A new Senate plan emerged Wednesday to save the U.S. Postal Service from going belly up and keep Saturday delivery service for at least two years, but it also includes laying off 100,000 workers to balance its budget.

The proposal would keep the agency “from the brink of bankruptcy,” said Sen. Joe Lieberman, I-Conn. But it still contains a number of painful fixes for the 200-year-old institution that is more than $9 billion in debt.

“Without taking controversial steps like these, the Postal Service just isn’t going to make it, and that would be terrible,” Lieberman said. “We must act quickly to prevent a postal service collapse.”

Lieberman, chairman of the Senate Homeland and Governmental Affairs Committee, said the committee would take up the plan to save the postal service next week.

Among the proposals:

  • The Postal Service would receive a refund of nearly $7 billion it has overpaid into the Federal Employee Retirement System.
  • The agency would be required to use part of the refund to set up a buyout program to reduce staff by 100,000.
  • Agency payments of about $5.5 billion into an account to fund future retiree health benefits would be reduced by spreading out the payment schedule, a major headache that rolled the agency into the current crisis.
  • The postmaster general could negotiate with unions on a possible alternate health care system that would cost less.
  • Saturday mail delivery would continue for two years but eventually drop to five days a week delivery.

None of this would change plans to increase the cost of a first-class stamp to 45-cents on Jan. 22.

And it would not put the brakes on the long term urgency to overhaul the postal service, which has seen a 22 percent drop in volume in the last four years and the proliferation of plenty of competition from the internet and commercial postal services.

But the bigger problems remain even if Congress manages to wrestle the current postal crisis to the ground. In the coming years, it’s likely that mail volume will continue to decline, the cost of delivering the mail will go up and the benefits for workers will continue to balloon unless they are braked.

“We’re not crying wolf here” about the agency, said Sen. Susan Collins of Maine, the top Republican on the committee.

“The postal service literally will not survive unless comprehensive, legislative and administrative reforms are undertaken. Absent to action, the postal service will not be able to meet its payroll a year from now,” she added.

The Postal Service is expected to report even bigger losses for 2011 when it releases a new report in mid-November.