White Paper – HR-WP-14-002 - May 1, 2014

The U.S. Postal Service is a labor-intensive organization; it spent about $47 billion on compensation and benefits in FY 2013, including about $6 billion for retirement benefits. As part of its effort to control personnel costs, the Postal Service has identified the need to create a new retirement plan for future employees.

To that end, the Postal Service requested we benchmark its retirement benefits against similar private and government programs. Benchmarking is useful here because the Postal Service is required to offer benefits that are comparable to those in the private sector. While the Postal Service’s retirement benefits are comparable in many ways to those offered in the private sector, we found that some differences exist.

For one thing, the Postal Service spends a larger percentage of its personnel costs on pensions: 12 percent of total annual compensation and benefits expenses in FY 2011 through 2013 compared with 3.7 percent in the private sector and 9.4 percent for state and local governments.

In addition, federal employee retirement benefits, including those for postal employees, have remained largely unchanged since the Federal Employees Retirement System (FERS) was enacted in 1987. But the pressure of rising pension debt, the increasing mobility of the U.S. workforce, and other factors have led private and some state and local governments to adjust their retirement benefit programs.

The eight benchmarked organizations historically offered defined benefit pension plans that based guaranteed retirement benefits on salary and length of service. But seven of them transitioned, at least partially, to defined contribution retirement benefits plans. Through defined contribution programs such as 401 (k) plans, employees save towards their retirement and their employer can match some or all of the savings. This approach puts the employee in charge of his or her retirement and frees the employer of costly pension programs.

Our recent white paper, Postal Service Retirement Benefits Benchmarking, notes that if the Postal Service decides to change its pension program for future workers, it cannot do so unilaterally and will need congressional approval.

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