Monday, January 4, 2010

Negotiating Changes in Retiree Health Payments

This blog has repeatedly noted the impact of Congressional legislation on postal operations and its ability to be financially viable.   In the Conference Report accompanying HR 3288, an appropriations bill covering the Departments of Transportation, Housing and Urban Development and related agencies, Congress lays out specific instructions to the Postal Service, the Postal Regulatory Commission, Office of Personnel Management (OPM), the Office of Management and Budget (OMB), and the Government Accountability Office (GAO).   Two of these instructions are new and significant and are in bold below.

First, OMB, OPM and thethe Postal Service are directed to "develop a fiscally responsible legislative proposal, for consideration by the appropriate congressional committees, that would grant a limited measure of relief from the PAEA requirements to pre-fund retiree health benefits."  There is no time period identified for this negotiation but it makes sense that the results of the negotiations would be included in the President's next budget proposal.

Second, GAO is directed to update its previous studies on network restructuring.  GAO has 6 months to complete the study.   The request for this study, like Congress's request to the PRC, appears to be focussed more on the process and the impact on employees and communities than on the potential financial impact of network restructuring.


The conference agreement provides $118,328,000 for a payment to the Postal Service Fund, of which $89,328,000 is an advance appropriation for fiscal year 2011 to continue free mail for the blind and for overseas voting materials, and of which $29,000,000 is for the annual repayment of revenue foregone as required by law. These provisions are the same as proposed by both the House and the Senate.

The conference agreement includes provisions directing that mail for the blind and for overseas voting shall continue to be free and that six-day delivery and rural mail delivery shall continue at not less than the 1983 level. Further, it includes language prohibiting use of funds in this Act to charge a fee for providing information to child support enforcement programs or to consolidate or close small rural and other small post offices. All of these provisions were also contained in the House and Senate bills.

Closings of Postal Facilities.-Numerous concerns and criticisms have been brought to the attention of the conferees regarding Postal Service plans to close or otherwise consolidate various retail and mail handling facilities. The conferees believe that the Postal Regulatory Commission is an appropriate forum for evaluating these proposals and the attendant concerns and have urged that the Commission take appropriate action to do so in language included under that heading.

In addition, the conferees direct the Government Accountability Office to update its previous studies regarding Postal Service initiatives to realign its mail processing network, including proposed closures or consolidations of area mail processing facilities, and to report to the Committees on Appropriations and other appropriate congressional committees not later than 6 months after enactment of this Act. GAO’s study should address the criteria used in selecting facilities for closure or consolidation, whether those criteria are being applied reasonably and consistently in particular cases, the adequacy of efforts to communicate and consult with affected communities and stakeholders, and the quality of efforts to evaluate the results of closures and consolidations.

Financial Condition of the Postal Service.-The conferees are concerned about the financial condition of the Postal Service. In fiscal year 2009, the Postal Service posted a net loss of $3.8 billion that would have totaled $7.8 billion, had Congress not reduced the Postal Service’s retiree health benefits payment by $4 billion.  Significant declines in mail volume, exacerbated by the struggling economy, have contributed to the most recent Postal Service financial crisis.

The conferees applaud the Postal Service for its efforts to reduce costs. In fiscal year 2009, the Postal Service reduced its operating expenses by $6.1 billion. These cost-cutting efforts must continue in close coordination with stakeholders and with careful consideration of the effect proposed cuts may have on service and volume.

Despite cost-cutting efforts, the financial condition of the Postal Service remains dire. The conferees understand that the Postal Service has requested legislative relief from the requirement that the Postal Service pre-fund a significant portion of its future retiree health benefits through the end of fiscal year 2016. Congress reduced the fiscal year 2009 payment from $5.4 billion to $1.4 billion.
The Postal Service continues to seek a reduction or elimination of future mandated payments.

The conferees understand that both the Postal Service Inspector General (IG) and the Postal Regulatory Commission (PRC) have reviewed the payment stream under the Postal Accountability and Enhancement Act of 2006 (PAEA). The IG concluded that the current schedule would result in an overpayment to the retirement fund by the end of fiscal year 2016, and the PRC study concluded that the unfunded liability would not be as high as originally estimated.

Because some experts, including OPM, have expressed concerns about the assumptions made in the Postal Service IG and PRC reports, the conferees urge the Postal Service to coordinate with OPM and OMB to develop a fiscally responsible legislative proposal, for consideration by the appropriate congressional committees, that would grant a limited measure of relief from the PAEA requirements to pre-fund retiree health benefits. These proposals should consider: (1) whether the PAEA-mandated stream of future payments overfunds through fiscal year 2016 the anticipated liability of the Postal Service for future retiree health benefits, (2) whether modifications to the mandated payments could meet the unliquidated liability goals contained in the PAEA, and (3) whether a decrease in mandated payments will reduce the incentive of the Postal Service to continue to cut additional costs.


The conference agreement provides $14,333,000 for the salaries and expenses of the Postal Regulatory Commission, as proposed by both the House and the Senate. It does not include language proposed by the House requiring any unobligated balances remaining at the end of fiscal years 2009 and 2010 to be transferred back to the Postal Service Fund.

Proposed Closings of Postal Facilities.-The conferees are aware of considerable public concerns about plans by the Postal Service to close or consolidate retail post offices and other mail facilities, and believe that the Postal Regulatory Commission has an important role to play in evaluating those concerns and fostering well-informed decision making. The conferees commend the Commission for undertaking its current investigation of the national service implications of the Postal Service ‘‘Station and Branch Optimization and Consolidation Initiative’’ and urge the Commission to initiate such other proceedings as appropriate to fully evaluate the effects of proposed closings and consolidations on service levels, costs, postal employees, and the affected communities. Among other issues, the Commission should examine whether Postal Service actions, including notification and appeal procedures, are in accord with applicable law.

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