Comparing Benefits to the Private Sector

Most of the comparisons made on health benefits compare what the Postal Service offers to what other Federal Employees receive.  There are two parts of this benefit.   First there are benefits that exist while a person is working for the Postal Service.  The second are benefits that accrued while the person works but are payable when they retire. 

A similar comparison needs to be made on retirement benefits.  While up until the signing of the APWU contract the retirement benefit structure of Postal Service and other federal government employees is the same, it is not clear if the hourly cost per employee is the same as the mix of employees in CSRS and FERS may differ and the contribution rates of Postal Service and Federal Government employees into retirement programs with an employer match may also differ

Postal employees like UPS's teamster employees have both pre- and post-retirement health benefits.   FedEx employees only have health benefits while they are working for FedEx.

United Parcel Service has a defined benefit pension plan for most of its Teamster employees.  (Those teamsters who participate in the Western States Teamster Pension plan have a hybrid between a defined contribution and defined benefit pension plan.)  FedEx offers a retirement plan that includes a defined contribution pension and a 401-K plan which had recently seen its corporate match restored.   The Postal Service retains its defined benefit pension for employees hired before 1975 and has a plan similar to what FedEx offers for employees hired since then.   The new APWU creates a new retirement plan for non-career employees which is a 401-K plan without an employer match.

As I noted in the post displaying the information from the Teamster Union comparing FedEx and UPS wages and compensation, no comparison has been made comparing these wages and benefits to what the Postal Service offers recently.   

One of the biggest complaints about Postal compensation being too high relates to the fact that its share of the health insurance costs is higher than what other Federal agencies pay.   The estimate of FedEx costs for health and pension costs of $3.33 gives a benchmark that can be used to compare costs that the Postal Service offers to employees hired since 1975 1984.  (Given that this is 36 27 years ago it must include most current employees.)   (Correction made 1/21/2011 12:40 p.m.)

Under the current APWU contract the Postal Service pays 81% of the total insurance cost.   With the figures supplied in the APWU PowerPoint, this works out to $517.80 per month average.  If one assumes that an APWU member is employed for 2080 hours in a year then the hourly cost of his health insurance is $2.99.  If this was reduced to the 72% of the insurance premium paid for federal workers, the hourly cost of health insurance would drop $0.33 per hour to $2.66.  The APWU contract reduces the hourly cost to $2.80 or $0.19 per hour by the end of the contract. (This assumes no health inflation, so it is possible that the cost per hour at the end of the contract will be higher even if the Postal Service's share is lower.)

The difference of a few pennies is small but significant.  Reducing health insurance costs by a cent per hour saves the Postal Service $12 million corporate wide annually.   The impact of a similar cut for just APWU members is likely around $4 million annually. 

What this exercise shows though is that while cutting the Postal Service's share of its health care insurance contribution will reduce costs, discussing this issue may have more merit in scoring political points than solving the severe financial problems of the Postal Service.   Even an immediate shift to federal employee levels of insurance contribution would not be enough to get compensation levels down to the point that the Postal Service can be self-sustaining.   It is time for those who focus on this issue to look at additional options, including many contained in the APWU contract to do the job.

Is the APWU Contract a Union Giveaway?

In an editorial today, the Pittsburgh Tribune - Review stated that the Postal Service's contract with the APWU does little more than "sustains the stagnant status quo."  The editorial reflects an understanding of the details of the contract that would come from doing no more research that reading the press releases issued by the Postal Service and the APWU when the contract was signed.    As this information primarily was designed to promote the contract to APWU members that must vote on the agreement, the Pittsburg Tribune's impression of the contract is understandable.

The Pittsburg Tribune-Review's editorial illustrates the problem that the Postal Service created because it did not recognize that it had to sell the contract to Congress, influential news media, and its customers.  The Postal Service needs the support of all three if the rest of its restructuring programs are to be approved.  For example, why would a member of Congress acquiesce to the closure of a local processing plant or accept 5-day delivery, or modify the payment terms on retiree obligations if they believed that the Postal Service did not do all it could to reduce its compensation costs and excess employees.

The truth is no one knows whether the contract is good for the short-term and long-term financial health of the Postal Service.  The analysis in the post, Is the APWU Contract Good for Shareholders and Creditors?, clearly shows that the contract will benefit the Postal Service financially if the proportion of APWU members that are working under the new definition of full time and new pay schedules grows quickly.   If turnover is only occurs at normal attrition rates, then the Pittsburgh Tribune-Review may be right, the contract may do no more than sustain the status quo.  If however, the Postal Service can offer sufficient incentives to get older APWU members to retire, and excess APWU members in plants and retail offices being closed or consolidated to retire or seek employment elsewhere, then the contract could reducing its operating costs.

The Postal Service needs to quickly adjust course and explain to the public in detail why the contract is good for them and what they will be doing to accelerate the proportion of APWU members working under the new contract rules.   On March 25th they will have an announcement announcing a limited number of cuts in non-union positions.    While this is a step in the right direction, the Postal Service's presentation will unlikely still its critics that the Postal Service is not moving fast enough to bring costs in line with revenue.     More information is needed soon or the Postal Service will soon find that it has lost control of its destiny.

Comparable Wages

One of the challenges in trying to figure out whether the Postal Service has signed a financially responsible contract is that there are few good figures available regarding what are market wages for the work that APWU members do.    The Teamsters Union have recently posted in UPS Teamster Update a comparison of UPS and FedEx Express employee wages.   I have pulled out the two categories that are comparable to work that APWU members do.   The figures below only include health and welfare and pension benefits and do not inclde compensation costs for employment and unemployment taxes and workers compensation insurance.

The hourly rates are comparable to information that I have seen elsewhere.   They indicate the wages that efficient operators can offer.   The new contract should move average APWU wages within the range listed here once a significant portion of current APWU members retire.

The benefit costs here include both health care and pension benefits.  UPS has a very generous benefit package for most employees which includes a defined benefit pension and 0% employee contribution for health care benefits for full time employees.   Most part time UPS employees  likely have less generous benefits than the "average" benefit.   Turnover of part-time workers is high so many do not accrue pension benefits and their health care benefits are not as generous as those for full time employees.   UPS offers part-time employees a number of non-traditional benefits as well, most notably tuition assistance in the form of loans and grants.

The average hourly benefits listed in the chart for full time FedEx employees most likely underestimates the benefits full time employees receive.   At $3.33 per hour the benefit listed for full time worker would be the equivalent of a company contribution of $577.22 for health benefits every month.   This would appear to be the figure that FedEx pays as its contribution for single employees.  In addition to health care benefits FedEx offers its employees a defined contribution pension as well as a 401-K plan with a match.   The $3.33 figure appears too low to include the hourly cost of  retirement benefits. 

The wages and benefits listed above are paid by companies that profitably provide parcel delivery services. These companies are both known for the efficiency of their operations and their ability to deploy capital to most efficiently use the labor sorting parcels and transporting parcels between facilities.  These two carriers are also now facing rising demand for their services to the point that they are able to raise prices to both customers that pay list prices and those that negotiate rates at discounts to list rices.  

The Postal Service faces a different operating and competitive landscape.   It has significant production and transportation overcapacity and public notice processes that discourages the elimination of this overcapacity, declining volumes and revenue, limited capital to improve the efficiency of its network, regulatory constraints that prevent rational pricing and competitive constraints that prevent it from extending its product line to generate more revenue per item delivered.  These constraints make it difficult for the Postal Service to pay market rates of compensation that one must assume are within the ranges shown above.   The sooner these constraints are removed, the sooner APWU members can be assured that their compensation will fall within the ranges listed above, otherwise they can expect that compensation levels in future contracts will have their members fall behind wages paid in the private sector.

Are Tax Refunds a Bailout to Taxpayers?

Conservative thinkers are just beginning to start thinking about what to do with the Postal Service.   As those who read this blog know, this is a complicated problem and the solution will likely cause pain for all stakeholders and eliminate protections that many have from the status quo.  In a well reasoned article entitled, "Does the U.S, Treasury Owe $75 Billion to the Postal Service?" Michael Schuyler, a Senior Economist at the Institute for Research on the Economics of Taxation reviews the number one topic discussed among postal stakeholders, disputes over Postal Service obligations for retirement obligations.

Mr. Schuyler's conclusions are clear:

• Notwithstanding these budget concerns, the Postal Service should be credited with the money if OPM mistakenly charged the Service more than the law allows. Providing the credit would then be very roughly analogous to the government sending a refund to a taxpayer who overpaid his or her taxes, issuing a check to a contractor for the agreed upon amount in a government contract, or paying restitution after losing a court case.
  
• However, if OPM’s allocation methodology is consistent with the law, Congress should weigh the merits of the proposed transfer against efforts to rein in the federal budget deficit.
  
• If Congress decides to approve a transfer but not for such a large amount, it should be aware that the budget cost would drop by an order of magnitude if the allocation formula were changed prospectively, not retroactively is clear.

Simply stated, Mr Schuyler states that if the law states that the Postal Service does not owe the money it should be refunded.   If the law states that the Postal Service owes the money, then it is a Congressional prerogative to change the law but the budget deficit requires that changes in law should be considered carefully.  If Congress determines that the law should be changed but due to the deficit changes cannot be made to fully cover the disputed overpayment then the focus should be elimination of prospective overpayments.

Complicating the politics of resolving this issue is the politics of changing the law.   Tad De Haven of the Cato Institute, has quoted Mr. Schuyler's paper to describe changes in law as a bailout of the Postal Service.   As bailout is a politically charged word, its introduction will likely make passage of any changes in law more difficult.  

The problem for Congress is that the choice is not so simple.  Opposing any changes in law introduces a new problem.   The upcoming default by the Postal Service of its payments of its "legal obligations."  
Mr. Schuyler lays out clearly the risk of a Postal Service default.  "A default would harm the Postal Service’s reputation, and there is a nontrivial risk it would reduce investors’ confidence in the United States, which would hurt American businesses and the U.S. government when they borrow in security markets."

Mr. Schuyler's only policy recommendation is to restructure the retiree health care obligations currently on the book.   If restructuring the retiree health care obligation is not sufficient to prevent default, his conclusion suggests that Congress is right now faced with a real dilemma.   Which is worse:  default on its obligations by the Postal Service or an increase in the federal deficit?  

Finally, Mr. Schuyler recognizes that regardless of what is done to get the Postal Service through next fall, the long-term challenge cannot be ignored.   Congress has to determine that if they want a self sufficient Postal Service that provides universal service and then can it be self sufficient under its current business model, under the current business model with full freedom to cut costs and eliminate facilities and services that create opposition in Congress.   If it cannot do so, then alternatives need to be considered.

The Social Network: Version 1.0

A twitter writer that I follow, posted a photograph that says all you need to know about the current state of communications and where the Postal Service fits in.  Take a look and smile

http://www.flickr.com/photos/librarianbyday/5534712253/

Is the APWU Contract Good for Creditors and Shareholders?

Up till now all of the information about the new 4 1/2 year agreement between the American Postal Workers Union (APWU) and the Postal Service has come from the union.  With an agreement in hand, the union needs to sell its members that the contract is good for them so that rank and file members approve it.  The APWU has an aggressive effort to sell the contract to members which has included so far the APWU news bulletin on the contract, a PowerPoint presentation, a Web post answering questions, as well as the use of Facebook and Twitter.   Given the amount of information coming from the union, no one should be surprised that press reports in the Washington Post, Direct Marketing News, and most other news outlets focus on what employees got from the agreement and ignore the benefits that agreement provide the Postal Service.

If the Postal Service was a public company with shareholders and bondholders it would now be making an aggressive, and in most cases a public effort, trying to explain to them why this agreement is good for shareholders and bondholders.   This effort would include briefings with investment analysts and the business press.  It has not done that even though Congress effectively acts as the representative of the Postal Service's shareholder and its largest creditors, the Office of Personnel Management and the Department of Labor.  Congress's role as the representative of the creditor should be of particular interest as the Postal Service has already stated that it will default on these obligations.

The Postal Service's press release uses only 74 words to explain why the contract improves its financial situation.    Without a greater effort, the Postal Service leaves the impression that the contract was a giveaway to employees that will make necessary improvements in its cost structure.   Private sector stakeholders whose businesses and jobs depend on the long-term survival of the Postal Service should be concerned that this effort has not been made as their future may depend on Congressional actions to reform the Postal Service's business model and adjust the Postal Service's retirement obligations.

To fill in this vacuum, this rest of this post will review the public information on the Postal Service - APWU contract and identify how provisions in the contract will affect the Postal Service's cost structure.  

New Definition of Full Time Employee

All employees will operate under new rules defining what constitutes a full time schedule.  These new rules give the Postal Service a significant increase in flexibility in scheduling employees.  

• New employees hired after signing of the current contract
• Employees are only guaranteed 30 hours per week and can work as much as 48 hours per week
• Shift on any day can be as few as 4 hours and as many as 12 hours.
• Split shifts will exist only in Post Offices level 20 and below.
•  Current employees:
• Full time employment is defined as between 40 and 44 hours per week
• Shifts can have as few as 6 hours and will could have as many as 12 hours;
• a week must have at least 2 days off (a schedule with four 6 hour days and two 8 hour days would not be permitted)
• Current full time regular employees can voluntarily agree to work under the new definition of "full time" that applies to new employees.

Conclusion:  The new contract gives the Postal Servicie more flexibility to match hours to actual work.   The speed at which it can have a workforce that works under the new definition of "full-time employment," will determine how much these changes save the Postal Service.

New Employee Classification

Non-Career Assistants replace casual and transitional employees.  This new class of employees will represent up to 20% of all APWU members not in the Maintenance and Motor Vehicle Crafts.  The new class of employees will represent 10% of Maintenance and Motor Vehicle Crafts.  These employees will have a different pay schedule and employment relationship with the Postal Service than current employees have.

• Non-career Assistants are hired for only 360 day assignments.  (This is equivalent to a contract that last for only 51 of the 52 weeks in the year.)  It is unclear regarding what the Postal Service obligations are to rehire Non-career Assistants after the contract expires but it an employee is good it is unlikely and there is work it is unlikely that the USPS will refuse to renew the contract.
• Additional pay steps were added for Non-career Assistants with lower starting salaries than what now exists.  On average, starting salaries for Non-career Assistants will be 15% below current starting salaries and it will take new employees between 6 and 8 steps to earn the current starting salaries.
• 12.4% of all APWU members will be paid at the lowest rate when the contract starts.
• Non-career Assistants have lower benefits that current full-time regular employees
• Health care benefits require 1 year of employment
• USPS will only pay 75% of the PWU Consumer Driven Plan premium for these employees.   (This is 11% below what the Postal Service will pay for full time regular employees)
• Retirement benefits will be limited to a 401-K plan that does not have matching funds. (The retirement benefit should provide significant savings over FERS.  It is unclear from information provided what happens if these employees become full-time regular employees.)
• Non career assistants will accrue leave.  However, it is unclear whether they will accrue leave at the same rate as current APWU members
• Non career assistants will have a "full-time" job as described above

Conclusion: The difference in wage and benefit levels make Non-career Assistants significantly cheaper than current employees.  The sooner the Postal Service can maximize its use of Non-Career Assistants the faster it will be able to lower the costs of work performed by APWU members.

Wage Levels

• Wage levels for current APWU members are frozen at current levels until November 17, 2012.
• Wages of current casual and transitional employees who are hired as Non-carrier assistants will rise to fit equivalent levels on the Non-Carrier Assistant schedule.
• All employees hired after the contract is signed starts at a lower rate than now exists.
• All employees hired after the contract is signed have a lower top salary than current employees even after they become career employees.
• New hires have to progress between 6 and 8 steps before they reach the current starting salary levels of APWU employees. Her are few examples:
• Grade 3 - Starting salary drops from $16.74 to $12.34 per hour (-26%)
• Grade 4 - Starting salary drops from $16.82 to $12.95 per hour (-23%)
• Grade 5 - Starting salary drops from $18.65 to $15.91 per hour (-15%)
• Grade 8 - Starting salary drops from $20.80 to $18.20 per hour (-12%)
• Wage increases after that point will come on the following schedule
• November 17, 2012 - 1% increase
• March, 2013 - COLA increase based on COLA calculated for implementation in March 2012 and COLA calculated for March 2013
• September 2013 - COLA increase based on COLA calculated for implementation in September 2012 and COLA calculated for September 2013
• November 17, 2013 - 1.5% increase
• March, 2014 - COLA increase based on COLA calculated for  implementation in March, 2014
• March, 2014 - COLA increase based on COLA calculated for implementation in March, 2014
• November 17, 2014 - 1.5% increase
• March, 2015 - COLA increase based on COLA calculated for implementation in March, 2015

Conclusion:   Wage increases for current APWU members are back-loaded.   The increases will benefit the Postal Service if over the life of the contract, the proportion of employees that are working under the new wage schedule increases so that the average increase in compensation per employee will be less than the wage increases agreed upon.  Also, an increase in the number of employees operating under the new definition of "full-time" could on average reduce the number of hours paid per employee further reducing labor costs.

Update 3/17/2011 4:25pm :   A comment was made that may clarify a rather confusion explanation of who gets paid what.   The Non Career Assistants do not see step increases like career employees.  The saaries identified above are the steps for career employees.  Level 5 Non Career Assistants start at $13.74 per hour which is less than the starting salary for career employees listed above.

Non-traditional Jobs

The APWU- Postal Service contract shifts at least 9,000 jobs from contractors and EAS personnel to APWU members.  This provision of the contract includes a number of provisions that the APWU and the Postal Service agreed upon that increases opportunities for APWU members, creates opportunities for higher level APWU positions (called lead clerks), and increases flexibility in defining an employee's duties.

The major changes include:

• A shift of jobs from Postmasters, supervisors, and other administrative and technical positions to APWU members.
• Many of these jobs will be handled by employees working in a new "Lead Clerk" position.
• The Postal Service will have greater flexibility in scheduling employees to perform facility maintenance
• Maintenance employees will be assigned on an installation basis and not a facility basis.  This more than likely means that maintenance employees may work at more than one facility during a day or week.
• Maintenance activities requiring less than 2 hours per day in a facility may be assigned to an APWU member who has other job responsibilities the rest of his day.
• Some maintenance supervisory jobs will become APWU member jobs and will mostly be filled by a person in one of the new "Lead Clerk" positions.

Conclusion: All of the non-traditional jobs and changes to job descriptions relating to maintenance employees are likely based on suggestions made by the APWU as a method to increase its membership while at the same time reducing Postal Service Costs.   It is clear from the language of the public documents that the APWU will be actively looking at ways to structure work by APWU members so that work performed by union employees is cheaper than either contractors or non-union employees.   This could represent a radical change in how the Postal Service and APWU work together to manage operations.

Limits on Excessing

The APWU and the Postal Service have agreed to limit excessing outside of an installation or craft to r0 miles in most cases and no more than 50 miles in any case.   The contract information is unclear as to what happens if there are no jobs for an excessed employee within that area. The News Bulletin states that "the parties will jointly determine what steps will be taken."  The PowerPoint presentation mentions that there is a memorandum associated with this provision but it is not public.

Conclusion:   It is unclear what impact this will have on either employees that face excessing or the Postal Service.  A good example is consolidation of facilities that are more than 50 miles from the facility that will now be sorting the mail.   This will occur in West Virginia and in most consolidation efforts outside of metropolitan areas.   Most likely the sides decided to sign a contract on all issues that they can agree on and let this issue wait for further negotiations.

 Excessing employees create challenges especially if excess employees cannot be let go.   The only other alternative is a localized early retirement program that would only apply to geographic areas where there will be excess employees.

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This review of the APWU - Postal Service contract indicates that the new contract will allow the Postal Service to significantly cut its costs over the life of the contract.   The amount it saves depends upon how quickly it can raise the proportion of APWU members that are Non-career Assistants, implement the changes in maintenance job descriptions that should cut maintenance contracting and shift jobs from supervisors, postmasters, and other non-union employees to APWU members.

The Postal Service needs to provide the hard numbers that must exist that show the cost savings that I believe exist to its creditor and shareholder representatives in Congress as well its customers.  In addition they need to show how quickly these savings will accrue including the difference in costs over the current contract from fiscal year 2011 through 2015.   Finally, they need to show how those cost savings could change if it offered a VERA or had the cash to offer retirement incentives on either a nationwide or local basis.

Sales Taxes and the Mailing Industry

The Wall Street Journal reported today that some of the nation's largest retailers are backing a coalition called the Alliance for Main Street Fairness to force e-commerce only retailers to collect sales taxes on their web-based sales just like they do on their sales at both brick-and-mortar outlets and over the Internet.  Companies that are part of the coalition include Wal-Mart, Target, Best Buy Co., Home Depot Inc. and Sears Holdings Corp.   These large retailers have expanded their web presence and are among the top twenty web-based retailers in the United States.  On the other side of this issue are on-line only companies like Amazon. com, NewEgg, and regional merchants that sell nationwide over the web.


The issue is being raised in states including California, Texas, and Illinois which all have significant challenges in trying to balance their budgets.  Illinois recently passed legislation expanding the criteria for requiring companies that sell products in the state to collect sales tax on web based sales and similar legislation is being considered in the other states. 

For decades the mailing industry through catalog merchants and more recently e-commerce retailers have thrived from business generated from the printing of catalogs and the delivery of parcels.   Customers were driven to catalog and e-commerce sales channels due to better selection, prices, and yes even the lure of not paying sales taxes.  Today, however, the mailing industry relies on the business of printing catalogs and delivering parcels from companies that both collect and do not collect sales taxes in all fifty states.   The mailing industry has seen growth in demand for its services from both firms that collect and do not collect sales tax.   Regardless as to how this political fight ends, this growth will continue as customers take advantage of the convenience, selection and prices that the on-line retail channel offers.