The financially strapped U.S. Postal Service is proposing to cut its work force by 20 percent and withdraw from the federal health and retirement plans because it believes it can provide benefits at a lower cost.

The layoffs would be achieved, in part, by breaking labor agreements, a proposal that drew swift fire from postal unions. The plan would require congressional approval but, if successful, could be precedent-setting, with possible ripple effects throughout government. It also would deliver a major blow to the nation's labor movement.

In a notice informing employees of its proposals — headlined "Financial crisis calls for significant actions" — the Postal Service said: "We will be insolvent next month due to significant declines in mail volume and retiree health benefit pre-funding costs imposed by Congress."

During the past four years, the service lost $20 billion, including $8.5 billion in fiscal 2010. In that period, mail volume dropped by 20 percent, because of the continuing loss of mail to the Internet and the decline in advertising caused by the recession.

The USPS plan is described in two draft documents. A "Workforce Optimization" paper acknowledges its "extraordinary request" to break its labor contracts.

"However, exceptional circumstances require exceptional remedies," the document says. "If the Postal Service was a private sector business, it would have filed for bankruptcy and utilized the reorganization process to restructure its labor agreements to reflect the new financial reality," the document adds.

In a white paper on health and retirement benefits, the USPS said it was imperative to rein in health-benefit and pension costs, which are one-third of its labor expenses.

For health-insurance plans, the paper said, the Postal Service wanted to withdraw its 480,000 pensioners and 600,000 active employees from the Federal Employees Health Benefits Program "and place them in a new, Postal Service administered" program. The agency did not say how much its proposed changes would save.

Postal officials have said they will be unable to make a $5.5 billion payment to cover future employee health-care costs due Sept. 30. It is the only federal agency required to make such a payment but, because of the way government finances are counted, eliminating it would make the federal budget deficit appear $5.5 billion larger.

If Congress doesn't act and current losses continue, the agency will be unable to make that payment, the agency said earlier.

In that event, Postmaster General Patrick Donahoe said, "Our intent is to continue to deliver the mail, pay our employees and pay our suppliers."

Legislation that would rein in employee benefits or have workers pay more for the benefits has been introduced in Congress and was met with vigorous opposition from federal employee organizations.

The proposals are the USPS' latest money-saving effort in a series of moves, some as recent as a few weeks ago and others stretching over a decade. The Postal Service has reduced its work force by 212,000 positions in the past 10 years and recently announced it is considering closing 3,700 post offices. It also has asked Congress to allow it to deliver mail five days a week instead of six and to change a requirement that it pre-fund retiree health benefits.

The USPS said it needs to reduce its work force by 120,000 career positions by 2015, from a total of about 563,400, on top of the 100,000 it expects by attrition. Some of the 120,000 could come through buyouts and other programs, but a significant number would probably result from layoffs if Congress allows the agency to circumvent union contracts.

"Unfortunately, the collective bargaining agreements between the Postal Service and our unionized employees contain layoff restrictions that make it impossible to reduce the size of our work force by the amount required by 2015," according to the document. "Therefore, a legislative change is needed to eliminate the layoff protections in our collective bargaining agreements."

The layoff protection does not apply to employees with fewer than six years of service, which presumably would include thousands of workers.

Postal-union leaders quickly rejected the plans. "The APWU will vehemently oppose any attempt to destroy the collective-bargaining rights of postal employees or tamper with our recently negotiated contract, whether by postal management or members of Congress," American Postal Workers Union President Cliff Guffey said.

"Our advisers are not encouraging us at all to even consider it," said National Rural Letter Carriers' Association President Don Cantriel. "We are absolutely opposed" to the layoff proposal, he said.

National Association of Letter Carriers President Fredric Rolando said: "The issues of layoff protection and health benefits are specifically covered by our contract."

How Congress will respond to the proposals remains to be seen. Many Republicans, including those who have sponsored legislation that labor considers anti-union, may support the plan. Some Democrats, for which organized labor is an ally, could back union opposition.

Material from The Associated Press is included.