SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction

II. Proposal

III. Notice and Comment

IV. Ordering Paragraphs

I. Introduction

On October 7, 2026, the Postal Service filed a petition pursuant to 39 CFR 3050.11 requesting that the Commission initiate a rulemaking proceeding to consider changes to analytical principles related to periodic reports.^[1] The Petition presents a proposal to establish a methodology for the treatment of expenses for current retiree health benefits (RHB) top-up payments required under the Postal Service Reform Act (PSRA) that must be paid into the Postal Service Retiree Health Benefits Fund (PSRHBF). Petition at 1.

II. Proposal

Background. Under the PSRA, the Postal Service must make payments into the PSRHBF that are equal to “ `the amount (if any) that Government contributions required to be paid from the Fund under section 8906(g)(2)(A) exceeded the estimated net claims costs under the enrollment of the individuals described in section 8906(g)(2)(A).'” Petition, Proposal at 1. The Office of Personnel Management (OPM) calculates these payments, referred to as top-up payments, “based on current retirees' estimated healthcare claims costs, their health insurance premiums and contribution shares, and administrative expenses[,]” and they “begin accruing in FY 2026.” Id.

Historically, RHB expenses “were treated as variable to the same degree and distributed in the same manner as all postal service labor,” which the Postal Service calls the “ `composite labor approach.' ” Id. at 2. The Postal Accountability and Enhancement Act (PAEA) altered this approach because the Postal Service began accruing RHB “in two parts: (1) RHB expenses for current retirees (a continuation of `pay-as-you-go' expenses) and (2) annual prefunding payments for future retirees.” Id. Costs were therefore divided between current-year costs, which were “treated using the composite labor approach,” and prior-year costs, which were “treated as institutional.” Id. at 3. After FY 2017, when RHB for future retirees should have been fully prefunded pursuant to PAEA and “the statutorily mandated prefunding payments were no longer required[,]” the Postal Service began to accrue normal costs, which were “treated using the composite labor approach[,]” and “amortization expenses associated with the unfunded portion of the PSRHBF obligation[,]” which were “treated as unrelated to current-year volumes and therefore treated as institutional.” Id.

After the PSRA repealed the prefunding requirement and “cancelled the past due (amortization) payments[,]” “[t]he only RHB expenses to be incurred by the Postal Service going forward are payments associated with current retirees.” Id. at 3-4. And these payments were only “set to begin once OPM determined if a `top-up' payment was due (expected no later than June 30, 2026) or if the PSRHBF [was] exhausted.” Id. at 4. Thus, “[b]eginning in FY 2026, the Postal Service began accruing expenses associated with the RHB top-up payments for current retirees.” Id. OPM determined that these expenses totaled $726 million for FY 2026. Id.

Proposal. The Postal Service proposes to treat current RHB top-up payments as “variable to the same degree and distributed in the same manner as all labor.” Id. at 6. It states that there are “two key aspects to examine when considering the treatment of the top-up payment expenses: The relationship between the payment schedule and the cost accrual, and the past treatment of both the funds currently in the [PSRHBF] and the RHB expenses for current retirees prior to the PAEA.” Id.

Regarding the first aspect, the Postal Service states that prior to the PAEA, there was a “time disparity between the accrual of RHB expenses and the payment schedule[ ]” because “RHB expenses for current retirees were ( printed page 65148) recognized at the time of the cash outlay . . . as opposed to when those benefits were earned during the now-retired beneficiaries' employment.” Id. Regardless of this fact, these “payments were attributed to products on the basis of all labor.” Id. The Postal Service states that this was similar to how the Commission had historically treated attributing payments to the Civil Service Retirement and Disability Fund (CSRDF) deficit, where the Commission approved a methodology that attributed “the current-year first installment in the amortization schedule . . . using the composite labor approach.” Id. at 6-7. Subsequent amortization schedule payments were similarly “attributed using the same current-year composite labor approach[ ]” despite stemming from prior years. Id. at 7.

Regarding the second aspect, the Postal Service states that top-up funds are one of several sources that make up the PSRHBF, and the relevant sources also include: (1) a surplus from the CSRDF, which contained multiple funding sources, including “employer matching contributions, payments for unfunded liabilities associated with general pay increases, and payments for unfunded liabilities associated with annuitant [cost of living adjustments (COLAs)]” that were attributed as they accrued and, in the case of employer matching contributions were “included as employee benefit costs in the relevant Cost Segments[ ]” while the “unfunded liability payments associated with general pay raises and annuitant COLAs” were “partitioned into current- and prior-year expenses[ ]” that were “variable to the same degree and distributed in the same manner as all labor[;]” (2) an escrow account containing the “savings” that resulted “from changing the pension funding assumptions before and after the Postal Civil Service Retirement System Funding Reform Act of 2003[,]” the expenses of which were treated as institutional; and (3) “the prefunding payments required by the PAEA[,]” which “were attributed at the time of payment using the mixed approach” discussed above. Id. at 7-8.

Under this backdrop, the Postal Service proposes that top-up payments be treated similarly to “[n]early all funds” within the PSRHBF. Id. at 9. According to the Postal Service, “it is sensible” to treat top-up payments as attributable to products, which the Postal Service states is “consistent with past contributions such as the unfunded liability payments and prefunding payments[ ]” as well as consistent with “the treatment of RHB expenses for current retirees under the `pay-as-you-go' system.” Id. According to the Postal Service, “[t]reating the top-up payments as unrelated to products, or as institutional costs, would reverse nearly three decades of [precedents] pertaining to the treatment of RHB expenses for current retirees” and would be “inappropriate” because “[t]he payments for current retirees reflect benefits earned during their employment[ ]” and treating them as institutional would lead “to under-attribution of expenses associated with mail classes and services[,]” which would negatively impact its ability to accurately cost and price its “products, services, and worksharing discounts.” Id. at 9-10.

Thus, according to the Postal Service, its “preferred approach” for top-up payments is the composite labor methodology because it reflects prior Commission precedent “for attributing servicewide expenses with similar characteristics[,]” is “consistent with past treatment and the treatment of other funds in the PSRHBF[,]” and because “attribution based on past volumes or labor usage is wholly inappropriate under the Postal Service's Commission-approved costing methodologies.” Id. at 10. It proposes that the Commission “approve the attribution of the top-up payments under the composite labor approach.” Id. at 13.

Rationale. The Postal Service proposes returning to “the composite labor approach for expenses associated with retiree health benefits for current retirees, thereby treating the top-up payment expenses as variable to the same degree and distributed in the same manner as all labor.” Id. at 6. The Postal Service represents that this is “a return to the Commission-approved methodology used between FY 1988 and FY 2006,” as well as “a continuation of the attribution of RHB expenses for current retirees generally employed between FY 1988 and FY 2016.” Id.

Impact. Using a FY 2026 top-up payment of $726 million, the Postal Service provided the impact of the proposal on FY 2025 unit costs. See id. at 11-12, Table 4. The Postal Service represents that overall, the proposal will result in a 0.8 percent increase in total costs and a 0.85 percent increase in total volume variable and product specific costs. Id.

III. Notice and Comment

The Commission establishes Docket No. RM2027-1 for consideration of matters raised by the Petition. More information on the Petition may be accessed via the Commission's website at www.prc.gov. Interested persons may submit comments on the Petition and Proposal no later than November 19, 2026. Pursuant to 39 U.S.C. 505, Cassie D'Souza is designated as an officer of the Commission (Public Representative) to represent the interests of the general public in this proceeding.

IV. Ordering Paragraphs

It is ordered:

1. The Commission establishes Docket No. RM2027-1 for consideration of the matters raised by the Petition of the United States Postal Service to Initiate a Proceeding to Change Analytical Principles, filed October 7, 2026.

2. Comments by interested persons in this proceeding are due no later than November 19, 2026.

3. Pursuant to 39 U.S.C. 505, the Commission appoints Cassie D'Souza to serve as an officer of the Commission (Public Representative) to represent the interests of the general public in this docket.

4. This Order, or abstract thereof, shall be published in the Federal Register .