US Postal Service defaults on $5.6 billion retiree benefit pre-payment

Even if the United States Postal Service is able to push through its proposed three cent price hike, it won’t be enough to make up for the gigantic shortfall that recently came due – and the USPS was unable to pay.

Postmaster General Patrick Donahue warned everyone that they would be forced to default on a $5.6 billion Retiree Health Benefits pre-funding payment due on September 30. When combined with a $5.5 billion payment missed in August, it brings the missed pre-payments to a total of $11.1 billion for the fiscal year that ended September 30.

At the time of his announcement, Donahue said the Postal Service was in trouble – specifically “in the midst of a financial disaster.” He didn’t paint a rosy picture going forward either, as he described the USPS as being “burdened by an outdated and inflexible business model.”

This is not the first time this has happened. During fiscal year 2012, the Postal Service lost just under $16 billion, of which more than $11 million was from defaulting on payments it owed to pre-fund retirees’ health benefits.

Worse yet, during 2012 the Postal Service reached its debt limit of $15 billion (established by Congress), at which point it was forbidden to borrow more from the US Treasury. (Note: The Postal Service is not allowed to borrow from private banks, according to CNN.

In addition to the proposed increase on postage stamps, the Postal Service plans to make up some of the deficit by eliminating 150,000 jobs between now and 2015.

USPS Spokeswoman Patricia Licata summed up the situation in an e-mail to CNN Money: “The Postal Service continues to be in a financial crisis. Without passage of comprehensive legislation as outlined in our Five-Year Business Plan, current projections indicate that we will have a dangerously low level of liquidity in the foreseeable future.”