By Emily Stephenson

(Reuters) - Legislation to allow the struggling Postal Service to eventually end Saturday mail delivery is expected to be debated in the Senate next week.

Senate Majority Leader Harry Reid is planning a procedural vote as early as Monday evening to begin debating a bipartisan bill that would allow the mail agency to shrink to five-day delivery after two years, according to congressional aides and a chamber schedule.

Senators are still discussing the final shape of the bill with many calling for changes to protect rural post offices and others wanting to curb bonuses for postal service executives.

The mail organization would like to end a massive annual payment to prefund retiree health benefits but the bill would spread the payments over more years.

The Postal Service, which does not receive taxpayer funds, lost more than $5 billion in fiscal 2011 and expects annual losses could reach $18 billion by 2015, absent drastic changes.

The agency says it needs to end Saturday mail delivery, raise stamp prices, close thousands of facilities and tap into a retirement account surplus in order to return to profitability.

A Senate committee voted in November to approve the legislation that also includes using surplus retirement funds to encourage early retirement, and would authorize some new products.

"Clearly we must act, and act quickly, if we hope to save the Postal Service and protect the more than eight million jobs that rely on it," Senator Thomas Carper, a Democrat and one of the bill's four sponsors, said in a statement Thursday.

"This bill - the only bipartisan proposal from members in either chamber - presents a comprehensive solution to the Postal Service's financial challenges," Carper said.

But the bill faces a significant hurdle that may require changes to the bill or a two-thirds majority in the 100-seat chamber to overcome.

Senator Barbara Mikulski said this week she had placed a hold on the postal legislation to protest the agency's plan to close a mail processing facility on Maryland's Eastern Shore, one of more than 200 facilities slated for consolidation.

"My constituents have a right to be heard, they have a right to maintain the standard of delivery service that they currently receive, and they deserve a fair and transparent process for decisions about the Easton area mail processing center," Mikulski said in a letter to Reid on Tuesday.

The leading postal bill in the House of Representatives, which would create oversight groups to close post offices and establish mail delivery holidays instead of ending Saturday mail altogether, will be considered by the House Rules Committee on Monday.

A House subcommittee also will hold a hearing Tuesday on the Postal Service's five-year business plan, released last month.

The plan drew scrutiny for proposing postage rate increases and plans to establish a separate health program instead of enrolling employees in federal health programs.

Postal officials said this plan would save $7 billion per year. In a letter to Postmaster General Patrick Donahoe this week, seven Democratic senators asked how the agency would maintain benefits and manage a health provider network for employees who are spread out across the country, many in rural areas.

(Reporting By Emily Stephenson; Editing by Tim Dobbyn)