U.S. official questions Postal Service savings plan

WASHINGTON (Reuters) - The U.S. Postal Service's bid to improve its dire financial situation by gaining broad authority over its retirement and health programs could prove challenging and needs more study, a federal official will tell Congress Tuesday.

The mail agency's recent proposals to opt out of federal programs and operate its own would be complicated to execute and might not save much money, said John Berry, director of the U.S. Office of Personnel Management.

"OPM believes the Postal Service and its employees and retirees are well-served by the existing health benefits program and retirement system," Berry said in testimony prepared for delivery before a Senate committee.

The Postal Service, which lost $3.1 billion last quarter and could lose as much as $10 billion this fiscal year, has asked Congress for a range of solutions to keep it open.

The Senate Homeland Security and Governmental Affairs Committee asked USPS and federal government officials, as well as union representatives and others, to participate in a hearing on the agency's proposals.

Postmaster General Patrick Donahoe said in prepared testimony that spinning off its health plan could reduce operating costs and potentially eliminate a massive payment due each September to prefund retiree health benefits.

The USPS expects to default on the $5.5 billion payment this year.

Berry said some federal health plans could be hard hit if USPS employees were withdrawn, and the agency would have to establish provider networks in rural areas that already exist at low administrative cost under federal plans.

He also said the federal government already is working to reduce the cost of retiree health benefits by better aligning its plans with Medicare.

"OPM believes that the Postal Service and its employees and retirees can also reduce health care costs while maintaining valuable benefits by staying within the (Federal Employee Health Benefits) program," Berry said.

The Postal Service says it needs to significantly reduce payrolls, close processing facilities and post offices, and scrap Saturday delivery and examine many postal routes. Many of these actions require congressional or regulator approval.

The agency also wants a federal retirement fund to return an estimated surplus of about $6.9 billion. Two bills from committee members would address this.

The agency receives no taxpayer money to fund its daily operations and delivers almost half the world's mail. (Reporting by Emily Stephenson; Editing by Cynthia Osterman)