the “unfunded liability,” 5 U.S.C. § 8331(19). In technical terms, the
unfunded liability is the amount by which the present value of all future
benefits that must be paid exceeds the current Fund balance, plus the
present value of expected future employee deductions and future employ-
er contributions. Id. For USPS employees, this unfunded liability is “at-
tributable mainly to increases in future CSRS benefits that result from”
pay raises and cost of living adjustments (“COLAs”). Patrick Purcell &
Nye Stevens, Cong. Research Serv., RL31684, Funding Postal Service
Obligations to the Civil Service Retirement System at 3 (updated Mar. 28,
2003) (“2003 CRS Report”).

for the first five years of service at POD (5 x 0.015 x $19,165); $1,676.94 for the second
five years of service (5 x 0.0175 x $19,165); and $1,916.50 for the final five years of
service (5 x 0.02 x $19,165).

                                            3
                       48 Op. O.L.C. __ (Mar. 26, 2024)

                                     B.

   Although the Postal Reorganization Act allowed former POD employ-
ees to continue to participate in CSRS, it did not resolve the consequential
question of how to allocate responsibility for the retirement benefits
attributable to pay increases granted by USPS to former POD employees.
See OPM Letter at 5. Since then, however, Congress has enacted three key
statutes relevant to that issue.

                                     1.

   Congress first addressed the issue in 1974, when it enacted a provision
that expressly made USPS responsible for increases in CSRS’s unfunded
liability attributable to pay increases USPS granted to its employees:
     Notwithstanding any other statute, the United States Postal Service
     shall be liable for that portion of any estimated increase in the un-
     funded liability of the Fund which is attributable to any benefits pay-
     able from the Fund to active and retired Postal Service officers and
     employees, and to their survivors, when the increase results from an
     employee-management agreement under title 39, or any administra-
     tive action by the Postal Service taken pursuant to law, which au-
     thorizes increases in pay on which benefits are computed.
Pub. L. No. 93-349, § 1, 88 Stat. 354, 354 (1974) (“1974 Act”). The 1974
Act made these provisions retroactive to July 1, 1971—the date USPS
was established—but reimbursed USPS for the portion of the unfunded
liability incurred during its first three years. Id. § 3. The 1974 Act also
tasked OPM’s predecessor, the Civil Service Commission, with estimat-
ing USPS’s liability as a result of the 1974 Act and required USPS to pay
that amount in 30 equal annual installments. Id. § 1.
   USPS and OPM agree that the 1974 Act made USPS fully responsible
for any increases in CSRS benefits attributable to USPS actions that
increased its employees’ pay. See Letter for Christopher H. Schroeder,
Assistant Attorney General, Office of Legal Counsel, from Thomas J.
Marshall, General Counsel & Executive Vice President, USPS at 3 (June
28, 2023) (“USPS Letter”); OPM Letter at 6. They agree, too, that this
responsibility included increases in benefits that also related to USPS
employees’ years at POD. See USPS Letter at 3; OPM Letter at 6.

                                      4
           Responsibility for the Cost of Certain USPS Retirement Benefits

   USPS recognized at the time that the 1974 Act shifted “enormous
costs” onto it. Letter for Thaddeus J. Dulski, Chairman, Committee on
Post Office & Civil Service, U.S. House of Representatives, from Louis
A. Cox, General Counsel, USPS (Mar. 27, 1973), reprinted in H.R. Rep.
No. 93-120, at 9 (1973). Yet USPS supported the legislation. Id. As
USPS’s General Counsel explained, “[a]fter careful consideration—and in
full awareness of the financial burdens enactment of the bill will im-
pose—the Postal Service has concluded that it is proper, as a matter of
principle, for these costs to be imposed on postal ratepayers rather than
the taxpayers.” Id. The “principle of postal self-sufficiency,” he stated,
“calls for those who use postal services to bear the costs of those ser-
vices.” Id. at 10.
   Consistent with this principle, in a series of statutes adopted between
1989 and 1993, Congress imposed additional costs on USPS by making
USPS responsible for COLAs paid to former employees who were CSRS
beneficiaries, retroactive to the date USPS was established. See 2003 CRS
Report at 4 & n.10 (listing statutes). Congress made these changes be-
cause it concluded that requiring the Department of the Treasury (“Treas-
ury”) to pay for these costs improperly “subsidized” costs that were
properly allocated to USPS. See H.R. Rep. No. 100-656, pt. 1, at 12–13
(1988).

                                         2.

   Beginning in the 1990s, USPS’s financial status deteriorated, and by
the early 2000s, financial concerns about USPS had become acute. E.g.,
Gen. Acct. Office, GAO-01-598T, U.S. Postal Service: Transformation
Challenges Present Significant Risks (Apr. 4, 2001). The Senate Commit-
tee on Governmental Affairs thus asked the General Accounting Office
(“GAO”) 4 to review USPS’s finances. 2003 CRS Report at 4. In turn,
GAO asked OPM to determine whether USPS “was paying more or less
than appropriate to cover payments for [CSRS] for which it [was] respon-
sible.” H.R. Rep. No. 108-49, at 5 (2003).

  4 In 2004, GAO’s name was changed from the General Accounting Office to the Gov-

ernment Accountability Office. See GAO Human Capital Reform Act of 2004, Pub. L.
No. 108-271, § 8, 118 Stat. 811, 814. We use the acronym “GAO” to refer to both enti-
ties.

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                      48 Op. O.L.C. __ (Mar. 26, 2024)

   In November 2002, OPM’s analysis brought “good financial news” to
USPS: USPS would eventually overfund its CSRS liability “by approxi-
mately $71 billion” over the lifetime of the program—although no over-
funding had “occurred to date,” and about “$20.5 billion in future benefits
remain[ed] to be funded.” Letter for John E. Potter, Postmaster General,
from Kay Coles James, Director, OPM at 1–3 (Nov. 1, 2002) (“2002
James Letter”). The overfunding was due to several factors, including that
the Fund had earned “excess interest”—i.e., interest “in excess of the 5
percent that was assumed under the” statute. S. Rep. No. 108-35, at 3
(2003).
   In reaching these conclusions, OPM used the frozen benefit methodol-
ogy described above. See Report on Methodology for Postal Service
Funding Study (July 31, 2003) (“Methodology Report”), reprinted in
Continuing to Deliver: An Examination of the Postal Service’s Current
Financial Crisis and Its Future Viability: J. Hearing Before the H. Sub-
comm. on Fed. Workforce, Postal Serv., & D.C. & the H. Comm. on
Oversight & Gov’t Reform, 111th Cong. 262–63 (2010) (“Continuing to
Deliver”). This methodology was then reviewed by the Board of Actuaries
for the Fund, staff at Treasury and the Office of Management and Budget
(“OMB”), and GAO. See 2002 James Letter at 2; GAO, United States
Postal Service: Review of the Office of Personnel Management’s Analysis
of the United States Postal Service’s Funding of Civil Service Retirement
System Costs: Briefing for Congressional Requesters at 42–55 (Jan. 30,
2003) (“2003 GAO Analysis”). The Board “agreed with [OPM’s] find-
ings,” and Treasury and OMB “concurred.” 2002 James Letter at 2. And
while GAO disagreed with some of OPM’s assumptions, it reviewed and
did not question OPM’s “methodologies for allocating estimated benefit
payments and other expenses between service rendered before and after
July 1, 1971—the effective date of the Postal Reorganization Act.” 2003
GAO Analysis at 53.
   To address the impending overfunding, OPM drafted—and staff at
OMB, Treasury, and USPS reviewed—a proposal that became the Postal
Civil Service Retirement System Funding Reform Act of 2003, Pub. L.
No. 108-18, 117 Stat. 624 (“2003 Act”). See 2002 James Letter at 1; see
also 2003 CRS Report at 8–9. The 2003 Act aimed to ensure that USPS
was only paying for the costs of CSRS benefits for “which it is responsi-
ble,” H.R. Rep. No. 108-49, at 5, and it did so by adopting a two-pronged

                                     6
          Responsibility for the Cost of Certain USPS Retirement Benefits

approach modeled after the Federal Employees’ Retirement System
(“FERS”), i.e., the retirement system for most federal employees hired
after December 31, 1983. Federal Employees’ Retirement System Act of
1986, Pub. L. No. 99-335, 100 Stat. 514 (codified as amended at 5 U.S.C.
§ 8401 et seq.); see GAO, GAO-12-146, U.S. Postal Service: Allocation
of Responsibility for Pension Benefits Between the Postal Service and the
Federal Government at 29 (Oct. 2011) (“2011 GAO Report”).
    In the first prong, the 2003 Act changed the way USPS funded its
matching contributions (for employees who were still paying into CSRS)
to the method used by FERS, which makes more accurate assumptions
about the full cost of benefits, “includ[ing] the effects of employee pay
raises and retiree cost-of-living-adjustments.” 2003 CRS Report at 4; see
5 U.S.C. § 8423(a); 2002 James Letter at 2. Specifically, the Act required
USPS to make contributions pegged to the “normal-cost percentage” for
relevant employees, minus the amount deducted from employees’ pay.
2003 Act § 2(b)(1). The Act defined “normal-cost percentage” as the
“entry-age normal cost computed by [OPM] in accordance with generally
accepted actuarial practice and standards (using dynamic assumptions)
and expressed as a level percentage of aggregate basic pay.” Id. § 2(a)(1)
(codified at 5 U.S.C. § 8331(17)). And the Act defined “dynamic assump-
tions” as “economic assumptions that are used in determining actuarial
costs and liabilities of a retirement system and in anticipating the effects
of long-term future—(A) investment yields; (B) increases in rates of basic
pay; and (C) rates of price inflation.” Id. § 2(a)(3) (codified at 5 U.S.C.
§ 8331(29)). As amended by the 2003 Act, USPS’s matching contribu-
tions thus took account of “the effects of future employee pay raises and
retiree COLAs.” S. Rep. No. 108-35, at 2. Because of these changes, the
existing provisions that required USPS to make separate payments to
cover CSRS costs attributable to pay raises and COLAs were “no longer
. . . necessary,” and the 2003 Act repealed these provisions. Id.; see 2003
Act § 2(c), (d).
    In the second prong, the 2003 Act established a “Postal supplemental
liability,” modeled after a similar aspect of FERS, which required USPS
to make deposits for “any retirement costs not covered by past or future
[USPS] or employee payments.” S. Rep. No. 108-35, at 6–7; see 2002
James Letter at 2. The Act defined the Postal supplemental liability as the
“actuarial present value of all future benefits payable from the Fund” that

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                      48 Op. O.L.C. __ (Mar. 26, 2024)

are “attributable to the service of current or former employees of the
[USPS],” minus the present value of all CSRS revenues that USPS and its
employees could be credited with—namely, (1) the “actuarial present
value” of deductions to be withheld from the future pay of USPS employ-
ees and “future contributions” to be made by USPS; (2) the portion of the
Fund balance “attributable to payments to the Fund by [USPS] and its
employees, including earnings on those payments”; and (3) “any other
appropriate amount, as determined by [OPM] in accordance with general-
ly accepted actuarial practices and principles.” 2003 Act § 2(c).
   The Congressional Budget Office (“CBO”) estimated that the 2003 Act
would save USPS between $3 and $5 billion a year. H.R. Rep. No. 108-
49, at 7. OPM, again using the frozen benefit methodology to calculate
the financial impact on USPS, put that amount at between $2.5 and $2.9
billion a year, or about $78 billion overall. See 2002 James Letter at 2;
Methodology Report, reprinted in Continuing to Deliver at 259–60, 262–
63; S. Rep. No. 108-35, at 2–3.
   The 2003 Act also made one change that increased USPS’s costs: It
made USPS either wholly or partially responsible for CSRS costs attribut-
able to the “military and volunteer service (i.e.[,] Peace Corps, VISTA,
etc.)” of its employees. S. Rep. No. 108-35, at 7; see 2003 Act § 2(c).
This decision represented a departure from the way FERS operates, under
which Treasury is responsible for these costs. See 2003 CRS Report at 8.
And it sparked controversy. Some Members of Congress thought it “un-
fair to make postal customers and ratepayers fund military retirement
benefits.” 149 Cong. Rec. 8795 (2003) (statement of Rep. Tom Davis). As
a result, Congress instructed USPS, Treasury, and OPM to each submit a
report detailing “whether and to what extent” Treasury or USPS should be
responsible for these benefits. 2003 Act § 2(e)(1).

                                    3.

   Discussion of USPS’s financial condition continued. The 2003 Act
directed OPM to submit a report detailing its methodology to compute
the savings that would accrue to USPS from the 2003 Act. See 2003 Act
§ 3(b). In July 2003, OPM submitted its report, reaffirming that its No-
vember 2002 analysis had used the frozen benefit methodology and
emphasizing that, going forward, it would continue to do so. Methodolo-
gy Report, reprinted in Continuing to Deliver at 259–61.

                                     8
         Responsibility for the Cost of Certain USPS Retirement Benefits

   USPS objected, arguing that the frozen benefit methodology assigned
an “unreasonable portion of the benefit to be paid” to USPS. 2003
Strasser Letter at 1. USPS asked OPM to reconsider and proposed instead
using the service ratio method, which USPS estimated would save it $86
billion. Letter for Board of Actuaries, CSRS, from John E. Potter, Post-
master General at 2 (Jan. 26, 2004) (“2004 Potter Letter”). OPM rejected
USPS’s request. Id.
   USPS also asked the CSRS Board of Actuaries to review OPM’s
methodology. See id. at 1. The Board “reconsidered in detail” OPM’s
methodology and concluded that it was the “most appropriate way to
determine [USPS’s] obligations.” Letter for Ronald P. Sanders, Associate
Director for Strategic Human Resources Policy, OPM, from Douglas C.
Borton, Chairman, Board of Actuaries, CSRS at 1 (Aug. 18, 2004). The
Board also “confirm[ed] [its] prior finding that this method clearly fol-
lows the intent of Congress.” Id.
   Meanwhile, Congress continued to hear testimony and receive reports
from experts and others detailing additional proposals that could shore up
USPS’s finances. Answering the Administration’s Call for Postal Re-
forms—Parts I, II, and III: Hearings Before the Special Panel on Postal
Reform & Oversight of the H. Comm. on Gov’t Reform, 108th Cong.
(2004). Several witnesses asked Congress to take “action to clean up the
misallocation of billions of dollars” by changing the “allocation method-
ology for retirement benefits earned by USPS workers before 1971.” Id.
at 410 (statement of Gary M. Mulloy, Chairman & CEO of ADVO, Inc.),
see also, e.g., id. at 133–34 (statement of William Burrus, President of
American Postal Workers Union, AFL-CIO). Other witnesses testified
about whether to continue to make USPS responsible for CSRS costs
attributable to its employees’ military service. See, e.g., id. at 41–42
(statement of Postmaster General John E. Potter); id. at 73, 106 (state-
ment of Comptroller General David M. Walker). As required by the 2003
Act, see 2003 Act § 2(e), Congress also received separate reports on the
allocation of military retirement benefits from OPM (joined by Treas-
ury), USPS, and GAO. See OPM & Treasury, Report to Congress on the
Financing of Benefits Attributable to the Military Service of Current and
Former Employees of the Postal Service (2003); USPS, Postal Service
Proposal: Military Service Payments Requirements, P.L. 108-18 (2003);

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                      48 Op. O.L.C. __ (Mar. 26, 2024)

GAO, GAO-04-281, Postal Pension Funding Reform: Review of Military
Service Funding Proposals (Nov. 2003).
   Ultimately, in 2006, Congress adopted further reforms. See Postal Ac-
countability and Enhancement Act, Pub. L. No. 109-435, 120 Stat. 3198
(2006) (“2006 Act”); H.R. Rep. No. 109-66, pt. 1, at 43–45 (2005).
These reforms included adopting one pension-related recommendation
from the 2004 hearings: Congress eliminated the provision of the 2003
Act that directed OPM to include the costs of CSRS benefits attributable
to USPS’s employees’ military service, by amending the “Postal supple-
mental liability”—renamed the “Postal surplus or supplemental liabil-
ity”—to make USPS responsible for only CSRS costs “attributable to” its
employees’ “civilian employment with [USPS].” 2006 Act § 802(a)(2)
(emphasis added).
   These changes resulted in an “immediate overfunding of [USPS’s]
portion of the CSRS Fund” of about $20.3 billion. H.R. Rep. No. 109-66,
pt. 1, at 69, 82. To remedy this overfunding, Congress “terminate[d] the
Postal Service’s obligation to make CSRS [matching] contributions.” Id.
at 69; see 2006 Act § 802(a)(1). The 2006 Act did not, however, address
the other pension-related issue that had featured at the 2004 hearings:
OPM’s decision to use the frozen benefit methodology in calculating the
Postal supplemental liability.

                                    C.

   Since 2006, debate has continued over the allocation of responsibility
for the retirement benefits of former POD employees who continued with
USPS. In January 2010, USPS’s Office of Inspector General (“USPS-
OIG”) commissioned a report reviewing the allocation of CSRS liabilities
between USPS and Treasury. See USPS-OIG, The Postal Service’s Share
of CSRS Pension Responsibility (Jan. 20, 2010) (“USPS-OIG Report”). In
USPS-OIG’s view, the report showed that the frozen benefit methodology
“assigned an unfair share of CSRS liabilities” to USPS. Id. at 3. USPS-
OIG estimated that if OPM had used the service ratio method, USPS
would receive credit for another $75 billion as of 2009. Id. at 3; see also
Hay Group, U.S. Postal Service: Evaluation of the USPS Postal CSRS
Fund for Employees Enrolled in the Civil Service Retirement System at 2,
18–21 (Jan. 11, 2010).

                                    10
           Responsibility for the Cost of Certain USPS Retirement Benefits

   The USPS-OIG Report “quickly sparked interest on Capitol Hill.” Mi-
chael Schuyler, Institute for Research on the Economics of Taxation,
Congressional Advisory: Does the U.S. Treasury Owe $75 Billion to the
Postal Service? at 2 (Mar. 14, 2011). Some legislators likened USPS-
OIG’s claim “to finding a winning lottery ticket,” while others “forcefully
expressed opposition.” Id. at 2, 3. Several legislators introduced bills that
would have precluded OPM from using the frozen benefit methodology,
including a House measure that attracted 144 co-sponsors. See H.R. 5746,
111th Cong. § 2 (2010); see also S. 3831, 111th Cong. § 2 (2010); S.
4000, 111th Cong. § 101(a) (2010). Congress did not adopt any of them.
   In April 2010, Congress held another hearing about USPS’s finances,
and the frozen benefit methodology arose again. OPM’s Director of
Planning and Policy Analysis stated that it was “clear that Congress had
no intention to absolve the Postal Service for increases in retirement costs
due to pay increases” when it adopted the 2003 Act, “but rather that
Congress understood that the inclusion of such costs was an inherent
aspect of the funding mechanism it had established.” Continuing to Deliv-
er at 180 (statement of John O’Brien, Director of Planning & Policy
Analysis, OPM). He explained that while adopting USPS’s service ratio
method “may be worthy of future consideration by the Congress,” OPM
“believe[d] that it [was] not possible based upon current legislation.” Id.
at 178.
   In June 2010—consistent with procedures created in the 2006 Act, see
2006 Act § 802(c)(1)—the Postal Regulatory Commission submitted an
independent actuarial report authored by The Segal Company to Con-
gress, OPM, and USPS. Letter for John Berry, Director, OPM, from Ruth
Y. Goldway, Chairman, Postal Regulatory Commission (June 30, 2010),
enclosing The Segal Group, Inc., Report to the Postal Regulatory Com-
mission: Civil Service Retirement System Cost and Benefit Allocation
Principles (June 29, 2010) (“Segal Report”). The report stated that both
the frozen benefit and service ratio methodologies were “within the range
of acceptable allocations.” Segal Report at 2. It also suggested yet another
methodology—the “benefit accrual” methodology—which it stated would
be “fair and equitable.” Id. at 14. 5 Using this methodology, the Segal

    5 Under the benefit accrual methodology, the employing agency’s contribution is equal

to the overall high-three salary across all of an employee’s federal service multiplied by

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                            48 Op. O.L.C. __ (Mar. 26, 2024)

Report estimated that USPS had overfunded CSRS by $50–$55 billion as
of 2010. Id. at 13.
   OPM reconsidered its use of the frozen benefit methodology in light of
the Segal Report, as required by another provision of the 2006 Act. See
Letter for Ruth Y. Goldway, Chairman, Postal Regulatory Commission,
from John Berry, Director, OPM (Sept. 24, 2010). OPM declined to
modify its methodology, in a letter copied to the relevant congressional
committees. Id. at 4. OPM stated that it “d[id] not have the authority to
make a reallocation in the manner suggested by the Segal report.” Id. And
a few months later, OPM’s Office of the Inspector General (“OPM-OIG”)
concurred in OPM’s view: OPM-OIG stated that the service ratio and
benefit accrual methodologies would “involve a radical revision” to
Congress’s allocation decisions, and that it would be “highly inappropri-
ate for the OPM to unilaterally make such a decision without a clear
statutory direction from Congress.” OPM-OIG, A Study of the Risks and
Consequences of the USPS OIG’s Proposals to Change USPS’s Funding
of Retiree Benefits at 32–33 (Feb. 28, 2011) (emphasis omitted).
   Congressional committees then asked GAO to examine whether OPM’s
methodology was “consistent with the law.” 2011 GAO Report at 2. GAO
found it was. Id. at 6–9. GAO reasoned that while the 2003 Act required
OPM to “change the funding methodology for USPS,” it did not “change
the underlying allocation of benefit responsibility between USPS and the
federal government.” Id. at 8. GAO also examined the proposals to use
the service ratio methodology or benefit accrual methodology. Id. at 9–19.
GAO concluded that “[a]ll three” fell “within the range of reasonable

the statutory rate for the years the employee spent at the agency (i.e., 1.5 percent for the
first five years of employment, 1.75 percent for the next five, and 2 percent after that, see
5 U.S.C. § 8339(a)). Compared with OPM’s frozen benefit methodology, USPS’s ex-
pected contributions would be less under the benefit accrual methodology. That is because
the benefit accrual methodology assumes that POD (and thus Treasury) will cover the
costs of benefit increases attributable to all pay increases, even those that USPS is respon-
sible for (that is, the methodology would attribute to our hypothetical employee a $30,000
high-three salary as to employment at POD, even though the employee only earned this
amount at USPS). Compared with USPS’s service ratio methodology, USPS’s expected
contributions would be more under the benefit accrual methodology. That is because
former POD employees typically accrued greater benefits during their years at USPS
owing to the fact that they were at USPS in later stages of their careers. See supra Part
I.A.

                                            12
           Responsibility for the Cost of Certain USPS Retirement Benefits

actuarial methods.” Id. at 14. But GAO emphasized that the decision of
which methodology to use was a “policy choice” and that, in its view,
Congress had required OPM to use the frozen benefit methodology. Id. at
9. GAO also noted that using a different methodology would “result in a
significant transfer of pension costs”—between $56 and $85 billion—“to
the federal government and thereby to taxpayers.” Id. at 2, 9, 10.
   GAO’s report did not end Congress’s involvement with USPS’s financ-
es. Since that report, OPM’s use of the frozen benefit methodology has
come before Congress again and again. 6 Legislators from both chambers
have introduced additional bills that would have forbidden OPM from
using the frozen benefit methodology, with one House measure gathering
230 co-sponsors. 7 But none have become law, while Congress has taken
steps to relieve USPS of other financial responsibilities. In 2009, Con-
gress reduced the amount that USPS must contribute to the Postal Service
Retiree Health Benefits Fund under the 2006 Act from $5.4 billion, see
2006 Act § 803(a)(1)(B), to $1.4 billion, see Continuing Appropriations
Resolution, 2010, Pub. L. No. 111-68, div. B, § 164(a), 123 Stat. 2023,
2043, 2053 (2009). After 2009, USPS failed to make several payments to
the Postal Service Retiree Health Benefits Fund as required under the
2006 Act. H.R. Rep. No. 117-89, pt. 1, at 19 (2021). In 2022, Congress
eliminated USPS’s obligation to do so, as part of a package of reforms
designed to help USPS “remain financially viable.” Id. at 17; see USPS
Fairness Act, Pub. L. No. 117-108, § 102(c)(1), 136 Stat. 1127, 1138,
1139–40 (2022).

   6 See, e.g., Kevin R. Kosar, Cong. Research Serv., R41024, The U.S. Postal Service’s

Financial Condition: Overview and Issues for Congress at 9–11 (Jan. 27, 2012); Katelin
P. Isaacs & Annie L. Mach, Cong. Research Serv., R43349, U.S. Postal Service Retiree
Health Benefits and Pension Funding Issues at 8–10 (updated Jan. 7, 2015); USPS-OIG,
Update on the Postal Service’s Share of CSRS Pension Responsibility at 1–7 (May 7,
2018) (estimating that, as of 2016, USPS’s portion of CSRS assets would have been
$110.8 billion larger under the service ratio method and $79.8 billion under the benefit
accrual method); Legislative Proposals to Put the Postal Service on Sustainable Financial
Footing: Hearing Before the H. Comm. on Oversight & Reform, 117th Cong. 11, 14
(2021).
    7 See H.R. 1351, 112th Cong. § 2 (2011); see also H.R. 3174, 112th Cong. § 2 (2011);

S. 1853, 112th Cong. § 101 (2011); H.R. 3591, 112th Cong. § 101 (2011); S. 1688, 112th
Cong. § 3 (2011); S. 1649, 112th Cong. § 2 (2011); H.R. 630, 113th Cong. § 101 (2013);
S. 316, 113th Cong. § 101 (2013).

                                          13
                       48 Op. O.L.C. __ (Mar. 26, 2024)

                                     II.

   Current law requires USPS to “pay” the “Postal . . . supplemental liabil-
ity” calculated by OPM—which is based in part on what CSRS “benefits
payable . . . to current or former [USPS] employees” are “attributable to
civilian employment with” USPS. 5 U.S.C. § 8348(h)(1)(A), (h)(1)(B),
(h)(2)(B), (E) (emphasis added). This dispute concerns what benefits are
“attributable to” USPS employment, and in particular, whether USPS is
required to pay the full cost of CSRS benefits that result from pay raises
that USPS granted former POD employees after it became independent.
USPS Letter at 1–2. As noted at the outset, we believe USPS is so re-
quired.

                                     A.

   As discussed above, Congress has enacted three key statutes addressing
the allocation of responsibility for pay raises that USPS granted former
POD employees. In all three, we believe Congress allocated to USPS the
responsibility to fund the full cost of any CSRS benefits increases result-
ing from pay raises USPS granted to former POD employees.

                                     1.

   Congress first spoke to this issue in the 1974 Act, which explicitly ad-
dressed the question we have been asked to answer. That Act provided
that “[n]otwithstanding any other statute,” USPS “shall be liable for that
portion of any estimated increase in the unfunded liability of the Fund
which is attributable to any benefits payable from the Fund” to active and
retired USPS officers and employees (and their survivors) when the
increase resulted from USPS actions that “authorize[d] increases in pay on
which benefits are computed.” 1974 Act § 1. As we have explained, USPS
and OPM agree that under this provision USPS bore responsibility “for
the full CSRS effects of [its] employees’ pay increases, including effects
of those pay increases on benefits attributable to transitional employees’
years with the POD.” USPS Letter at 3; see OPM Letter at 6–7 (similar).

                                     14
         Responsibility for the Cost of Certain USPS Retirement Benefits

                                       2.

    Congress returned to this issue in 2003, when it repealed the provision
in the 1974 Act that discussed the allocation of responsibility for pay
increases and replaced the provision with a two-prong system modeled
after FERS. USPS argues that these actions granted OPM “discretion to
make a fresh determination regarding an appropriate allocation methodol-
ogy.” USPS Letter at 2. Conversely, OPM maintains that the new two-
pronged system continued to require the same allocation. OPM Letter at
13. Like GAO before us, we agree with OPM. When read in context, we
think the controlling text makes clear that Congress did not confer on
OPM the discretion USPS claims.
    We begin with the first prong of Congress’s 2003 system. The text of
the 2003 Act expressly changed USPS’s matching contributions to specify
that USPS “shall” “contribute[]” an amount based on “dynamic assump-
tions”—defined to include “increases in rates of basic pay” and “rates of
price inflation.” 2003 Act § 2(a)(1), (a)(3), (b)(1). We agree with GAO
that “[b]ecause these dynamic assumptions include projections of future
pay increases, the consequence of the 2003 Act was to leave the underly-
ing 1974 allocation unchanged, notwithstanding the removal of the explic-
it allocation provision.” 2011 GAO Report at 29. In particular, by requir-
ing USPS to make contributions based on projected “increases in rates of
basic pay,” 2003 Act § 2(a)(3), without exception, this text is hard to
square with USPS’s position. That position posits that the 2003 Act au-
thorized OPM to determine that USPS should not bear responsibility for
costs associated with pay increases for USPS’s former POD employees.
    Moreover, the legislative history confirms that Congress understood
this provision to have mooted the need for the separate payments required
by the repealed 1974 Act provision. Because USPS’s contributions to
CSRS under the 2003 Act would “include[] the effects of future employee
pay raises and retiree COLAs, the separate payments that USPS [was]
required to make under [the 1974 Act] to fund the future increases in
CSRS annuities that result from pay raises and COLAs would no longer
be necessary.” S. Rep. No. 108-35, at 2. “Consequently” the 2003 Act
“repeal[ed] the provisions of [the 1974 Act]” expressly requiring those
separate payments. Id. (emphasis added). Congress thus did not repeal the
1974 Act provision in order to give OPM “discretion” to set a different

                                       15
                       48 Op. O.L.C. __ (Mar. 26, 2024)

allocation between USPS and Treasury, as USPS claims. USPS Letter at
2. Congress did so because it understood the 2003 Act, via a different
mechanism, to continue to dictate the same allocation.
   We are unpersuaded by USPS’s attempt to dismiss the significance of
this provision. Per USPS, the argument we have just sketched “conflates
two separate concepts: the allocation of funding responsibility between
Treasury and the Postal Service, and the methodology for computing
[USPS’s] allocated share.” Id. at 11. But while USPS is right that those
issues differ, this provision of the 2003 Act provides a rule that governs
both: When it specifies that USPS contributions must include costs re-
flecting “increases in rates of basic pay,” 2003 Act § 2(a)(3), it simultane-
ously dictates that USPS—rather than Treasury—is responsible for those
amounts and provides a methodology for computing USPS’s share.
   The second prong of Congress’s 2003 system—the Postal supplemental
liability—also did not confer on OPM the discretion that USPS claims.
That provision states that the Postal supplemental liability is “the actuarial
present value of all future benefits . . . attributable to the service of cur-
rent or former employees of the United States Postal Service”—i.e., the
cost of the CSRS benefits owed—minus the amount of CSRS revenues
credited to USPS and its employees, which included the present value of
future pay deductions and contributions, the portion of the Fund attributa-
ble to payments already made by USPS and its employees (including
earnings on those payments), and “any other appropriate amount, as
determined by [OPM] in accordance with generally accepted actuarial
practices and principles.” Id. § 2(c).
   Read literally, the cost side of this provision could make USPS respon-
sible for the cost of all CSRS benefits accrued by USPS employees—
whether accrued while working for USPS, POD, or some other component
of the federal government whose employees participated in CSRS. At the
time the 2003 Act was adopted, as today, the word “service” meant “em-
ployment creditable under [5 U.S.C. §] 8332.” 5 U.S.C. § 8331(12)
(2000). And section 8332 provided that an employee’s “service . . . shall
be credited from the date of original employment to the date of separation
on which title to annuity is based in the civilian service of the Govern-
ment.” Id. § 8332(b) (Supp. III 2003) (emphasis added). To be sure, OPM
has not adopted such a literalist reading, and the legislative history cuts
strongly against reading the 2003 Act to work so drastic a change: As the

                                     16
          Responsibility for the Cost of Certain USPS Retirement Benefits

report from the Senate Committee on Governmental Affairs makes clear,
the 2003 Act “continue[d] the Postal Service’s liability for the retirement
costs attributable to its employees covered by the CSRS, which was
imposed when the [POD] became the self-supporting [USPS] in July
1971.” S. Rep. No. 108-35, at 3 (emphasis added). But certainly, neither
the text nor the legislative history supports USPS’s position that the 2003
Act worked a drastic change in the opposite direction and permitted OPM
to lift USPS’s responsibility for costs attributable to post-1971 pay in-
creases.
   USPS does not rely solely on the cost side of the 2003 Act’s Postal
supplemental liability. Instead, USPS also focuses on the revenue-side
provision requiring OPM, when calculating the Postal supplemental
liability, to take into account “any other appropriate amount, as deter-
mined by [OPM] in accordance with generally accepted actuarial practices
and principles.” 5 U.S.C. § 8348(h)(1)(B)(iii). In USPS’s view, this provi-
sion allows OPM to calculate the supplemental liability using “modern
actuarial and accounting principles,” USPS Letter at 11, and to change the
method of attributing CSRS costs for former POD employees as between
USPS and Treasury.
   We disagree, as this revenue-side provision ill fits the purpose to which
USPS would put it. To begin, the cost side, not the revenue side, governs
the allocation of responsibility for benefits for former POD employees. In
addition, the 2003 Act lifted this provision wholesale from the statutory
scheme governing FERS. 2011 GAO Report at 29; see OPM Letter at 17–
18. According to OPM, “[i]n calculating the supplemental liability under
FERS since its enactment in 1986, OPM has interpreted the phrase ‘any
other appropriate amount’ narrowly and uses it to apply to overdue pay-
ments.” OPM Letter at 18. We do not think this revenue-side FERS trans-
plant can plausibly be read to authorize OPM to change the basic alloca-
tion of CSRS costs as between USPS and Treasury. Congress generally
does not “alter the fundamental details of a regulatory scheme in vague
terms or ancillary provisions—it does not, one might say, hide elephants
in mouseholes.” Whitman v. Am. Trucking Ass’ns, Inc., 531 U.S. 457, 468
(2001).
   Moreover, widening the lens to capture the 2003 Act’s broader history
makes clear that Congress did not intend to work a revolution in the basic
allocation of responsibility. That history starts with the problem the Act

                                        17
                       48 Op. O.L.C. __ (Mar. 26, 2024)

sought to solve. As we have explained, the Act grew out of GAO’s re-
quest that OPM determine whether USPS “was paying more or less than
appropriate to cover payments for [CSRS] for which it [was] responsible.”
H.R. Rep. No. 108-49, at 5. And when that analysis resulted in “good
financial news” for USPS and showed an overfunding of more than $70
billion, OPM drafted legislation to correct that overfunding. 2002 James
Letter at 1, 3; S. Rep. No. 108-35, at 2–3. No part of the problem Con-
gress sought to solve concerned the allocation of benefit costs for USPS
employees who worked at POD.
   That history also includes—critically—how OPM calculated USPS’s
overfunding. OPM did so based on the same USPS/Treasury allocation
that had endured since 1974: namely, USPS would continue to bear re-
sponsibility for all increases in CSRS benefits attributable to pay increas-
es that USPS granted, including as to increases in benefits accrued for
service at POD. See Methodology Report, reprinted in Continuing to
Deliver at 262–63. Nor did this assumption simply lurk, undisclosed, in
OPM’s files. The Board, Treasury, and OMB all reviewed OPM’s meth-
odology and either “agreed with” or “concurred in” OPM’s findings. 2002
James Letter at 2. And while GAO disagreed with OPM’s assumptions in
other respects, GAO—in analysis provided to Congress itself—did not
question OPM’s “methodologies for allocating estimated benefit pay-
ments and other expenses between service rendered before and after . . .
the effective date of the Postal Reorganization Act.” 2003 GAO Analysis
at 53. Absent a clearer signal, we will not read the 2003 Act to have
upended this shared understanding.
   Finally, the relevant history encompasses the dollars-and-cents effects
Congress anticipated the 2003 Act would yield. As we have explained,
OPM estimated that the Act would save USPS between $2.5 and $2.9
billion a year, see 2002 James Letter at 2, or about $78 billion total, see
Methodology Report, reprinted in Continuing to Deliver at 260; S. Rep.
No. 108-35, at 2–3. CBO projected a similar magnitude: “$3 billion to $5
billion a year.” S. Rep. No. 108-35, at 10. Yet under USPS’s reading, the
Act could have saved USPS—and thus cost Treasury—more than twice as
much: an additional $110.8 billion (using the service ratio method) or
$79.8 billion (on the benefit accrual method). See USPS-OIG, Update on
the Postal Service’s Share of CSRS Pension Responsibility at 1–7 (May 7,
2018); cf. S. Rep. No. 108-35, at 2–3. With the 2003 Act so focused on

                                     18
         Responsibility for the Cost of Certain USPS Retirement Benefits

USPS’s finances, we are reluctant to adopt a reading that “would knock
. . . entirely out of whack” the “public budgetary assumptions relied on by
all actors during the enactment process.” Abbe R. Gluck, Congress,
Statutory Interpretation, and the Failure of Formalism: The CBO Canon
and Other Ways That Courts Can Improve on What They Are Already
Trying to Do, 84 U. Chi. L. Rev. 177, 189 (2017); cf. Heckler v. Turner,
470 U.S. 184, 206 (1985) (“hesitat[ing]” to adopt an interpretation at odds
with Congress’s “budgetary objectives . . . particularly when the infor-
mation provided Congress by its own Budget Office, on which it presum-
ably relied, belies that conclusion”).

                                       3.

   The last key piece of legislation is the 2006 Act, which USPS claims
granted OPM the discretion to revise the allocation methodology when it
eliminated the matching-contribution provision of the 2003 Act that
expressly made USPS responsible for costs stemming from “increases in
rates of basic pay” granted by USPS. USPS Letter at 11.
   Again, we do not agree that this change—to the first prong of the 2003
Act’s two-prong system—changed the settled allocation of responsibility
for costs attributable to USPS’s pay increases. Instead, the change ad-
dressed a different issue entirely: USPS employees’ military and volun-
teer service. As we have explained, Congress in 2006 reversed its 2003
decision to make USPS responsible for the CSRS costs attributable to
that service. See H.R. Rep. No. 109-66, pt. 1, at 69. So Congress tweaked
the second prong of its allocation system to peg the supplemental liability
to the “present value of all future benefits payable” to current or former
USPS employees “attributable to civilian employment” with USPS. 2006
Act § 802(a)(2) (emphasis added). And because that change resulted in
an “immediate overfunding of [USPS’s] portion of the CSRS Fund” of
about $20.3 billion, H.R. Rep. No. 109-66, pt. 1, at 69, 82, Congress
eliminated the matching-contribution requirement, see 2006 Act
§ 802(a)(1). Neither change, however, altered the basic allocation that
had endured since 1974. Hence, after the 2006 Act as before, costs result-
ing from USPS-granted pay increases remained “attributable to” USPS.
   Once more, the legislative history reinforces this conclusion. As we
have explained, OPM put its position on this issue before Congress in a
July 2003 report on the methodology it would use in calculating the 2003

                                       19
                       48 Op. O.L.C. __ (Mar. 26, 2024)

Act’s savings for USPS—a report that sparked an exchange of letters
among OPM, USPS, and the CSRS Board of Actuaries. Methodology
Report, reprinted in Continuing to Deliver at 262–63; see supra Part
I.B.3. Then, witnesses at the hearings that yielded the 2006 Act com-
plained about both the frozen benefit methodology and about forcing
USPS to pay for costs related to military and volunteer service. Supra
Part I.B.3. Yet Congress in the 2006 Act addressed only the second set of
complaints. Nothing we have found in the Act’s text or legislative history
indicates that Congress understood the Act to permit a change in USPS’s
responsibility for the costs related to post-1971 pay raises. And again, the
cost estimates confirm that Congress foresaw no such thing. Congress
received OPM’s and CBO’s estimate that, thanks to the 2006 Act’s
changes to the CSRS funding methodology, USPS had already overfund-
ed its CSRS obligations by about $20.3 billion. H.R. Rep. No. 109-66, pt.
1, at 82–83. But had the Act also relieved USPS of responsibility for
post-1971 pay increases, by USPS’s calculations, it could have yielded
around an additional $86 billion for USPS. See 2004 Potter Letter at 2.
We do not think the 2006 Act can reasonably be read to permit so stark a
departure.

                                     B.

   Post-2006 events confirm our conclusion. Congress has known about
OPM’s consistent interpretation for decades, since it enacted the 2003 and
2006 Acts. Supra Parts I.B.3 and I.C. And in the years since the 2006 Act,
OPM’s decision to use the frozen benefit methodology has come before
Congress again and again—in a GAO report, Congressional Research
Service reports, USPS-OIG reports, and at hearings. See supra Parts I.B.3
and I.C and note 6. Yet Congress has not enacted any of the 11 bills that,
since 2010, members of Congress have introduced to prohibit OPM from
using the frozen benefit methodology, including a House measure that
attracted 230 co-sponsors. See supra Part I.C and note 7. And all the
while, Congress has acted to relieve USPS of other obligations to address
urgent concerns about USPS’s financial health, including (in 2009 and
2022) reducing USPS’s required contributions to the Postal Service Retir-
ee Health Benefits Fund. See Pub. L. No. 111-68, div. B, § 164(a), 123
Stat. at 2053; Pub. L. No. 117-108, § 102(c)(1), 136 Stat. at 1139–40.

                                     20
         Responsibility for the Cost of Certain USPS Retirement Benefits

   It is thus “hardly conceivable that Congress . . . was not abundantly
aware of what was going on.” Bob Jones Univ. v. United States, 461 U.S.
574, 600–01 (1983). Its failure to act thus “provides added support for
concluding” that Congress has “acquiesced” in OPM’s longstanding and
consistent approach. Id. at 601. Moreover, even as Congress has repeated-
ly declined to adopt legislation that would have overridden OPM’s alloca-
tion of responsibility for post-1971 pay increases, it has relieved USPS of
certain other financial obligations. “Taken together, these actions by
Congress” further “preclude” USPS’s argument that OPM has discretion
to revisit the matter. FDA v. Brown & Williamson Tobacco Corp., 529
U.S. 120, 155 (2000); see id. at 155–56 (distinguishing “simple inaction”
that “purportedly represents [Congress’s] acquiescence” from when
Congress has “affirmatively acted to address” a problem by other means);
see also Legal Authority of the Department of the Treasury to Issue Regu-
lations Indexing Capital Gains for Inflation, 16 Op. O.L.C. 136, 155–56
(1992) (explaining that, where Congress has long been aware of an issue
created by an agency’s construction and addressed it through other means,
it is a “particularly compelling case for concluding that Congress has
ratified” the agency’s interpretation).

                                      III.

   We conclude that USPS is required to pay the full cost of CSRS bene-
fits attributable to USPS’s actions to increase its employees’ pay since
July 1, 1971, including with respect to increases in benefits accrued
during those employees’ years of service at POD.

                                   CHRISTOPHER C. FONZONE
                                    Assistant Attorney General
                                     Office of Legal Counsel

                                       21