U.S. POSTAL SERVICE

Urgent Action Needed to 

Achieve Financial 

Sustainability

Statement of Gene L. Dodaro 

Comptroller General of the United States 

Testimony

Before the Committee on Homeland 

Security and Governmental Affairs, 

U.S. Senate 

For Release on Delivery 

Expected at 10:00 a.m. EST 

Wednesday, February 13, 2013 

GAO-13-347T 

United States Government Accountability Office

GAO 
United States Government Accountability Office

Highlights of GAO-13-347T, a testimony 

before the Committee on Homeland Security 

and Governmental Affairs, U.S. Senate 

February 13, 2013 

U.S. POSTAL SERVICE

Urgent Action Needed to Achieve Financial 

Sustainability

Why GAO Did This Study

USPS is in a serious financial crisis as 

its declining mail volume has not 

generated sufficient revenue to cover 

its expenses and financial obligations. 

First-Class Mail—which is highly 

profitable and generates the majority of 

the revenues used to cover overhead 

costs—declined 33 percent since it 

peaked in fiscal year 2001, and USPS 

projects a continued decline through 

fiscal year 2020. Declining mail volume

is putting USPS’s mission of providing 

prompt, reliable, and efficient universal

services to the public at risk. 

This testimony discusses (1) USPS’s 

financial condition, (2) initiatives to 

reduce costs and increase revenues, 

and (3) actions needed to improve 

USPS’s financial situation. The 

testimony is based primarily on our 

past and ongoing work and our 

analysis of USPS’s recent financial 

results.

In previous reports, GAO has provided 

strategies and options that USPS and 

Congress could consider to better align 

USPS costs with revenues and 

address constraints and legal 

restrictions that limit USPS’s ability to 

reduce costs and improve efficiency. 

GAO has also stated that Congress 

and USPS need to reach agreement 

on a comprehensive package of 

actions to improve USPS’s financial 

viability. 

What GAO Found

The U.S. Postal Service (USPS) continues to incur unsustainable operating 

deficits, has not made required payments of $11.1 billion to prefund retiree health 

benefits, and has reached its $15 billion borrowing limit. Thus far, USPS has 

been able to operate within these constraints, but now faces a critical shortage of 

liquidity that threatens its financial solvency and ability to finance needed capital 

investment. USPS had an almost 25 percent decline in total mail volume and net 

losses totaling $40 billion since fiscal year 2006 (see table). While USPS 

achieved about $15 billion in savings and reduced its workforce by about 

168,000 over this period, its debt and unfunded benefit liabilities grew to $96 

billion by the end of fiscal year 2012. USPS expects mail volume and revenue to 

continue decreasing as online bill communication and e-commerce expand.

Table: USPS Financial and Operational Information, Fiscal Years 2006 through 2012 

Fiscal year

Net income 

($ in billions)

Annual savings 

($ in billions)

Total mail 

volume

(billions)

Career 

employees 

(thousands)

2006 $0.9 $0.3 213 696

2007 (5.1) 1.2 212 685 

2008 (2.8) 2.0 203 663

2009 (3.8) 6.1 177 623

2010 (8.5) 3.0 171 584

2011 (5.1) 1.4 168 557 

2012 (15.9) 1.1 160 528

Source: USPS. 

USPS has reported on several initiatives to reduce costs and increase its 

revenues to curtail future net losses. To reduce costs, USPS announced a 5-year 

business plan in February 2012 with the goal of achieving $22.5 billion in annual 

cost savings by the end of fiscal year 2016. USPS has begun implementing this 

plan, which includes making changes to its mail processing, retail, and delivery 

networks and redesigning its workforce in line with changing mail volume. To 

achieve greater savings, USPS’s Board of Governors recently directed postal 

management to accelerate these efforts. To increase revenue, USPS is pursuing 

55 initiatives. While USPS expects shipping and package services to continue to 

grow, such growth is not expected to fully offset declining mail volume. 

USPS needs to reduce its expenses to avoid even greater financial losses, repay 

its outstanding debt, continue funding its retirement obligations, and increase 

capital for investment, including replacing its aging vehicle fleet. Also, Congress 

needs to act to (1) modify USPS’s retiree health benefit payments in a fiscally 

responsible manner; (2) facilitate USPS’s ability to align costs with revenues 

based on changing workload and mail use; and (3) require that any binding 

arbitration resulting from collective bargaining takes USPS’s financial condition 

into account. No one action in itself will address USPS’s financial condition; we 

have previously recommended a comprehensive package of actions. If Congress 

does not act soon, USPS could be forced to take more drastic actions that could 

have disruptive, negative effects on its employees, customers, and the 

availability of postal services. USPS also reported that it would prioritize 

payments to employees and suppliers ahead of those to the federal government.

View GAO-13-347T. For more information, 

contact Lorelei St. James at (202) 512-2834 or 

stjamesl@gao.gov. 
Page 1 GAO-13-347T 

United States Government Accountability Office

Washington, DC 20548 

Chairman Carper, Ranking Member Coburn, and Members of the 

Committee: 

We appreciate the opportunity to be here today to discuss the status of 

the U.S. Postal Service’s (USPS) financial condition and actions needed 

to address USPS’s financial challenges. We added USPS’s financial 

condition to our High Risk List in 2009, and USPS continues to face a 

serious financial crisis as its mail volume declines. USPS has not 

generated sufficient revenue to cover its expenses and financial 

obligations. While USPS must continue its efforts to align costs with 

revenues, congressional action is needed to facilitate necessary changes 

and help the Postal Service begin to transition to financial sustainability. 

This testimony discusses (1) USPS’s financial condition, (2) its initiatives 

to reduce costs and increase revenues, and (3) actions needed to 

improve its financial situation. This testimony is based primarily on our 

past and ongoing work examining various aspects of USPS’s operations 

and our analysis of its recent financial results, an analysis that we 

performed from January 2013 to February 2013. Our work was conducted 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

USPS faces a dire financial situation and does not have sufficient 

revenues to cover its expenses, putting its mission of providing prompt, 

reliable, and efficient universal services to the public at risk.1

 USPS 

continues to incur operating deficits that are unsustainable, has not made 

required payments of $11.1 billion to prefund retiree health benefit 

liabilities,2

 and has reached its $15 billion borrowing limit. Moreover, 

 

1

39 U.S.C. § 101(a). 

2

The Postal Accountability and Enhancement Act (PAEA) required USPS to make fixed 

annual payments (ranging from $5.4 billion to $5.8 billion per year from fiscal years 2007 

through 2016) to begin prefunding the cost of future retiree health benefits accrued by 

current employees and retirees. Pub. L. No. 109-435, § 803, 120 Stat. 3198 

(Dec. 20, 2006). 

 

USPS’s Financial 

Condition 
 

Page 2 GAO-13-347T 

USPS lacks liquidity to maintain its financial solvency or finance needed 

capital investment. As presented in table 1, since fiscal year 2006, USPS 

has achieved about $15 billion in savings and reduced its workforce by 

about 168,000, while also experiencing a 25 percent decline in total mail 

volume and net losses totaling $40 billion. 

Table 1: USPS Financial and Operational Information, Fiscal Years 2006 through 

2012 

Fiscal year 

Net income

($ in billions)

Annual 

savings

($ in billions)

Total mail 

volume 

(billions) 

Career 

employees

(thousands)

2006 $0.9 $0.3 213 696

2007 (5.1) 1.2 212 685

2008 (2.8) 2.0 203 663

2009 (3.8) 6.1 177 623

2010 (8.5) 3.0 171 584

2011 (5.1) 1.4 168 557

2012 (15.9) 1.1 160 528

Source: USPS. 

As a result of significant declines in volume and revenue, USPS reported 

that it took unprecedented actions to reduce its costs by $6.1 billion in 

fiscal year 2009. Also, in fiscal year 2009, a cash shortfall necessitated 

congressional action to reduce USPS’s mandated payment to prefund 

retiree health benefits from $5.4 billion to $1.4 billion.3

 In 2011, USPS’s 

$5.5 billion required retiree health benefit payment was delayed until 

August 1, 2012.4

 USPS missed that payment as well as the $5.6 billion 

that was due by September 30, 2012. 

USPS continues to face significant decreases in mail volume and 

revenues as online communication and e-commerce expand. While 

remaining among USPS’s most profitable products, both First-Class Mail 

and Standard Mail volumes have declined in recent years as illustrated in 

figure 1. First-Class Mail—which is highly profitable and generates the 

majority of the revenues used to cover overhead costs—declined 33 

 

3

Pub. L. No. 111-68, § 164, 123 Stat. 2053 (Oct. 1, 2009). 

4

Pub. L. No. 112-74, § 632, 125 Stat. 786, 928 (Dec. 23, 2011). 
 

Page 3 GAO-13-347T 

percent since it peaked in fiscal year 2001, and USPS projects a 

continued decline through fiscal year 2020. Standard Mail (primarily 

advertising) has declined 23 percent since it peaked in fiscal year 2007, 

and USPS projects that it will remain roughly flat through fiscal year 2020. 

Standard Mail is profitable overall, but it takes about three pieces of 

Standard Mail, on average, to equal the profit from the average piece of 

First-Class Mail. First-Class Mail and Standard Mail also face competition 

from electronic alternatives, as many businesses and consumers have 

moved to electronic payments over the past decade in lieu of using the 

mail to pay bills. USPS reported that for the first time, in fiscal year 2010, 

fewer than 50 percent of household bills were paid by mail. 

Figure 1: Actual and Projected First-Class Mail and Standard Mail Volume, Fiscal 

Years 2000 through 2020 

In addition to lost mail volume and revenue, USPS also has incurred debt, 

workers’ compensation, and unfunded benefit liabilities, such as pension 

and retiree health benefits, that totaled $96 billion at the end of fiscal year 

2012. Table 2 shows the amounts of these liabilities over the last 6 fiscal 

years. One of these liabilities, USPS’s debt to the U.S. Treasury, 

increased over this period from $4 billion to its statutory limit of $15 billion. 
 

Page 4 GAO-13-347T 

Thus, USPS can no longer borrow to maintain its financial solvency or 

finance needed capital investment. USPS continues to incur 

unsustainable operating deficits. In this regard, the USPS Board of 

Governors recently directed postal management to accelerate 

restructuring efforts to achieve greater savings. 

Table 2: Selected USPS Liabilities and Unfunded Pension and Health Benefit Liabilities, Fiscal Year End 2007 through 2012 

(Dollars in billions) 

Liabilities Unfunded retiree health benefit and pension liabilities 

Fiscal Year 

Outstanding debt at 

the end of the fiscal 

year 

Workers’ 

compensation 

liabilities

Unfunded liabilities 

for retiree health 

benefits

Unfunded CSRS 

liabilities 

(surplus)a

Unfunded FERS 

liabilities 

(surplus)a Total

2007 4.2 7.7 55.0 3.1 (8.4) 61.6

2008 7.2 8.0 53.5 3.3 (8.8) 63.2 

2009 10.2 10.1 52.0 9.6 (6.8) 75.1

2010 12.0 12.6 48.6 7.3 (6.9) 73.6

2011 13.0 15.1 46.2 (1.7) (11.4) 61.2

2012 15.0 17.6 47.8 18.7 (3.0) 96.1

Source: USPS. 

a

The Civil Service Retirement System (CSRS), which became effective on August 1, 1920, 

established a retirement system for certain federal employees. It was replaced by the Federal 

Employees Retirement System (FERS) for federal employees who first entered covered service on 

and after January 1, 1987. FERS and CSRS projections are sensitive to the economic and 

demographic assumptions used and have fluctuated from year to year due to actual economic and 

demographic outcomes (such as investment returns, salary increases, and mortality) being different 

than those predicted by the assumptions, and to changes in the assumptions themselves. 

These selected USPS liabilities increased from 83 percent of revenues in 

fiscal year 2007 to 147 percent of revenues in fiscal year 2012 as 

illustrated in figure 2. This trend demonstrates how USPS liabilities have 

become a large and growing financial burden. 
 

Page 5 GAO-13-347T 

Figure 2: Selected USPS Liabilities and Unfunded Pension and Health Benefit 

Liabilities as a Percentage of USPS Revenues 

USPS’s dire financial condition makes paying for these liabilities highly 

challenging. In addition to reaching its limit in borrowing authority in fiscal 

year 2012, USPS did not make required prefunding payments of $11.1 

billion for fiscal year 2011 and 2012 retiree health benefits. At the end of 

fiscal year 2012, USPS had $48 billion in unfunded retiree health benefit 

liabilities. 

Looking forward, USPS has warned that it suffers from a severe lack of 

liquidity. As USPS has reported, “Even with some regulatory and 

legislative changes, our ability to generate sufficient cash flows from 

current and future management actions to increase efficiency, reduce 

costs, and generate revenue may not be sufficient to meet all of our 

financial obligations.”5

 For this reason, USPS has stated that it continues 

to lack the financial resources to make its annual retiree health benefit 

prefunding payment. USPS has also reported that in the short term, 

 

5

United States Postal Service, 2012 Report on Form 10-K (Washington, D.C.: Nov. 15, 

2012) 10. 
 

Page 6 GAO-13-347T 

should circumstances leave it with insufficient liquidity, it may need to 

prioritize payments to its employees and suppliers ahead of those to the 

federal government. For example, near the end of fiscal year 2011, in 

order to maintain its liquidity USPS temporarily halted its regular 

contributions for the Federal Employees Retirement System (FERS) that 

are supposed to cover the cost of benefits being earned by current 

employees. However, USPS has since made up those missed FERS 

payments. USPS’s statements about its liquidity raise the issue of 

whether USPS will need additional financial help to remain solvent while it 

restructures and, more fundamentally, whether it can remain financially 

self-sustainable in the long term. 

USPS has also raised the concern that its ability to negotiate labor 

contracts is essential to maintaining financial stability and that failure to 

do so could have significant adverse consequences on its ability to meet 

its financial obligations. Most USPS employees are covered by collective 

bargaining agreements with four major labor unions which have 

established salary increases, cost-of-living adjustments, and the share of 

health insurance premiums paid by employees and USPS. When USPS 

and its unions are unable to agree, binding arbitration by a third-party 

panel is used to establish agreement. There is no statutory requirement 

for USPS’s financial condition to be considered in arbitration. In 2010, we 

reported that the time has come to reexamine USPS’s 40-year-old 

structure for collective bargaining, noting that wages and benefits 

comprise 80 percent of its costs at a time of escalating losses and a 

dramatically changed competitive environment.6

 We also reported that 

Congress should consider revising the statutory framework for collective 

bargaining to ensure that USPS’s financial condition be considered in 

binding arbitration. 

USPS has several initiatives to reduce costs and increase its revenues to 

curtail future net losses. In February 2012, USPS announced a 5-year 

business plan with the goal of achieving $22.5 billion in annual cost 

savings by the end of fiscal year 2016. USPS has begun implementing 

this plan, which includes initiatives to save: 

 

6

GAO, U.S. Postal Service: Strategies and Options to Facilitate Progress toward Financial 

Viability, GAO-10-455 (Washington, D.C.: Apr. 12, 2010). 

USPS Initiatives to 

Reduce Costs and 

Increase Revenues 
 

Page 7 GAO-13-347T 

 $9 billion in mail processing, retail, and delivery operations, including 

consolidation of the mail processing network, and restructuring retail 

and delivery operations; 

 $5 billion in compensation and benefits and non-personnel initiatives; 

and 

 $8.5 billion through proposed legislative changes, such as moving to a 

5-day delivery schedule7

 and eliminating the obligation to prefund 

USPS’s retiree health benefits. 

Simultaneously, USPS’s 5-year plan would further reduce the overall size 

of the postal workforce by roughly 155,000 career employees, with many 

of those reductions expected to result from attrition. According to the plan, 

half of USPS’s career employees are currently eligible for full or early 

retirement. Reducing its workforce is vital because, as noted, 

compensation and benefits costs continue to generate about 80 percent 

of USPS’s expenses. Compensation alone (primarily wages) exceeded 

$36 billion in fiscal year 2012, or close to half of its costs. Compensation 

costs decreased by $542 million in fiscal year 2012 as USPS offered 

separation incentives to postmasters and mail handlers to encourage 

more attrition. This fiscal year, separation incentives were offered to 

employees represented by the American Postal Workers Union (e.g., mail 

processing and retail clerks) to encourage further attrition as processing 

and retail operations are redesigned and consolidated to more closely 

correspond with workload. 

To accelerate implementation of its plan, in early February 2013, USPS 

announced plans to transition to a new delivery schedule by early August 

2013 that would limit its delivery of mail on Saturdays to mail addressed 

to Post Office Boxes and to packages.8

 USPS’s operational plan for the 

new delivery schedule anticipates a combination of employee 

reassignment and attrition to generate an expected annual cost savings 

of about $2 billion once its plan is fully implemented. Over the past 

several years, USPS has advocated shifting to a 5-day delivery schedule 

 

7

USPS’s annual appropriations acts have required USPS to provide 6-day delivery of mail 

at not less than 1983 levels. See e.g., Pub. L. No. 112-74, 125 Stat. 786, 923 

(Dec. 23, 2011). 

8

In addition, post offices open on Saturdays will remain open. 
 

Page 8 GAO-13-347T 

for both mail and packages. According to USPS, however, recent strong 

growth in package delivery—as we will discuss in more detail below—and 

projections for continued strong package growth throughout the coming 

decade led to a revised approach to maintain package delivery 6 days per 

week. 

Another key area of potential savings included in the 5-year plan focused 

on reducing compensation and benefit costs. USPS’s largest benefit 

payments in fiscal year 2012 included: 

 $7.8 billion in current-year health insurance premiums for employees, 

retirees, and their survivors (USPS’s health benefit payments would 

have been $13.4 billion if USPS had paid the required $5.6 billion 

retiree health prefunding payment9

); 

 $3.0 billion in FERS pension funding contributions; 

 $1.8 billion in social security contributions; 

 $1.4 billion in workers’ compensation payments; and 

 $1.0 billion in Thrift Savings Plan contributions. 

USPS has proposed administering its own health care plan for its 

employees and retirees and withdrawing from the Federal Employee 

Health Benefits (FEHB) program so that it can better manage its costs 

and achieve significant savings, which USPS has estimated could be over 

$7 billion annually. About $5.5 billion of the estimated savings would 

come from eliminating the retiree health benefit prefunding payment and 

another $1.5 billion would come from reducing health care costs. We are 

currently reviewing USPS’s proposal including its potential financial 

effects on participants and USPS. 

To increase revenue, USPS is working to increase use of shipping and 

package services. With the continued increase in e-commerce, USPS 

projects that shipping and package volume will grow by 7 percent in fiscal 

year 2013, after increasing 7.5 percent in fiscal year 2012. Revenue from 

these two product categories represented about 18 percent of USPS’s 

 

9

The $5.6 billion is the amount originally due in fiscal year 2012, before the fiscal year 

2011 required payment of $5.5 billion was deferred and added to fiscal year 2012. 
 

Page 9 GAO-13-347T 

fiscal year 2012 operating revenue. However, USPS does not expect that 

continued growth in shipping and package services will fully offset the 

continued decline of revenue from First-Class Mail and other products. 

We recently reported that USPS is pursuing 55 initiatives to generate 

revenue.10 Forty-eight initiatives are extensions of existing lines of postal 

products and services, such as offering Post Office Box customers a suite 

of service enhancements (e.g., expanded lobby hours and earlier pickup 

times) at selected locations and increasing public awareness of the 

availability of postal services at retail stores. The other seven initiatives 

included four involving experimental postal products, such as prepaid 

postage on the sale of greeting cards, and three that were extensions of 

nonpostal services that are not directly related to mail delivery. USPS 

offers 12 nonpostal services including Passport Photo Services, the sale 

of advertising to support change-of-address processing, and others 

generating a net income of $141 million in fiscal year 2011.11 USPS has 

also increased its use of negotiated service agreements12 that offer 

competitively priced contracts as well as promotions with temporary rate 

reductions that are targeted to retain mail volume. We are currently 

reviewing USPS’s use of negotiated service agreements. 

As USPS attempts to reduce costs and increase revenue, its mission to 

provide universal service continues. USPS’s network serves more than 

152 million residential and business delivery points. In May 2011, we 

reported that many of USPS’s delivery vehicles were reaching the end of 

their expected 24-year operational life and that USPS’s financial 

challenges pose a significant barrier to replacing or refurbishing its fleet.13

 

10GAO, U.S. Postal Service: Overview of Initiatives to Increase Revenue and Introduce 

Nonpostal Services and Experimental Postal Products, GAO-13-216 (Washington, D.C.: 

Jan. 15, 2013). 

11Such services were grandfathered by the Postal Regulatory Commission (PRC) after 

enactment of PAEA. PAEA eliminated USPS’s authority to offer nonpostal services unless 

such services were offered as of January 1, 2006, and expressly grandfathered by PRC. 

USPS may, however, offer new nonpostal services and products if they are related to the 

grandfathered nonpostal services. It may also offer experimental postal products that meet 

certain conditions. 

12Negotiated service agreements are customized postal rate contracts with individual 

companies that generally provide lower prices on specific mail products in exchange for 

meeting volume targets and mail preparation requirements. 

13GAO, United States Postal Service: Strategy Needed to Address Aging Delivery Fleet, 

GAO-11-386 (Washington, D.C.: May 5, 2011). 
 

Page 10 GAO-13-347T 

As a result, USPS’s approach has been to maintain the delivery fleet until 

USPS determines how to address longer term needs, but USPS has been 

increasingly incurring costs for unscheduled maintenance because of 

breakdowns. The eventual replacement of its vehicle delivery fleet 

represents yet another financial challenge facing USPS. We are currently 

reviewing USPS’s investments in capital assets. 

We have issued a number of reports on strategies and options for USPS 

to improve its financial situation by optimizing its network and 

restructuring the funding of its pension and retiree health benefit liabilities. 

To assist Congress in addressing issues related to reducing USPS’s 

expenses, we have issued several reports analyzing USPS’s initiatives to 

optimize its mail processing, delivery, and retail networks. 

In April 2012, we issued a report related to USPS’s excess capacity in its 

network of 461 mail processing facilities.14 We found that USPS’s mail 

processing network exceeds what is needed for declining mail volume. 

USPS proposed consolidating its mail processing network, a plan based 

on proposed changes to overnight delivery service standards for FirstClass Mail and Periodicals. Such a change would have enabled USPS to 

reduce an excess of 35,000 positions and 3,000 pieces of mail 

equipment, among other things. We found, however, that stakeholder 

issues and other challenges could prevent USPS from implementing its 

plan for consolidating its mail processing network. Although some 

business mailers and Members of Congress expressed support for 

consolidating mail processing facilities, other mailers, Members of 

Congress, affected communities, and employee organizations raised 

concerns. Key issues raised by business mailers were that closing 

facilities could increase their transportation costs and decrease service. 

Employee associations were concerned that reducing service could result 

in a greater loss of mail volume and revenue that could worsen USPS’s 

financial condition. We reported that if Congress preferred to retain the 

current delivery service standards and associated network, decisions will 

 

14GAO, U.S. Postal Service: Mail Processing Network Exceeds What Is Needed for 

Declining Mail Volume, GAO-12-470 (Washington, D.C.: Apr. 12, 2012). 

Actions Needed to 

Improve USPS’s 

Financial Situation 

Network Optimization 

Mail Processing 
 

Page 11 GAO-13-347T 

need to be made about how USPS’s costs for providing these services 

will be paid. 

In March 2011, we reported on USPS’s proposal to reduce costs by 

moving from a 6-day to a 5-day delivery schedule.15 USPS delivers to 

more than 152 million addresses. USPS also estimated that 5-day 

delivery would result in minimal mail volume decline. We found that the 

extent to which USPS can achieve cost savings from this change and 

mitigate volume and revenue loss depends on how well and how quickly 

USPS can realign its operations, workforce, and networks; maintain 

service quality; and communicate with stakeholders. USPS has spent 

considerable time and resources developing plans to facilitate this 

transition. Nevertheless, risks and uncertainties remain, such as how 

quickly USPS can realign its workforce through attrition; how effectively it 

can modify certain finance systems; and how mailers will respond to this 

change in service. 

In April 2012, we reported that USPS has taken several actions to 

restructure its retail network—which included almost 32,000 postalmanaged facilities in fiscal year 2012—through reducing its workforce and 

its footprint while expanding retail alternatives.16 We also reported on 

concerns customers and other stakeholders have expressed regarding 

the impact of post office closures on communities, the adequacy of retail 

alternatives, and access to postal services, among others. We discussed 

challenges USPS faces, such as legal restrictions and resistance from 

some Members of Congress and the public, that have limited USPS’s 

ability to change its retail network by moving postal services to more 

nonpostal-operated locations (such as grocery stores), similar to what 

other nations have done.17 The report concluded that USPS cannot 

support its current level of services and operations from its current 

revenues. We noted that policy issues remain unresolved related to what 

level of retail services USPS should provide, how the cost of these 

 

15GAO, U.S. Postal Service: Ending Saturday Delivery Would Reduce Costs, but 

Comprehensive Restructuring Is Also Needed, GAO-11-270 (Washington, D.C.: Mar. 29, 

2011). 

16GAO, U.S. Postal Service: Challenges Related to Restructuring the Postal Service’s 

Retail Network, GAO-12-433 (Washington, D.C.: Apr. 17, 2012). 

17GAO, U.S. Postal Service: Foreign Posts’ Strategies Could Inform U.S. Postal Service’s 

Efforts to Modernize, GAO-11-282 (Washington, D.C.: Feb. 16, 2011). 

Delivery 

Retail 
 

Page 12 GAO-13-347T 

services should be paid, and how USPS should optimize its retail 

network. 

In November 2011, we reported that USPS had expanded access to its 

services through alternatives to post offices in support of its goals to 

improve service and financial performance and recommended that USPS 

develop and implement a plan with a timeline to guide efforts to 

modernize USPS’s retail network, and that addresses both traditional post 

offices and retail alternatives as well.18 We added that the plan should 

also include: 

(1) criteria for ensuring the retail network continues to provide adequate 

access for customers as it is restructured; 

(2) procedures for obtaining reliable retail revenue and cost data to 

measure progress and inform future decision making; and 

(3) a method to assess whether USPS’s communications strategy is 

effectively reaching customers, particularly those customers in areas 

where post offices may close. 

In November 2012, we reported that although contract postal units 

(CPUs)—independent businesses compensated by USPS to sell most of 

the same products and services as post offices at the same price—have 

declined in number, they have supplemented post offices by providing 

additional locations and hours of service.19 More than 60 percent of CPUs 

are in urban areas where they can provide customers nearby alternatives 

when they face long lines at post offices. In fiscal year 2011, after 

compensating CPUs, USPS retained 87 cents of every dollar of CPU 

revenue. We found that limited interest from potential partners, competing 

demands on USPS staff resources, and changes to USPS’s retail network 

posed potential challenges to USPS’s use of CPUs. 

 

18GAO, U.S. Postal Service: Action Needed to Maximize Cost-Saving Potential of 

Alternatives to Post Offices, GAO-12-100 (Washington, D.C.: Nov. 17, 2011). 

19GAO, Contract Postal Units: Analysis of Location, Service, and Financial 

Characteristics, GAO-13-41 (Washington, D.C.: Nov. 14, 2012). 
 

Page 13 GAO-13-347T 

To assist Congress in addressing issues related to funding USPS’s 

liabilities, we have also issued several reports that address USPS’s 

liabilities, including its retiree health benefits, pension, and workers’ 

compensation. 

In December 2012, we reported that USPS’s deteriorating financial 

outlook will make it difficult to continue the current schedule for 

prefunding postal retiree health benefits in the short term, and possibly to 

fully fund the remaining $48 billion unfunded liability over the remaining 

decades of the statutorily required actuarial funding schedule.20 However, 

we also reported that deferring funding could increase costs for future 

ratepayers and increase the possibility that USPS may not be able to pay 

for some or all of its liability. We stated that failure to prefund these 

benefits is a potential concern. Making affordable prefunding payments 

would protect the viability of USPS by not saddling it with bills later on, 

when employees are already retired and no longer helping it generate 

revenue; it can also make the promised benefits more secure. Thus, as 

we have previously reported, we continue to believe that it is important for 

USPS to prefund these benefits to the maximum extent that its finances 

permit. We also recognize that without congressional or further USPS 

actions to align revenue and costs, USPS will not have the finances 

needed to make annual payments and reduce its long term retiree health 

unfunded liability. No funding approach will be viable unless USPS can 

make the required payments. 

We reported on options with regard to the FERS surplus, noting the 

degree of uncertainty inherent in this estimate and reporting on the 

implications of alternative approaches to accessing this surplus.21 The 

estimated FERS surplus decreased from 2011 to 2012, and at the end of 

fiscal year 2012, USPS had an estimated FERS surplus of $3.0 billion 

and an estimated CSRS deficit of $18.7 billion.22

 

20GAO, U.S. Postal Service: Status, Financial Outlook, and Alternative Approaches to 

Fund Retiree Health Benefits, GAO-13-112 (Washington, D.C.: Dec. 4, 2012). 

21GAO, U.S. Postal Service: Allocation of Responsibility for Pension Benefits between the 

Postal Service and the Federal Government, GAO-12-146 (Washington, D.C.: Oct. 13, 

2011). 

22USPS is required by law to make certain payments to the Civil Service Retirement and 

Disability Fund to fund its share of CSRS and FERS pension costs. The same federal fund 

finances both CSRS and FERS. 

Addressing USPS Benefit 

Liabilities 

Retiree Health Benefits 

FERS Pension Benefits 
 

Page 14 GAO-13-347T 

In 2012, we reported on workers’ compensation benefits paid to both 

postal and nonpostal beneficiaries under the Federal Employees’ 

Compensation Act (FECA).23 USPS has large FECA program costs. At 

the time of their injury, 43 percent of FECA beneficiaries in 2010 were 

employed by USPS. FECA provides benefits to federal workers who 

sustained injuries or illnesses while performing federal duties, and 

benefits are not taxed or subject to age restrictions. Various proposals to 

modify FECA’s benefit levels have been advanced. At the request of 

Congress, we have provided information to assist it in making decisions 

about the FECA program. 

In summary, to improve its financial situation, USPS needs to reduce its 

expenses to close the gap between revenue and expenses, repay its 

outstanding debt, continue funding its retirement obligations, and increase 

capital for investment, such as replacing its aging vehicle fleet. In 

addition, as noted in prior reports, congressional action is needed to (1) 

modify USPS’s retiree health benefit payments in a fiscally responsible 

manner; (2) facilitate USPS’s ability to align costs with revenues based on 

changing workload and mail use; and (3) require that any binding 

arbitration resulting from collective bargaining takes USPS’s financial 

condition into account. As we have continued to underscore, Congress 

and USPS need to reach agreement on a comprehensive package of 

actions to improve USPS’s financial viability. In previous reports, we have 

provided strategies and options, to both reduce costs and enhance 

revenues, that Congress could consider to better align USPS costs with 

revenues and address constraints and legal restrictions that limit USPS’s 

ability to reduce costs and improve efficiency; we have also reported on 

implications for addressing USPS’s benefit liabilities. If Congress does not 

act soon, USPS could be forced to take more drastic actions that could 

have disruptive, negative effects on its employees, customers, and the 

availability of reliable and affordable postal services. 

 

23GAO, Federal Employees’ Compensation Act: Analysis of Proposed Program Changes, 

GAO-13-108 (Washington, D.C.: Oct. 26, 2012), Federal Employees’ Compensation Act: 

Analysis of Proposed Changes on USPS Beneficiaries, GAO-13-142R (Washington, D.C.: 

Nov. 26, 2012), and Federal Employees’ Compensation Act: Effects of Proposed Changes 

on Partial Disability Beneficiaries Depend on Employment After Injury, GAO-13-143R 

(Washington, D.C.: Dec. 7, 2012). 

Workers’ Compensation 

Benefits 

Concluding 

Observations 
 

Page 15 GAO-13-347T 

Chairman Carper, Ranking Member Coburn, and Members of the 

Committee, this concludes my prepared statement. I would be pleased to 

answer any questions that you may have at this time. 

For further information about this statement, please contact Lorelei St. 

James, Director, Physical Infrastructure, at (202) 512-2834 or 

stjamesl@gao.gov. Contact points for our Congressional Relations and 

Public Affairs offices may be found on the last page of this statement. In 

addition to the contact named above, Frank Todisco, Chief Actuary; 

Samer Abbas, Teresa Anderson, Barbara Bovbjerg, Kyle Browning, Colin 

Fallon, Imoni Hampton, Kenneth John, Kim McGatlin, Amelia Shachoy, 

Andrew Sherrill, and Crystal Wesco made important contributions to this 

statement. 

GAO Contact and 

Staff 

Acknowledgments 

(544189)
Page 16 GAO-13-347T 

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