U.S. Postal Service Rescue Plan: End Saturday Mail, Tap Pensions

(Reuters) -- The U.S. Postal Service warned it could become a long-term burden on taxpayers absent legislative change, as the cash-strapped agency put pressure on Congress to allow it to end Saturday delivery and to tap into a retirement-account surplus.

The mail carrier said in a new five-year turnaround plan released on Thursday that multiple changes are needed to stave off billions of dollars in future annual losses.

The Postal Service does not receive taxpayer funds. It has been losing money for years due to shrinking mail volume, high labor costs and a crippling annual payment to prefund retiree health benefits.

The five-year business plan, submitted to Congress, details steps to reduce annual costs by $20 billion by 2015, the amount Postmaster General Patrick Donahoe has said must come out of the budget if the agency is to return to profitability.

Lawmakers in Congress have been working for months on legislation to revive the mail agency, but they remain deeply divided on how to do it. Postal officials say without action from Congress, the service cannot be profitable.

In the absence of legislative reform that quickly enables meaningful operational changes and cost reductions, the Postal Service could incur annual losses as great as $18.2 billion by 2015, Donahoe warned in a letter to lawmakers.

These prospective losses would be unsustainable and would cause the Postal Service to become a long-term burden to the American taxpayer.

The Postal Service lost $3.3 billion in its most recent quarter, much of it due to the benefits prefunding payment. Officials say the agency could be unable to borrow money by this fall, at which point it could default on payments to the federal government in order to keep delivering the mail.

In the new document, drafted with help from General Motors restructuring adviser Evercore Partners, the Postal Service repeated plans to reduce its workforce by leaving empty jobs unfilled and to close post offices and processing facilities.

The agency also said it needs to deliver mail five days a week instead of six, stop the annual prefunding payments, manage its own health plans and transition older employees to Medicare.

These steps, plus the return over two years of about an $11 billion surplus in a postal retirement account, would result in a profit of $2.1 billion for 2012, the document said.

What we've laid out here ... is not a menu of options from which we can select. In fact, we need the whole menu to be accomplished in order to return the Postal Service to where it needs to be, Chief Financial Officer Joe Corbett said during a conference call with reporters.

The Postal Service also said it would like to consider pricing actions such as raising stamp prices to 50 cents apiece.

Many of these changes require permission from Congress. Committees in the House of Representatives and the Senate have passed postal bills, but neither full house has voted.

Donahoe has said neither of the bills goes far enough to allow the agency to return to profitability.

The prefunding has been divisive. A bipartisan Senate bill would spread out the payments over a longer time frame, but many favor ending it entirely. Others argue ending the payments would leave taxpayers on the hook for future retiree benefits.

Lawmakers from both parties have come out against closing post offices and eliminating Saturday mail delivery, though both of the leading bills would allow these with some limitations.

Any plan that calls for cutting Saturday delivery, downsizing our networks and slowing delivery will not restore USPS to profitability, the National Association of Letter Carriers said in a statement on Thursday.

A recent Reuters analysis found that 80 percent of the 3,800 post offices under consideration for closure are located in sparsely populated rural areas. About one-third of the offices fall in communities with limited or no wired broadband Internet access.

(Reporting By Emily Stephenson; Editing by Tim Dobbyn)