Have no fear, Obama will bail them out.

(NY Times) — The Obama administration said on Tuesday that it would seek to save the deficit-plagued Postal Service from an embarrassing default by proposing to give it an extra three months to make a $5.5 billion payment due on Sept. 30 to finance retirees’ future health coverage.

Speaking at a Senate hearing, John Berry, director of the federal Office of Personnel Management, also said the administration would soon put forward a plan to stabilize the postal service, which faces a deficit of nearly $10 billion this fiscal year and had warned that it could run out of money entirely this winter.

“We must act quickly to prevent a Postal Service collapse,” said Senator Joseph Lieberman, independent of Connecticut, who is chairman of the Senate Homeland Security and Governmental Affairs Committee, which held the Tuesday hearing on the Postal Service’s financial crisis.

To help erase the postal service’s deficit, Mr. Donahoe has proposed several painful and controversial steps, among them, eliminating Saturday delivery, closing up to 3,700 postal locations and laying off 120,000 workers — despite union contracts with strict limits on layoffs.

“The Postal Service is on the brink of default,” Mr. Donahoe testified. “The Postal Service requires radical change to its business model if is to remain viable in the future.”. . .

Cliff Guffey, president of the American Postal Workers Union, one of the four postal unions, denounced the post office’s proposal to lay off 120,000 workers. The agency has asked Congress to pass a special law overturning no-layoff provisions in its union contracts. Some of those contracts bar the layoff of any workers with more than six years on the job.

“These proposals are outrageous, illegal and despicable,” Mr. Guffey said.