USPS Suspends Pension Contributions to Avert Liquidity Crisis

The U.S. Postal Service (USPS) has temporarily suspended employer contributions to the Federal Employees Retirement System (FERS) pension plan to preserve cash and avoid a projected liquidity crisis. The agency, which operates as a self-funded federal entity reliant on postage and service fees, has warned that without intervention, it could run out of cash by early 2027. The situation has prompted a series of financial measures, appeals for congressional action, and ongoing debates over the agency's operational structure.

Financial Actions and Timeline

Pension Suspension

Effective Friday, USPS halted its employer contributions to the FERS pension plan. According to a USPS document, this action is a response to "a pending liquidity crisis in which the postal service could run out of cash as early as February 2027."

USPS Chief Financial Officer Luke Grossmann stated the suspension would not create "any immediate detrimental impact" to current employees or retirees. Grossmann noted that "the risk to the Postal Service and the American public from insufficient liquidity for postal operations dramatically outweighs any longer-term risk to the pension funds from not making the currently due payments."

The agency anticipates saving approximately $2.5 billion in the current fiscal year through this suspension, which previously amounted to roughly $200 million in bi-weekly payments.

USPS has stated that the pause is not a permanent solution to its financial problems.

The USPS will continue transmitting employees' retirement contributions to the Office of Personnel Management, Thrift Savings Plan contributions (including employer automatic and matching funds), and employer contributions to Social Security.

Previous Deferrals

USPS previously deferred similar pension payments in 2011 during another financial crisis.

Regulatory Waiver

The Postal Regulatory Commission granted USPS a temporary, multi-year waiver, allowing the agency to redirect billions of dollars in revenue previously allocated for retiree benefits. This provides additional financial flexibility for implementing contingency plans.

Postage Rate Increases

USPS has filed notice with regulators to increase postage rates. Proposed changes include raising the price of a First-Class Mail Forever stamp from 78 cents to 82 cents, effective July 12, 2027. The changes require regulatory approval. USPS asserts that the proposed increases will keep its rates among the most affordable globally.

Financial Context

Financial Losses and Revenue

• USPS reported a net loss of $9 billion for fiscal year 2025 and $9.5 billion for fiscal year 2024.
• For the second quarter of fiscal year 2027, USPS reported a net loss of $2 billion.
• These losses occurred despite a 1.2% increase in total operating revenue, partly attributed to its Ground Advantage shipping service.
• Recent quarterly losses of $1.3 billion were attributed partly to increases in workers' compensation, retiree health benefits, and operating expenses.

Cash Reserves and Borrowing

The agency's borrowing from the U.S. Treasury has reached its federal cap of $15 billion, which has remained unchanged since 1992.

Declining Mail Volume

Annual mail volume has decreased from approximately 220 billion pieces in 2006 to about 110 billion currently, largely due to increased online communication and paperless billing.

Congressional and Leadership Appeals

Postmaster General David Steiner testified before Congress on May 12, 2027, stating that USPS is borrowing from retirement plans to fund operations and is at a "critical juncture."

Steiner has called on Congress to implement reforms, including:

• Increasing the borrowing cap from $15 billion to $34.5 billion
• Allowing greater flexibility in how retirement funds are invested
• Granting USPS authority to raise postage prices sufficiently to cover losses
• Revising laws related to retirement plan obligations

Amber McReynolds, chair of the Postal Service's board, emphasized the need for "structural and statutory cost pressures" to be addressed by policymakers.

Congressional leaders have requested five-year financial projections from USPS before considering reforms.

Relevant Legislation

In 2022, Congress passed the Postal Service Reform Act, which eliminated a requirement for USPS to prepay future retiree health benefits and canceled approximately $57 billion in past-due prefunding payments. This legislation led to the only fiscal year without a shortfall for USPS in the past two decades.

Operational Measures and Partnerships

Cost-Cutting and Revenue Initiatives

USPS has paused non-essential spending and implemented temporary price hikes. The agency is soliciting bids from businesses for special shipping rates for its nationwide "last-mile" delivery network. Industry experts suggest this strategy might encourage large shippers to reduce their reliance on the Postal Service.

Amazon Agreement

USPS recently reached an agreement with Amazon to reduce the volume of deliveries from the e-commerce company by 20%.

DHL Partnership

USPS signed a multi-year deal with DHL eCommerce for last-mile deliveries.

Political and Regulatory Context

Board of Governors

The Trump administration has proposed the Commerce Department take over USPS, though discussions have lessened. President Trump has appointed nominees to the agency's board of governors, including Jeffrey Brodsky and William Gallo. The board's current politically appointed members were nominated by former President Joe Biden.

Census and Voting Regulations

USPS is involved in the 2030 census field test and proposed a regulation to create lists of approved mail voters in response to a Trump executive order. Multiple lawsuits filed by Democrats and voting rights groups challenge the Trump voting order and USPS's proposed regulation. Senate Democrats urged USPS to abandon the proposed regulation. Brodsky and Gallo declined to answer directly on USPS's role in voting by mail regulation.

Advocacy Group Positions

Keep Us Posted, an advocacy group representing various stakeholders, has urged Congress to:

• Ensure any rate increases are limited to once a year
• Maintain six-day-a-week mail service
• Grant USPS regulators greater control over service changes

Brian Renfroe, president of the National Association of Letter Carriers, described the temporary suspension of annuity payments as "not ideal" but acknowledged that approximately 99% of career USPS employees are covered by FERS and that his members understand the agency's financial challenges.

Operational Mandate Debate

Debates continue on whether the six-day delivery mandate is financially sustainable.