"It's because of our emergency situation. It's something we didn't want to do but feel that we have no choice," said agency spokesman Dave Partenheimer, CNNMoney reported Wednesday.
Suspending biweekly payments of $115 million will cut expenses by $800 through the end of September, the Postal Service said.
The Postal Service contends the Federal Employees Retirement System fund is $6.9 billion ahead.
However, the prepayments are mandatory as dictated by a 2006 act of Congress that requires $5.5 billion in prepayments each year.
"It's a burden that's really impossible for the Postal Service to maintain," Ruth Goldway, chairwoman of the Postal Regulatory Commission, said in an interview.
The Postal Service has predicted it will lose $8.3 billion this year. However, without the mandated prepayments, the service says it would have earned $1 billion from 2007 to 2010.
The service has also proposed cutting out Saturday deliveries, which, it says, could save $3.1 billion per year.
However, it requires an act of Congress to allow Saturday deliveries to stop.
Sen. Tom Carper, D-Del., who co-authored the bill that mandated the prepayments, has a new bill amending the service's obligations.
"We need Congress to give the Postal Service more flexibility to act like a real business. Congress needs to, essentially, get out of the way," Carper said recently.