By Emily Stephenson
WASHINGTON (Reuters) - Lawmakers on Thursday advanced legislation to overhaul the financially strapped U.S. Postal Service but removed a plan to immediately give the agency authority to stop Saturday mail delivery.
The House of Representatives Committee on Oversight and Government Reform voted to send Chairman Darrell Issa's postal overhaul bill to the full House, with changes.
Lawmakers voted to allow the agency to designate up to 12 mail delivery holidays each year. Six months after passage of the bill, the Postal Service would be able to ask its regulators for permission to stop Saturday delivery.
The panel also voted to limit the proportion of rural post offices subject to closure and relax the time frame for an upcoming payment to prefund retiree health benefits.
The Postal Service lost more than $3 billion in the third quarter last year and has struggled with falling mail volumes as Americans turn to email and pay bills online.
The agency is looking at thousands of post offices and distribution centers for possible closure, and officials have said they might need to lay off thousands of workers.
"If we do not act now, there will be an enormous, multi-billion-dollar, taxpayer-funded automatic bailout because the Treasury is on the hook ... for Postal Service retirees' benefits even if the Postal Service collapses," Issa warned.
Issa's bill as introduced would have cut Saturday mail delivery, eliminated reduced-rate status for some mail categories, and set up groups to close post offices and overhaul the agency, including renegotiating worker contracts, if the Postal Service defaulted on payments to the government.
Democrats had criticized the plan as anti-labor, and lawmakers from both parties have said ending Saturday mail -- which the Postal Service has said could save about $3 billion per year -- would disproportionately hurt rural communities.
The committee approved several amendments that could make the bill more palatable to rural lawmakers.
An amendment from Republican Representative Jason Chaffetz would allow the Postal Service to establish 12 mail delivery holidays instead of immediately letting it end Saturday delivery.
Another Republican amendment would ease the burden of a massive annual payment the Postal Service must make to prefund retiree health benefits. The Postal Service nearly defaulted on the $5.5 billion payment in September, but Congress at the last minute extended the deadline until mid-November.
The amendment from Representative James Lankford would allow the Postal Service to pay $1 billion this year and make up the rest of the payment in later years.
Democrat Stephen Lynch and other Democrats, along with Postal Service officials, support ending the prepayment.
(Editing by Xavier Briand)