News & information
On Jan. 21, the Senate’s Homeland Security and Government Affairs Committee (HSGAC) conducted a hearing to discuss the “Reality of the Postal Service.” The major emphasis of the hearing was to determine the state of the Postal Service as it relates to its finances—specifically revenue, expenses, liabilities and debt—and to discuss the impact of the legislative and regulatory burdens to which USPS is subjected.
(For news media coverage, click here.)
The hearing consisted of two panels of witnesses. NALC President Fredric Rolando was on the second panel, and he focused his testimony on the effect of the congressional mandate on USPS to pre-fund its retiree health benefits fund (RHBF).
In his testimony, Rolando called on the committee to address three major impediments to the Postal Service:
- the pre-funding mandate, which accounts for 86 percent of USPS’ $57 billion in reported losses.
- the policy that requires all postal retirement funds to be invested in low-yielding Treasury bonds.
- the scheduled expiration in April of the 4.3 percent exigent rate increase.
President Rolando’s press statement regarding USPS reality
We are pleased that the Senate Homeland Security and Government Affairs Committee is taking the opportunity to examine the reality of the Postal Service prior to advancing any postal reform package. NALC is proud to be a part of this conversation and is encouraged that the committee has called upon us to address legislative and regulatory burdens, such as the pre-funding of future retiree health benefits.
The truth of the matter is that, since 2006, the pre-funding mandate has distorted USPS’ financial reality, and the public’s understanding of its condition, by masking any and all operational profitability that it has enjoyed. This distortion has given rise to misguided proposals to dismantle the Postal Service by reducing or eliminating core services. In reality, USPS’ finances have improved in recent years and it is again running operating profits—to the tune of $1.2 billion in 2015. The public relies on the Postal Service and its invaluable network six and even seven days a week.
As Congress explores potential solutions to place USPS on solid footing while meeting the needs of the agency’s business and residential customers, it should look to the simple, targeted and achievable solutions put forward by a diverse cross-section of postal stakeholders, including unions, the Postal Service, and a broadly representative sample of mail industry companies that provide financial services, prescription drugs, newspapers, direct-mail products, e-commerce sales, and so on. This unlikely yet impressive coalition has made stabilizing the Postal Service its centerpiece by specifically working to address pre-funding through modernized investment strategies.
NALC thanks the committee for its efforts, and we will work diligently and in good faith to engage committee members on all postal-related issues as they arise, to find a fair and constructive resolution.
“NALC has suggested a variety of legislative measures to address the prefunding mandate,” Rolando said. “Reforms to the FEHBP program to maximize participation in Medicare among eligible postal retirees would all but eliminate the $50 billion unfunded liability for future retiree health, while raising Medicare spending by less than two-tenths of one percent annually.”
The committee paid particular attention to investment of the retiree health benefits fund, and Rolando called on the committee to “undertake prudent investment change to raise the long-term rate of return on the retiree health fund’s assets, to achieve pre-funding goals, to offset the cost of postal Medicare integration, to relieve upward pressure on postage rates, and to reduce the misguided impulse to cut services.”
Rolando said that the pension accounts under the Civil Service Retirement System (CSRS) and the Federal Employee Retirement System (FERS), when combined with the postal RHBF, account for nearly $340 billion in Treasury securities. “That makes the Postal Service and its employees the third largest creditor of the U.S. federal government,” the president said: “just behind China and Japan.
“No private company in America would invest its retirement assets in such an unsophisticated way,” he said, “especially during a period when Treasuries are yielding two to four percent returns while health care costs grow five to seven percent annually.”
During the hearing, much attention was focused on a discussion of postal stakeholders’ consensus on the principles of successful postal reform, including:
- stabilizing postal finances by making the exigent increase permanent while freezing capped postage rates until the Postal Regulatory Commission’s (PRC) review is complete.
- resolving the pre-funding burden by maximizing Medicare integration in FEHBP among postal participants.
- sensibly changing the way USPS invests the retiree health fund.
“All four unions, the Postal Service, and a wide range of companies providing financial services, prescription drugs, newspapers, direct mail products, and e-commerce sales have agreed on a set of principles,” Rolando said. “Our coalition’s recommendations are grounded in best private-sector practice, and are drawn from the consensus provisions of Senator [Tom] Carper’s bill. They represent the measures on which the coalition could agree while remaining confident that they would stabilize the Postal Service for years to come—which will allow the Service to adapt to meet the evolving needs of the nation.”
“Nearly 10 years have passed since major postal reform legislation was last signed into law,” said Carper (D-DE), the committee’s ranking member, “although we’ve made several attempts at it in recent years without getting the ball into the end zone. It’s time now for Congress to come off the bench and get in the game.”
“My goal for today’s hearing is to focus the committee on the places where the Postal Service needs the most immediate help and where we can find agreement on solutions,” said Sen. Ron Johnson (R-WI), the committee’s chairman.
Johnson showed particular interest in the stakeholders’ consensus plan. “In terms of what we must do from my standpoint,” he said, “you’ve got a four point plan. Having done this a couple of years ago—and having the scars on my back trying to come to a compromise solution—what are the areas of agreement? What are the things we must do?
“I know Senator Carper wanted a touchdown,” Johnson said, “but maybe we should be thinking about a field goal: What are the things that we absolutely must do to avoid a real calamity in terms of [the Postal Service] and pricing, and what is even possible to do here in the short-term?”
Testifying on the first panel were Postmaster General Megan Brennan, Acting Postal Regulatory Commission Chairman Robert Taub, General Accountability Office Director of Physical Infrastructure Lori Rectanus, USPS Inspector General David Williams, and former Treasury Department Chief Restructuring Officer James Millstein.
With Rolando on the second panel were National Newspapers Association President John Hutcheson and Domtar Paper Company’s Rothschild Mill General Manager Kathy Collins.
To read Rolando’s testimony, click here.
- Attachment 1 - USPS finances under the Postal Accountability and Enhancement Act (2007-2015)
- Attachment 2 - Selected federal and state fund allocations and returns
- Attachment 3 - Alternative price cap indicies
- Attachment 4 - Principles for targeted legislation to stabilize finances of the United States Postal Service