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NALC President Rolando's seven-point proposal to the 'super-committee'

NALC President Fredric V. Rolando has written a letter to the members of the Joint Select Committee on Deficit Reduction, better known as the "super committee." He outlines seven proposals the NALC would like the committee to consider.

October 11, 2011

Dear Member:

As a member of the Special Joint Committee on Deficit Reduction, you are charged with fairly reducing the deficit over the long run while doing all you can to attack the American jobs crisis in the short run. I write on behalf of the 280,000 members of the National Association of Letter Carriers (NALC), which represents active and retired employees of the U.S. Postal Service, a crucial infrastructure service of the U.S. economy and the hub of a $1.3 trillion industry that employs 7.5 million private-sector employees across America.

We believe the special joint committee should follow President Obama’s lead and address the crisis at the Postal Service in the legislation you propose to the Congress. Congress caused the USPS financial crisis in 2006—by mandating a crushing schedule of unaffordable payments ($5.5 billion per year) to pre-fund 75 years in advance future retiree health benefits—and Congress should fix it now without needlessly slashing service or damaging a major sector of the economy. No other agency or company in America is required to pre-fund future retiree health benefits, much less for workers that have not even been hired, or born, yet —the Postal Service should be relieved of this job-killing burden. Contrary to the conventional wisdom, neither the Internet nor the recession caused the crisis—over the past four years, the $21 billion in pre-funding payments caused 100 percent of the $20 billion in reported losses.

While we appreciate the president’s efforts to provide the Postal Service with short-term financial relief in his proposal to your committee, we believe a permanent solution to the pre-funding burden should be adopted. At the same time, we are bitterly disappointed and cannot support the president’s proposal to end six-day mail delivery service in 2013, a step that will slash service by 17 percent and generate modest short-term savings ($1.9 billion according to the Postal Regulatory Commission) and likely lead more mailers to abandon the system as delivery times rise.

The PRC review of the Postal Service’s five-day plan, issued in early 2011, concluded that that would hurt both rural and urban communities alike and negatively affect the elderly and small business owners as well. Five-day delivery will simply drive thousands of mailers who value six-day delivery (including prescription drug mailers, weekly newspapers and e-Bay businesses) from the system. As we did in our 2006 contract talks, NALC is prepared to find ways to make Saturday delivery more cost-effective in the current round of collective-bargaining. NALC urges the joint committee to follow the lead of 205 members of Congress from both parties who have co-sponsored H. Res. 137 in support of the continuation of Saturday delivery—a policy that will preserve 80,000 full- and part-time jobs in every congressional district in America.

The president’s postal plan includes several excellent proposals to strengthen the Postal Service. The plan would give USPS access to its $6.9 billion surplus in the Federal Employees Retirement System (FERS), help preserve the nation’s post office network by allowing the USPS to provide services for state and local governments, and allow the Postal Service the ability to better realign the costs of postage with the costs of mail delivery while keeping overall postage rates in line with general inflation. The plan also includes a restructuring of the Postal Service’s requirements to pre-fund future retiree health benefits—an essential piece of any Postal Service proposal.

NALC urges the special joint committee to include elements of the president’s proposal as well as provisions from several pieces of legislation now pending in Congress from members of both political parties. Among these are H.R. 1351 in the House, which now has a bipartisan majority of 224 co-sponsors, and bills offered by Senators Carper (S. 1010), Collins (S. 353) and Baucus (S. 1649) in the Senate. We believe the best approach to returning the USPS to solid financial footing and bolstering the tens of thousands of businesses that make up the broader postal industry would be to include the following measures in the deficit reduction package:

1. Adopt President Obama’s proposal to return the $6.9 billion FERS surplus to USPS:

There is no dispute over the existence of this surplus. Returning the funds to the USPS will restore its cash reserves, which could be used to pay down the USPS debt (run up to cover the cost of pre-funding), ride out the recession and/or pay for employee buy-outs.

2. Implement the findings of either independent audit of the postal sub-account of the CSRS (by the Hay Group or the Segal Company) conducted in 2010:

H.R. 1351 (the Lynch bill), Title I of S. 1010 (the Carper bill) and the finance provisions of S. 353 (the Collins bill) all call for the OPM to more fairly allocate the cost of pre-1971 pensions.

Both independent audits found that the methods used by the OPM are unfair to the Postal Service. They are also unfair to postal employees whose contributions help fund the CSRS pensions. Implementing the audit will correct this unfairness and strengthen the Postal Service’s long-term finances because, under current law, any surplus in the postal CSRS account will be transferred to the PSRHBF in 2015. This will all but eliminate any unfunded liability for retiree health at the time. It will also raise the Postal Service’s level of pre-funding to well above that suggested by corporate best practices in the private sector, where only about a third of companies pre-fund at all and where those that do pre-fund have covered only about a third of future costs.

(Note: Whether the OPM has complied with a 1974 statute on pension funding or has the authority under the PAEA or P.L. 108-18 to change allocation methods is irrelevant. The methods adopted were grossly unfair to the Postal Service and to postal employees whose contributions fund the sub-account. Congress should mandate fairness in this matter.)

3. Repeal the remaining scheduled pre-funding payments mandated by the Postal Accountability and Enhancement Act of 2006 and hold the Postal Service to private-sector accounting and pre-funding standards:

The USPS should not be required to make any new contributions to the PSRHBF unless it has positive net income or its level of pre-funding falls below that achieved by large private-sector companies.

No other agency or company in America is required to pre-fund; it is done on a voluntary basis—generally when companies are profitable. The USPS should be treated like similarly situated private companies. According to an annual survey of Fortune 1000 companies by Towers Watson in 2010, only 37 percent of companies pre-fund their future retiree health benefits at all, and those that do have a median funding level of 33 percent. The USPS should not be forced to pre-fund, contribute the normal cost of future benefits or amortize unfunded liabilities for retiree health benefits when other companies and agencies are not subject to the same burden. Under private-sector accounting standards, participants in multi-employer health benefit plans like FEHBP are allowed to expense retiree health premiums on a pay-as-you-go basis. The USPS should be treated the same way.

(Note: At a minimum, pre-funding should be suspended until the U.S. economy recovers and/or the USPS returns to profitability. Pre-funding might be limited to 25 percent of USPS profits.)

4. Mandate the repayment of some or all of the Postal Service’s debt to the Federal Finance Bank (FFB) with funds from the Postal Service Retiree Health Benefit Fund:

The Postal Service needs the ability to finance its ongoing reorganization and to make investments that will help cut costs in the future.

The Postal Service had no outstanding debt in 2006 to the Treasury Department’s FFB; today, its debt is approaching $15 billion. The entire increase in the USPS’s debt since 2007 is due to the excessive pre-funding mandate included in the PAEA. That mandate has cost the USPS $21 billion over the past four years. No sensible company would use up all of its borrowing authority to pre-fund retiree health benefits for workers that have yet to be hired, much less for decades of such benefits for those that are already retired. This proposal would reverse this policy mistake.

5. Invest the assets in the PSRHBF more appropriately:

Given the 75-year time horizon and the long-term nature of the liabilities to be met with the assets in the PSRHBF, those assets should be invested more appropriately—as other companies’ post-retirement health benefit funds are invested. The PSRHBF is now invested exclusively in low-yielding Treasury securities. The OPM and/or the USPS should invest the PSRHBF’s assets in a well diversified portfolio of private-sector equities and corporate bonds.

6. Adopt President Obama’s proposal to allow the USPS to pay current retiree health premiums out of PSRHBF in 2012:

The USPS has already set aside $42 billion for future retiree health costs, enough to fund all its current retiree health benefit costs for decades. Yet under current law, it cannot access the fund until 2017. Allowing the USPS to use the fund for its intended purpose right away will help cover the $2.7 billion annual cost of current employees health benefit premiums.

7. Amend Section 101 of Title 39 (on Postal Policy) to preserve the mandates that protect small post offices and preserve six-day delivery:

The purpose for the financial provisions proposed above is to restore the Postal Service to fiscal health and to maintain universal service. Amending the basic postal policy of the U.S. to safeguard small post office and six-day service mandates would take these issues out of the annual appropriation process and ensure universal service at the level the public has come to expect. This provision will also save tens of thousands of jobs at a time when there is mass unemployment.

The proposals I have outlined will allow the Postal Service to regain its financial footing without the need for a dime of taxpayer money. They will also strengthen a crucial industry that employs millions of people and help the national economy recover from the global financial crisis. Americans are begging you to act in a bipartisan manner to address the nation’s problems. Bolstering the Postal Service, a service mandated by the Constitution, is a good place to start. It serves Red States and Blue States and has the overwhelming support of the American people (83 percent approval, according to a recent Pew Research survey). Show the American people that our representative democracy still works—Save America’s Postal Service.


Fredric V. Rolando, President
National Association of Letter Carriers