It doesn't even make sense for them to be doing this. The money set aside will be worth significantly less in 75 years thanks to inflation. The only reason the requirement exists is because of the typical right-wing strategy of Starve the Beast. Te postal service had no problem whatsoever funding their pensions before this happened.
That's actually the way pensions should be funded. Not as nebulous future payouts based on unrealistically optimistic projections of investment returns [investors.com], which saddle future generations with debt when the actual returns fall short of those projections. It was literally Wimpy's "I'll gladly pay you Tuesday for a hamburger today" ad infinitium. The Republicans caught a lot of flak for changing the requirement, but they correctly saw that the pension funds were being abused to shift debt from the present into the future (instead of giving the union a wage increase, you promise them a bigger pension). They changed the funding requirement to stop that abuse cold. You can no longer promise the postal union barrels of free beer in their retirement, and leave it up to future generations to figure out how to pay for it. You make the promise today, you have to pay for it today. This was crucially needed because without it, wage negotiations amounted to unions demanding the world, and managers agreeing to give it to them because they knew they'd be retired by the time anyone had to figure out how to fulfill their concessions.
Pre-funding the pension and spinning it off so the money is untouchable except by the people who are supposed to receive it prevents the possibility of pension bankruptcy [nytimes.com]. The way most pensions are set up (merely as a separate account within the company) leaves them vulnerable to abuse (embezzlement, underfunding) and bankruptcy. If the company goes bankrupt, the pensioners become merely creditors. They may not get paid until after other creditors, with the possibility of receiving only pennies on each dollar they were promised in pensions if they're far enough down the bankruptcy totem pole.
With a pre-funded pension operating independently (like a 401k or IRA), this cannot happen. The company made an obligation to pay Joe into his retirement, and they put the money to pay for it into his pension plan while he was working, thus insuring he gets paid even if the company ceases to exist. The only catch is instead of giving Joe a guaranteed fixed pension in his retirement, the pension should be defined as $x/mo being invested on his behalf while he's working, and his pension is whatever that works out to after compounding interest when he retires and begins collecting it (since his lifespan and investment growth is unpredictable).
Social Security has the same problem. The money you pay into SS is not being "saved" for your retirement. It's being used to pay current retirees (with a buffer of about a decade). Likewise, when you retire, the money you get from SS will not be money you put into it. It'll be money that the then-current generation of workers are paying into it. This happened because when SS was first enacted, the very first recipients got paid even though they'd never contributed a dime into it. (This is why SS is often accused of being a pyramid scheme, although that's slightly different.) If you want to guarantee SS solvency, you have to change it to a system that's pre-paid, like the USPS pension. Otherwise it could stay solvent or it might not, depending on inflation (cost of living), population growth, and increases in the average lifespan. Right now, there are about 2.9 workers per retiree. As that number goes down (due to decreasing birthrate and increasing lifespan), the risk of SS insolvency goes up.
postal service can stop pre-funding pensions 75 (Score:5, Informative)
postal service can stop pre-funding pensions for 75 years later.
Re: (Score:1)
It doesn't even make sense for them to be doing this. The money set aside will be worth significantly less in 75 years thanks to inflation.
The only reason the requirement exists is because of the typical right-wing strategy of Starve the Beast. Te postal service had no problem whatsoever funding their pensions before this happened.
Re: postal service can stop pre-funding pensions 7 (Score:4, Insightful)
Pre-funding the pension and spinning it off so the money is untouchable except by the people who are supposed to receive it prevents the possibility of pension bankruptcy [nytimes.com]. The way most pensions are set up (merely as a separate account within the company) leaves them vulnerable to abuse (embezzlement, underfunding) and bankruptcy. If the company goes bankrupt, the pensioners become merely creditors. They may not get paid until after other creditors, with the possibility of receiving only pennies on each dollar they were promised in pensions if they're far enough down the bankruptcy totem pole.
With a pre-funded pension operating independently (like a 401k or IRA), this cannot happen. The company made an obligation to pay Joe into his retirement, and they put the money to pay for it into his pension plan while he was working, thus insuring he gets paid even if the company ceases to exist. The only catch is instead of giving Joe a guaranteed fixed pension in his retirement, the pension should be defined as $x/mo being invested on his behalf while he's working, and his pension is whatever that works out to after compounding interest when he retires and begins collecting it (since his lifespan and investment growth is unpredictable).
Social Security has the same problem. The money you pay into SS is not being "saved" for your retirement. It's being used to pay current retirees (with a buffer of about a decade). Likewise, when you retire, the money you get from SS will not be money you put into it. It'll be money that the then-current generation of workers are paying into it. This happened because when SS was first enacted, the very first recipients got paid even though they'd never contributed a dime into it. (This is why SS is often accused of being a pyramid scheme, although that's slightly different.) If you want to guarantee SS solvency, you have to change it to a system that's pre-paid, like the USPS pension. Otherwise it could stay solvent or it might not, depending on inflation (cost of living), population growth, and increases in the average lifespan. Right now, there are about 2.9 workers per retiree. As that number goes down (due to decreasing birthrate and increasing lifespan), the risk of SS insolvency goes up.