Senate panel passes Postal Service overhaul bill

Marilyn Simms drops off her mail in a box outside the temporarily closed U.S. Post Office located in Bethesda, Maryland, November 7, 2003.

WASHINGTON (Reuters) - A Senate panel approved on Wednesday legislation to free up about $7 billion to help sustain the nearly bankrupt U.S. Postal Service while the mail carrier fixes its finances.

The bill, offered by a bipartisan group of four senators, would allow the agency, the world's largest mail carrier, to dip into surplus funds in a retirement account to use toward retirement incentives for workers and to make other payments.

It will now go to the full Senate for a vote, though it is unclear when that will occur.

The Postal Service expects to announce it lost as much as $10 billion in fiscal year 2011 when it reports its annual earnings next week.

It has seen mail volumes plummet due to the growing use of email and the recession. A heavy annual payment to prefund retiree health benefits also has hurt.

"The Postal Service literally will not survive without fundamental legislative and administrative reforms," said Senator Susan Collins, one of the bill's sponsors.

"In our bill, we are asking -- no, we're directing -- the Postal Service to make painful choices to reduce costs and not simply slash services and raise prices, which would only add to its death spiral."

The Postal Service, which receives no taxpayer funds to support its operations, supports a mail industry worth an estimated $1 trillion that employs about 8 million people.

Officials have scrambled to cut costs and are studying thousands of money-losing post offices, although they recently implemented a six-week moratorium on closings.

Senators Joe Lieberman, Scott Brown and Tom Carper also sponsored the Senate bill, which reduces annual payments for health benefits and allows the Postal Service to offer some nonpostal products.

(Reporting by Emily Stephenson; Editing by Paul Simao)