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OPTIONS TO BRING THE POSTAL SERVICE BACK 

FROM INSOLVENCY 

HEARING 

BEFORE THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

APRIL 17, 2013 

Serial No. 113–50 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

CYNTHIA M. LUMMIS, Wyoming 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

KERRY L. BENTIVOLIO, Michigan 

RON DESANTIS, Florida 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

JACKIE SPEIER, California 

MATTHEW A. CARTWRIGHT, Pennsylvania 

MARK POCAN, Wisconsin 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

DANNY K. DAVIS, Illinois 

PETER WELCH, Vermont 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

STEPHEN CASTOR, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

(III) 

C O N T E N T S 

Page 

Hearing held on April 17, 2013 .............................................................................. 1 

WITNESSES 

The Hon. Gene Dodaro, Comptroller General, U.S. Government Accountability 

Office 

Oral Statement ................................................................................................. 6 

Written Statement ............................................................................................ 8 

The Hon. Mickey Barnett, Chairman, Board of Governors, United States 

Postal Service 

Oral Statement ................................................................................................. 25 

The Hon. Patrick Donahoe, Postmaster General and Chief Executive Officer, 

United States Postal Service 

Oral Statement ................................................................................................. 62 

Written Statement ............................................................................................ 65 

Mr. Frederic Rolando, President, National Association of Letter Carriers, 

AFL–CIO 

Oral Statement ................................................................................................. 81 

Written Statement ............................................................................................ 83 

APPENDIX 

Statement of Rep. Cummings submitted for the record ....................................... 138 

Legal Opinion regarding the Postal Service’s proposal to discontinue Saturday’s delivery, submitted by Chairman Issa ...................................................... 140 

A letter to Rep. Connolly from GAO dated March 21, 2013, submitted for 

the record by Rep. Connolly ................................................................................ 157 

Statement from Tony Cardenas, a Member of Congress from the State of 

California .............................................................................................................. 164 

Responses to questions submitted for the record .................................................. 166 

(1) 

OPTIONS TO BRING THE POSTAL SERVICE 

BACK FROM INSOLVENCY 

Wednesday, April 17, 2013 

HOUSE OF REPRESENTATIVES, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, D.C. 

The committee met, pursuant to call, at 9:35 a.m., in Room 2154, 

Rayburn House Office Building, Hon. Darrell E. Issa [chairman of 

the committee] presiding. 

Present: Representatives Issa, Mica, Duncan, Chaffetz, Walberg, 

Lankford, Amash, DesJarlais, Gowdy, Farenthold, Collins, 

Bentivolio, Cummings, Maloney, Norton, Tierney, Clay, Connolly, 

Cartwright, Pocan, Duckworth, Welch, Cardenas, and Lujan Grisham. 

Staff Present: Ali Ahmad, Majority Communications Advisor; 

Molly Boyl, Majority Parliamentarian; Lawrence J. Brady, Majority 

Staff Director; Adam P. Fromm, Majority Director of Member Services and Committee Operations; Linda Good, Majority Chief Clerk; 

Justin LoFranco, Majority Digital Director; Mark D. Marin, Majority Director of Oversight; Jeffrey Post, Majority Professional Staff 

Member; Laura L. Rush, Majority Deputy Chief Clerk; Scott 

Schmidt, Majority Deputy Director of Digital Strategy; Peter Warren, Majority Legislative Policy Director; Rebecca Watkins, Majority Deputy Director of Communications; Kevin Corbin, Minority 

Professional Staff Member; Jennifer Hoffman, Minority Press Secretary; Elisa LaNier, Minority Deputy Clerk; Lucinda Lessley, Minority Policy Director; Safiya Simmons, Minority Press Secretary; 

and Mark Stephenson, Minority Director of Legislation. 

Chairman ISSA. The committee will come to order. 

The Oversight Committee exists to secure two fundamental principles: first, Americans have a right to know that the money Washington takes from them is well spent, and I might say the money 

the Postal Service takes from them is well spent, and, second, 

Americans deserve an efficient, effective Government that works 

for them. 

Our duty on the Oversight and Government Reform Committee 

is to protect these rights. Our solemn responsibility is to hold Government accountable to taxpayers, because taxpayers have a right 

to know what they get from their Government. Our job is to work 

tirelessly in partnership with citizen watchdogs to deliver the facts 

to the American people and bring genuine reform to the Federal 

bureaucracy. 

Today we are going to have two panels. First, the General Accountability Office is going to characterize the insolvency, the dire 

2 

situation with the post office. I personally see that today’s hearing 

said insolvency. I say so because there is no such thing as bankruptcy of a Federal entity. The post office, although required to be 

solvent, required to be self-funding, is in fact neither self-funding 

nor solvent. 

The Postmaster reported in the neighborhood of $16 billion in 

losses last year. Although there is controversy over the so-called 

prefunding that which is being paid in against the inevitable 

health care requirements in retirement by postal workers, even if 

you take away that $11.1 billion default over two years, the fact 

is, in the real world, by any standard, the post office is bleeding 

red ink. They are doing so not because the Postmaster General has 

failed to propose changes, not because the GAO will not testify that 

these changes are material and work; not because the CBO has 

failed to score what these savings will be; not because some of 

those savings have been statutorily possible since the 1970s; not 

because the American people failed to support these meaningful 

changes by clear majorities in each category. 

And I want to reiterate the majority of Americans see six day as 

not essential; the majority of Americans are perfectly happy going 

to a cluster box, a corner box, or a lockbox near their home to get 

their mail while $6.6 billion continues to be lost because some get 

it in the chute at a greater cost of labor by far. 

Even the Alaskans admit that although bypass mail is wonderful 

and convenient, and they believe it has become an entitlement, but 

it clearly is expensive and they understand it is a subsidy from the 

post office. 

As we try to balance all of these and more, we find ourselves 

back here again and again. The legislation is heralded by almost 

every newspaper in America; it is supported by the business community. But behind the scenes lobbying continues to make it impossible. Recently, the postmaster announced that he would in fact 

go from six day to a new six day that would provide different service. Legal opinions varied, but he certainly had a right to try and 

be challenged. He had other avenues. He was supported by the 

President, who called for five day both in last year’s and this year’s 

Congress’s budget, but he backed down. He backed down on the 

pressure of an inevitable lawsuit. He backed down because, in fact, 

the postal unions do not want to have these reforms at this time 

because it will reduce their revenue. They do not want to have 

these reforms even though they are vastly supported. 

That is the problem we are here to talk about today, is insolvency and a failure to make the changes that are agreed on that 

can be made or to support legislation that would allow further 

changes. 

I want to thank everyone for being here. There will be two panels. I am going to split my time with the chairman of the subcommittee, Mr. Farenthold. 

The gentleman is recognized for the rest of my time. 

Mr. FARENTHOLD. Thank you, Mr. Chairman, for allowing me to 

give this brief opening statement. 

The United States Postal Service is an institution founded in our 

Constitution. Before the age of Internet and cell phones, it was the 

key mode of communication between loved ones separated by disVerDate Aug 31 2005 10:09 Sep 04, 2013 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\82436.TXT APRIL
3 

tances and between businesses and their customers and with the 

Government. We live in a different time today than when Benjamin 

Franklin was Postmaster General. 

Today’s hearing is about ways the Postal Service can modernize, 

work harder and work smarter, and prepare for the future. While 

I am a strong proponent of the benefits of the Internet, the loss of 

business to email and electronic bill payments is a real problem for 

the Postal Service. We need an infrastructure in this Country for 

moving matter, not just bits of data. 

For the post office, it is not just about cutting cost, but finding 

innovative solutions that will bring the USPS back from the brink 

of financial collapse and make it stronger for the future. There is 

no doubt the Postal Service is in need of reform. Even without the 

prefunding requirement, which I am sure we will hear a lot about 

today, the Postal Service is losing roughly $5 billion a year. 

To start off the conversation on postal reform in the 113th Congress, I chaired a hearing of the House Oversight Committee on 

the Federal Workforce, Postal Service and Census last week that 

focused on the Postal Service customers and what they need. Any 

elementary business course tells you, when business is struggling, 

the first thing they should do is go to their customers. Today we 

will hear more from the postal side and how they can become a 

more efficient 20th century mail provider. 

My concern as a government watchdog and as a taxpayer is that, 

without reform, the American people are going to be left footing the 

bill for a taxpayer bailout. That is the last thing we need right 

now. I agreed with the U.S. Postal Service’s plan to modify Saturday delivery, as did nearly 70 percent of Americans. Unfortunately, 

the board of governors has decided not to pursue this common 

sense cost-saving measure. The Postal Service’s reversal on this 

calls into question their ability to move forward with desperately 

needed reforms. I truly believe there are smart ways that the Postal Service can lower its costs and improve its service, and I hope 

we can bring them to light today. 

Thank you very much. 

Chairman ISSA. I thank the gentleman. 

We now recognize the ranking member for his opening statement. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. I am 

grateful to you for convening today’s hearing and I want to thank 

you for agreeing to my request to invite Mr. Fred Rolando, the 

President of the National Association of Letter Carriers, to be a 

part of this hearing. 

Labor is the foundation on which our Postal Service is built, and 

we must honor the employees who have served this institution for 

decades by ensuring that labor representatives are central partners 

to our reform efforts. Delivering mail to more than 150 million addresses, operating 32,000 post offices nationwide, the Postal Service remains a vital link that binds our great Nation together. 

Last year, however, the Postal Service reported losses of approximately $16 billion and it lost $1.3 billion in the most recent quarter. Ladies and gentlemen, this is simply unacceptable. It continues 

to lose approximately $25 million a day and it has borrowed all of 

the $15 billion it is authorized to borrow from the Treasury. 

4 

Obviously, such losses are unsustainable. However, much of this 

loss is attributable to the burden the Postal Service faces in 

prefunding its retiree health costs, a requirement not imposed on 

any other agency or business in the Country. 

The Postal Service has taken numerous steps to reduce its costs, 

including offering buyouts to employees, reducing operating hours 

at thousands of post offices, and closing dozens of mail processing 

centers. 

I often am reminded of a statement that I said many times: you 

can lose what you have by trying to hang on to what you used to 

be. You can lose what you have by trying to hang on to what you 

used to be. Things are changing and the Postal Service has to 

change. 

In addition, in January the Postal Service’s board of governors 

directed the Postal Service to eliminate delivery of all Saturday 

mail except packages. This change effectively would have ended six 

day delivery. Every appropriations measure enacted since 1984 has 

included a rider requiring six day mail delivery. It states that six 

day delivery and rural delivery of mail shall continue at not less 

than the 1983 level. The plain language of this rider clearly prohibits the changes ordered by the board of governors. 

Now, let me be clear. No matter what my position might be on 

five or six day, I can tell you that the postmaster would catch hell 

if he went against what the Congress voted for. We voted for that. 

So, Mr. Postmaster, I can understand the problems that would 

come when you have a Congress saying do one thing and then you 

turn around and do something else. 

In March, Congress extended this rider in the appropriations 

measure to fund the government for the remainder of fiscal year 

2013. As a result, the board rightly reversed course and delayed 

implementation of five day delivery until Congress passes legislation authorizing such a change. Again, this is Congress that did 

this. We did this, not the postmaster. We did it. 

As I have said repeatedly, Congress needs to pass comprehensive 

reform legislation that addresses not only delivery standards, but 

the full range of reforms needed to re-engineer the Postal Service 

for the next century. This legislation must amend the schedule for 

retiree health payments, recalculate the Postal Services’s FERS 

surplus using postal-specific characteristics, and provide key tools 

to right-size the Postal Service workforce. 

As I propose in my Innovate to Deliver Act, we should also create 

a new chief innovation officer position in the Postal Service. Too 

many people argue that the Postal Service should be self-sustaining like a business, while at the same time arguing it should 

be banned from competing against the private sector. I believe we 

must allow the Postal Service to expand into new business lines 

and my bill would do just that. 

Finally, and unfortunately, the most significant challenge facing 

the Postal Service today remains what it has been for the last two 

years: Congress’s failure to act. We have to do something, us up 

here. Although the Senate passed a comprehensive and bipartisan 

bill during last Congress, the House failed to consider any postal 

reform legislation whatsoever. Last fall, the House and the Senate 

did come together to negotiate potential solutions in a serious and 

5 

sustained manner. We did not resolve a bill but, as I stated when 

Chairman Issa and I testified before the Senate Homeland Security 

and Government Affairs Committee in February, I believe we can 

quickly finalize legislation that puts the Postal Service on the path 

to a sustainable financial future. This legislation is urgently needed and we should begin work on it immediately, and I am sure we 

will. 

So, Mr. Chairman, I want to thank you. I want to thank you for 

holding this hearing. It is a very, very important hearing and I look 

forward to hearing from our witnesses. 

With that, I yield back. 

Chairman ISSA. I thank the gentleman. 

I would like to swear in the panel at this time. Since they appear 

to both be present, could we have both the first and second panel, 

and we will swear you in together? Then we won’t have to do it 

twice. So, postmaster and Mr. Rolando, if you will step up also, and 

please rise. We have to be efficient in a committee that demands 

efficiency. Please raise your right hand. 

Do you solemnly swear that the testimony you are about to give 

will be the truth, the whole truth, and nothing but the truth? 

[Witnesses respond in the affirmative.] 

Chairman ISSA. Let the record reflect that both the first and second panel answered in the affirmative. 

Please take your seats. 

Additionally, there is another sworn witness here today. And it 

is the first time I have done this, so there is no script for it. Mr. 

James Bilbray, another member of the board of governors, is effectively on the first panel. For health reasons, he was not able to attend; however, yesterday he did give us a rather thorough, about 

a 90-minute interview, sworn interview. So I have dispersed his 

question and answers on the record. It will be available to those 

on the dais. You may use it as though it is live testimony. However, it will not be placed in the record officially—and this is almost for the press to understand—until Mr. Bilbray reviews it and 

signs it. This is an oddity of—although he did it yesterday, we have 

to give him time to review it. For purposes of being a witness, 

though, you normally don’t get to revise and extend every answer. 

So we are going to treat it as much as we can as a live witness. 

Specific questions and answers may be used. Those will be in the 

record but, of course, they will be subject to any additional signature; along with the signature, any additional remarks he makes 

that may clarify it. I think that is the best way to have the record, 

at least several days from now, be thorough and complete. 

Mr. CUMMINGS. Mr. Chairman, just one quick thing. 

Chairman ISSA. Of course. 

Mr. CUMMINGS. It is my understanding that Mr. Bilbray, just for 

clarification, Mr. Bilbray did say that he is willing to come at a 

later date, is that right? 

Chairman ISSA. He was willing to come at the next board of governors meeting, but he was also willing to do, in advance of this, 

a live interview. The live interview, I think, was bipartisan and 

really, I think, reflected what we wanted to do, was have the information as clearly on time as possible. So we are appreciative that 

he adjusted his schedule; did it yesterday. There will not be a need, 

6 

as far as I can see, for him to come back separately. I think his 

testimony pairs well with Mr. Barnett, and Mr. Bilbray, of course, 

is the vice chair. 

Mr. CUMMINGS. I just wanted to make sure that, in fairness to 

him, that he did volunteer. 

Chairman ISSA. Oh, absolutely. He was accommodating both by 

offering to come at an alternate date or, in spite of some health 

problems that he is having, he was able to do it yesterday. So that 

is why, to be honest, Micky, he beat you to the testimony by a 

whole day. 

With that, we now recognize the Honorable Gene Dodaro for his 

opening statement. 

WITNESS STATEMENTS 

STATEMENT OF THE HONORABLE GENE DODARO 

Mr. DODARO. Thank you very much, Mr. Chairman, Ranking 

Member Mr. Cummings, members of the committee. I am very 

pleased to be here today to talk about the Postal Service’s financial 

condition. 

The Postal Service’s financial condition has been on our high-risk 

list since 2009. The situation is dire. In the last five years the Postal Service has added $10 billion to its debt to the Treasury, reaching the $15 billion debt limit. Declining mail volumes have not generated the revenues necessary to meet expenses and financial obligations of the Postal Service. Its debt and unfunded benefit liabilities now stand at $96 billion. As a percent of revenues, they have 

grown from 83 percent of revenues in 2007 to 147 percent of revenues in 2012. 

Looking ahead, the Postal Service projects that first class mail, 

which is one of the most profitable products that they have, will 

continue to decline in volume through 2020. Also, they have pointed out that they have severe liquidity problems right now and have 

challenges in making capital investments in their delivery fleet, 

which many of the vehicles are approaching the end of their useful 

lives. 

These are not the ingredients of a successful, sustainable business model going forward. The Postal Service needs to act and the 

Congress needs to act in order to address this situation. We have 

recommended a comprehensive legislative package be passed. From 

the Postal Service’s standpoint, what we think they need to do is 

to continue to reduce their costs. They need to continue to look at 

their delivery and processing structure; they need to reduce their 

workforce. Eighty percent of their total costs are workforce related 

costs. They need to reexamine the benefits paid to the workforce 

in a compassionate and thorough manner. 

The Postal Service also needs to reexamine products that are not 

covering their costs. Periodicals, for example, and standard flat 

mail, in terms of catalogs, have not covered their costs last year, 

in 2012, by $1.5 billion. So they need to make some adjustments. 

We believe they could be done within the price caps that currently 

exist. 

Also, as the Postal Service has done, they need to continue to 

look for new revenue sources, as well. 

7 

Now, with regard to the Congress, as part of the legislative comprehensive package, there are at least three things I would point 

out in my opening statement it should address: one, it needs to 

modify the prepayment of post-retirement health care costs in a fiscally responsible manner. It is very important that this be dealt 

with in that way so that costs are not deferred down the line, particularly in light of the declining mail volume that portends revenue challenges going forward. 

Secondly, the Congress should modify the collective bargaining 

agreement statutes to require that the Postal Service’s financial 

condition be considered in binding arbitration. It has been 40 years 

since the legislation has been passed, and it was at a time when 

the Postal Service was in a different competitive position at that 

time. So we think it needs to be modernized and we think the requirement that the financial condition be considered as part of 

binding arbitration would be helpful in addressing this situation. 

Lastly, and perhaps not inconsequentially, the most important 

thing in my opinion is that the Congress give the Postal Service 

the flexibility both in pricing and delivery methods in order to react 

to changes in the marketplace and declining mail volume. Its biggest competition is technology. Technology is changing rapidly and 

the Postal Service is unable to make those changes in a very nimble and quick fashion. 

So we believe these are the type of changes that ought to be considered by the Congress, and I think it is very important for the 

Congress to act soon on this legislation to prevent unintended consequences both for the Postal Service, the American people, and for 

the finances of that entity, as well as the Federal Government. 

So thank you very much, Mr. Chairman. I am happy to entertain 

questions at the appropriate time. 

[Prepared statement of Mr. Dodaro follows:] 

8 


Insert offset folio 1 here 82436.001

Why GAO Did This Study 

viabHity. 

u.s. POSTAL SERVICE 

Urgent Action Needed to Achieve Financial 

Sustainability 

What GAO Found 

The U.S. Posta! 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. 

Source: USPS 

USPS has several initiatives to reduce costs and increase its revenues. 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, which included a proposed change in the delivery schedule. USPS has 

now put all changes in delivery service on hold, which will reduce Its ability to 

achieve the full 5-year business plan savings. USPS has begun implementing 

other parts of the plan, which includes needed changes to its network. 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 fundmg 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; GAO 

has 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 may need to prioritize 

payments to employees and suppliers ahead of those to the federal government. _____________ United States Government Accountability Office 
9 


Insert offset folio 2 here 82436.002

United States Government Accountability Office 

·Washington, DC 20548 

USPS's Financial 

Condition 

Chairman Issa, Ranking Member Cummings, and Members of the 

Committee: 

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

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 USPS begin to transition to financial sustainability. 

This testimony discusses (1) USPS's financial condition, (2) USPS's 

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

to improve USPS's financial situation. This testimony is based primarily 

on our past and ongoing work examining various aspects of USPS's 

operations and our analysis of USPS's recent financial results, and recent 

information on USPS's proposal for a change in delivery service that we 

reviewed from February 2013 to April 2013. This testimony is based on 

work 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.' 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, 

USPS lacks liquidity to maintain its financial solvency or finance needed 

'39 U S.C § 101(a) 

2The Postal Accountab!lity and Enhancement Act (PAEA) reqUIred USPS to make fixed 

annual payments (ranging from $5.4 billion to $5.8 bWion 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) 

Page 1 GAO·13·562T 
10 


Insert offset folio 3 here 82436.003

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 16S,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) 

Note: Annual savings are those reported by USPS 

Total mail 

volume 

(billions) 

employees 

(thousands) 

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 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, 20124 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 

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

continued decline through fiscal year 2020. Standard Mail (primarily 

3pub. L. No. 111-68, § 164(a), 123 Stat 2053 (Oct 1,2009) 

4Pub L. No. 112-74, § 632, 125 Slat 786, 928 (Dec. 23, 2011). 

Page 2 GAO-13-562T 
11 


Insert offset folio 4 here 82436.004

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. For the first time, in 2010, fewer than 50 percent of all 

bills were paid by mail. 

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

Years 2000 through 2020 

Mal!vo!ume(lnbllllcns) 

120 

110 

100 

90 

80 

70 

60 

50 

40 

30 

20 

10 

Fiscal Year 

FI:st·ClassMall 

Stal1dardMal! 

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

financial liabilities, that totaled $96 billion at the end offiscal year 2012, 

that included unfunded pension and retiree health benefit liabilities. 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. 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 

Page 3 GAO-13-562T 
12 


Insert offset folio 5 here 82436.005

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 

Unfunded Unfunded 

CSRS FERS 

Fiscal Outstanding debt at the Workers' compensation Unfunded liabilities for 

Year end of the fiscal liabilities retiree health benefits 

2009 10.2 

2010 12.0 

2011 130 

2012 15.0 

10.1 52.0 9.6 (6.8) 75.1 

12.6 48.6 7.3 (6.9) 73.6 

15.1 46.2 (1.7) (11.4) 61.2 

17.6 47.8 18.7 (3.0) 96.1 

Source usps. 

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

established a retirement system for certam 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 4 GAO·13·562T 
13 


Insert offset folio 6 here 82436.006

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

Liabilities as a Percentage of USPS Revenues 

Percentage of total revenue 

180 

160 

140 

,--::c- 120 

100 r-""- 83 

eo 

60 

40 

20 

2007 2008 2009 

Fiscal Year 

147 

,- I 

I 

.""-

I I 2010 2011 2012 

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 

financialobllgations."s 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, 

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

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

States Postal Service. 2012 Report on Form 10·K (Washington, D.C 

15,2012) 10 

Page 5 GAO·13·562T 
14 


Insert offset folio 7 here 82436.007

USPS Initiatives to 

Reduce Costs and 

Incre<L-<;e Revenues 

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. This plan included savings from a 

change in the delivery schedule; however, USPS has now put all changes 

in delivery service on hold, which will reduce its ability to achieve the full 

5-year business plan savings. USPS has begun implementing other parts 

of the plan, which includes initiatives to save: 

6GAO, u.s. Postat Service: Strategies and Options to Facilitate Progress toward Financial 

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

Page 6 GAO~13-562T 
15 


Insert offset folio 8 here 82436.008

$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 

eliminating the obligation to prefund USPS's retiree health 

benefits. 

o $2.7 billion of this $8.5 billion was estimated savings from 

moving to a 5-day delivery schedule for all types of mail. 

o USPS subsequently proposed a modified reduction in its 

delivery schedule, maintaining package delivery on 

Saturday. with estimated annual savings of $2 billion, but 

as noted, USPS has now put even this proposed change 

in service delivery on hold. 

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 

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; 

Page 7 

$7.8 billion in current-year health insurance premiums for 

employees, retirees, and their survivors (USPS's health benefit 

GAO-13-562T 
16 


Insert offset folio 9 here 82436.009

payments would have been $13.4 billion if USPS had paid the 

required $5.6 billion retiree health prefunding payment'); 

$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 

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. 8 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 

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

2011 required payment of $5.5 bHlion was deferred and added to fiscal year 2012, 

8GAO, U.S. Posta! SeNice: Overview of Initiatives to Increase Revenue and Introduce 

Nonpostal Services and Experimental Postal Products, GAO-13-216 0/Vashington, D.C,: 

Jan. 15, 2013). 

Page 8 
17 


Insert offset folio 10 here 82436.010

Actions Needed to 

Improve USPS's 

Financial Situation 

offers 12 non postal 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 2011.9 Another 

area of potential revenue generation is USPS's increased use of 

negotiated service agreements 10 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. 11 

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, 

services were grandfathered by the Posta! Regulatory Commission (PRC) after 

enactment of PAEA. PAEA eliminated USPS's authority to offer nonpostai services unless 

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

USPS may, however, offer new nonpostai services and products jf they are related to the 

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

certain conditions. 

10Negotlated 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 

l1GAO, United States Postal Service: Strategy Needed to Address Aging Delivery Fleet. 

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

Page 9 
18 


Insert offset folio 11 here 82436.011

Mail Processing 

Delivery 

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

network of 461 mail processing facilities." 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 

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

will be paid 

Over the past several years, USPS has proposed transitioning to a new 

delivery schedule. Most recently, in February of this year, USPS 

proposed limiting its delivery of mail on Saturdays to packages-a 

growing area for USPS-and to Express Mail, Priority Mail, and mail 

addressed to Post Office Boxes. '3 Preserving Saturday delivery for 

paCkages would address concerns previously raised by some 

stakeholders, such as delivery of needed medications. USPS estimated 

that this reduced Saturday delivery would produce $2 billion in annual 

savings after full implementation, which would take about two years to 

achieve, and result in a mail volume decline of less than one percent. 

Based on our 2011 work,'4 and recent information from USPS on their 

February 2013 estimate, we note that the previous and current estimates 

US. Postal Service: Mail Processing Network Exceeds What Is Needed for 

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

13Under USPS's February proposal, post offices open on Saturdays would remain open 

14GAO, US. Postal Service: Ending Saturday Delivery Would Reduce Costs, but 

Comprehensive Restructuring Is Also Needed, GAO-11~270, (Washington, D,C : 

March 29, 2011). 

Page 10 GAO-13-562T 
19 


Insert offset folio 12 here 82436.012

are primarily based on eliminating city and rural carrier work hours on 

Saturdays. In our prior work, stakeholders raised a variety of concerns 

about these estimates, several of which are still relevant For example, 

USPS's estimate assumed that most of the Saturday workload transferred 

to weekdays would be absorbed through more efficient delivery. USPS 

estimated that its current excess capacity should allow it to absorb the 

Saturday workload on Monday. If that is not the case, some of the 

projected savings may not be realized. Another concern stakeholders 

raised was that USPS may have underestimated the size of the potential 

volume loss from eliminating Saturday delivery due to the methodology 

used to develop its estimates. Since mail volume has declined from the 

prior estimate, the accuracy of the estimated additional impact of 

eliminating Saturday delivery is unclear. The extent to which USPS would 

be able to achieve its most recent estimate of $2 billion in annual savings 

depends on how well and how quickly it can realign its workforce and 

delivery operations. Nevertheless, we agree that such a change in 

USPS's delivery schedule would likely result in substantial savings. 15 

A change to 5-day service would be similar to changes USPS has made 

in the past USPS is required by law to provide prompt, reliable, and 

efficient services, as nearly as practicable. The Postal Regulatory 

Commission (PRC) has reported that delivery frequency is a key element 

of universal postal service. The Postal Service's universal service 

obligation is broadly outlined in multiple statutes and encompasses 

multiple dimensions including delivery frequency. Other key dimensions 

include geographic scope, range of products, access to services and 

facilities, affordable and uniform pricing, service quality, and security of 

the mail. 16 The frequency of USPS mail delivery has evolved over time to 

account for changes in communication, technology, transportation, and 

postal finances. The change to 5-day service would be a similar change. 

Until 1950, residential deliveries were made twice a day in most cities. 

Currently, while most customers receive 6-day delivery, some customers 

receive 5-day or even 3-day-a-week delivery, including businesses that 

are not open 6 days a week; resort or seasonal areas not open yearround; and areas not easily accessible, some of which require the use of 

boats, airplanes, or trucks. 

Following USPS's most recent proposed change in delivery in February 

2013, we issued a legal opinion concerning the proposal in response to a 

16GAO-10-455 

Page 11 GAO-13-562T 
20 


Insert offset folio 13 here 82436.013

Retail 

congressional request. As requested, we addressed whether a 

requirement contained in the USPS's annual appropriations acts for the 

past three decades and contained in its fiscal year 2012 appropriations 

act 17-that it continue 6-day delivery of mail "at not less than the 1983 

level"-was still in effect under the partial year Continuing Appropriations 

Resolution,18 We concluded that the Continuing Resolution carried 

forward this requirement, explaining that absent specific legislative 

language, a continuing resolution maintains the status quo regarding 

government funding and operations, Although the 6-day delivery proviso 

is an operational directive, not an appropriation, we saw no language in 

the Continuing Resolution to indicate that Congress did not expect it to 

continue to apply, The full-year 2013 Continuing Resolution that 

Congress then enacted on March 21, shortly after we issued our opinion, 

which provided funding through the end of fiscal year 2013, likewise has 

continued the effectiveness of the 6-day proviso, 

On April 10, 2013, the USPS Board of Governors announced that based 

on the language of the March 21,2013, Continuing Resolution, it would 

delay implementation of USPS's proposed delivery schedule until 

legislation is passed that provides it with the authority "to implement a 

financially appropriate and responsible delivery schedule," By statute, the 

Board directs the exercise of the power of the Postal Service, directs and 

controls the Postal Service's expenditures, and reviews its policies and 

practices,19 Thus, the Board, which has the lead responsibility for taking 

actions within the scope of the Postal Service's existing statutory authority 

to maintain its financial solvency, has determined that full 6-day service 

will continue for the present time, 

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

restructure its retail network-which included almost 32,000 postal 

managed facilities in fiscal year 2012-through reducing its workforce and 

its footprint while expanding retail alternatives, 20 We also reported on 

concerns customers and other stakeholders have expressed regarding 

L, No, 112-74, 125 Stat 786, 923 (Dec, 23, 2011) 

18As requested, we considered only whether, during the period of the partial~year 

Continuing Resolution, USPS continued to be bound by the 6-day provision in its 2012 

Appropriations Act, whatever its scope. We did not consider whether the planned service 

changes USPS had announced would comply with that provision. 

1939 US.C, §§ 202, 205, 

2oGAO, US. Postal Service: Challenges Related to Restructuring the Postal Service's 

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

Page 12 GAO-13-562T 
21 


Insert offset folio 14 here 82436.014

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 

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

other nations have done. 21 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 

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. 22 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. 23 More than 60 percent of CPUs 

US. Postal Service: ForeIgn Posts' Strategies Could Inform U.S. Postal Service's 

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

22GAO, US. Postal Service: Action Needed to Maximize Cost~Savjng Potential of 

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

23GAO, Contract Postal Units,' Analysis of Location, Service, and Financial 

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

Page 13 GAO-13-562T 
22 


Insert offset folio 15 here 82436.015

Addressing USPS Benefit 

Liabilities 

Retiree Health Benefits 

FEHS Pension Benefits 

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. 

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. 24 

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. 25 The 

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

u.s. Postal Service: Status, Financial Outlook, and Altemative Approaches to 

GAO·13·112 (Washington, D.C.: Dec. 4, 2012). 

25GAO, Us. Postal Service: Allocation of Responsibility for Pension Benefits between the 

Postal Service and the Federal Governmont, GAO· 12-146 (Washington, D.C,: Oct 13, 2011). 

Page 14 GAO·13·562T 
23 


Insert offset folio 16 here 82436.016

Workers' Compensation 

Benefits 

Concluding 

Observations 

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

and an estimated CSRS deficit of $18.7 billion.26 

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

postal and nonpostal beneficiaries under the Federal Employees' 

Compensation Act (FECA)." 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 benefit levels have been advanced. At the request of Congress, 

we have provided information to assist them in making decisions about 

the FECA program. 

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

expenses to close its 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 

26USPS is required by law to make certain payments to the Civll Service Retirement and 

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

finances both CSRS and FERS 

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

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

Page 15 GAO·13·562T 
24 


Insert offset folio 17 here 82436.017

GAO Contact and 

Staff 

Acknowledgments 

(544196) 

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

availability of reliable and affordable postal services, 

Chairman Issa, Ranking Member Cummings, 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, Hannah Laufe, Kim McGatlin, 

Amelia Shachoy, Andrew Sherrill, and Crystal Wesco made important 

contributions to this statement. 

Page 16 GAO"13~562T 
25 

Chairman ISSA. Thank you. 

Mr. Barnett. 

STATEMENT OF THE HONORABLE MICKEY BARNETT 

Mr. BARNETT. Good morning, Chairman Issa, Ranking Member 

Cummings, and members of the committee. I serve as chairman of 

the board of governors of the United States Postal Service. I am 

honored to be asked to testify and I thank you for inviting me 

today. 

The Postal Service plays an incredibly important role in the 

American economy. It provides a national delivery platform that 

every business and residence relies on. It directly supports an $800 

billion mailing industry that employs 8 million people. 

America needs a financially healthy Postal Service. It needs a 

Postal Service that can adapt to changes in technology and the 

habits of American consumers. It needs a Postal Service that inspires confidence in its future. 

Today, the Postal Service faces tremendous financial challenges. 

Its business model is inflexible and its future is uncertain. We lack 

sufficient authority to fulfill our responsibilities to our great Nation. 

Unfortunately, the laws that control the actions of the Postal 

Service do not provide the authority or the flexibility for it to continue as a self-sustaining organization. We simply lack the tools 

under the law to solve the problems we face. If we are given the 

authority and the flexibility to quickly address our problems, we 

will do so. 

The board has directed that the management of the Postal Service explore and act upon every opportunity to generate new revenue and to reduce costs. Postmaster General Donahoe and his 

team have pursued these opportunities aggressively. They have 

achieved tremendous results, but they are limited in the actions 

they can pursue. Our board strongly supports the five-year business plan developed by postal management. It is a responsible plan 

that will close our large and growing budget gap. We believe it provides the only realistic roadmap to long-term financial stability. 

I know that this morning we will be discussing our national delivery schedule. Based on the chairman and the vice chairman’s 

opening statements, there are differing opinions about the limits of 

the law passed by Congress. Last week the board acted upon legal 

guidance that says the recently passed continuing resolution prevents changes to our delivery schedule. It is a roadblock that 

stands in the way of a financially responsible action to reduce approximately $2 billion in costs. We need to remove that particular 

roadblock and many others. 

I look forward to discussing this issue and the authorities we 

need under the law to implement our plan. The board of governors 

is eager to support the efforts of the committee to pass comprehensive postal reform legislation. We would be pleased to help in any 

way we can. 

Thank you again for the opportunity to testify. This concludes 

my remarks. 

Chairman ISSA. Thank you. I will now recognize myself for a first 

round of questioning. 

26 

Mr. Dodaro, you went through what the postmaster should do, 

and he has done a lot. Six day delivery, you have looked at the 

legal opinion. Does, in your opinion, the legal opinion have a path 

of suggestions if, even though it questions whether this alternative 

is legal, does it have a path of alternatives that could be pursued? 

Mr. DODARO. Thank you for that question, Mr. Chairman. I think 

it is important to understand what our legal opinion did address 

and what it didn’t address. What it did address was the provision 

that was in the first continuing resolution passed by the Congress 

covering the first half of the fiscal year. 

Chairman ISSA. And the second CR was substantially the same; 

it was a partial year set of language. 

Mr. DODARO. Right. 

Chairman ISSA. Previously used. 

Mr. DODARO. Right. But the rationale by the Postal Service for 

saying the provision didn’t apply was the fact that there was not 

an appropriation attached to the provision in the first six month 

continuing resolution, and they argued that since there was not an 

appropriation of funds, that the provision did not apply—— 

Chairman ISSA. Isn’t it true that the legal opinion—and I will be 

asking the postmaster—the legal opinion says you have two alternatives, regardless? You can ask for the President to ask for recision of this puny $100 million piece of appropriations that creates 

the legitimacy for the rider, and clearly you can also plan October 

1st because there isn’t a rider in effect. So they have two ways to 

go to five day. One is to ask the President to act consistent with 

his five day budget request, which is take back the $100 million so 

we can save $2 billion or, in the alternative, simply announce that 

October 1st, if there isn’t a rider, they will be doing five day. Didn’t 

the legal opinion say in both cases that they could do that? 

Mr. DODARO. Basically, we held in the legal opinion that it 

wasn’t explicitly tied to the appropriation of funds, so we did not 

agree with that. We thought—— 

Chairman ISSA. Okay, so you disagreed with the legal opinion on 

which the postmaster made his decision not to go to five day? 

Mr. DODARO. That is correct. 

Chairman ISSA. Okay, Mr. Barnett, you have read the legal opinion. I will mention that Mr. Bilbray apparently had not, because 

he didn’t seem, in our interviews with him, to understand the nuances of the alternatives. Did you look, in the last pages of the 

legal opinion on which the board acted, at those two alternatives 

that were very clear: don’t take the money in the future or ask for 

a recision to get to the rest of the year? Weren’t both of those in 

the legal opinion? 

Mr. BARNETT. They were, Mr. Chairman. 

Chairman ISSA. Okay. And I believe the legal opinion is in the 

record already. Okay, well, I will ask unanimous consent that it be 

in the record, in case it isn’t. Without objection, so ordered. 

Chairman ISSA. One of the things that I wanted to get out from 

Mr. Bilbray is he was asked: Have you or any other board members 

received direct pressure, to your knowledge, of trying to exert pressure to protect a specific mail processing plant? 

Answer: I only had one call; that was Senator Reid called me 

about the Reno processing center. 

27 

Okay. And did he ask that you not close that? 

He did. 

And he goes on. 

Mr. Barnett, isn’t there a pattern of pressure on all of you governors and on the postmaster from U.S. Senators to protect processing centers that have been deemed to be excess and wasteful? 

And, by the way, and perhaps some House members, too, that 

have the guts to call you. 

Mr. BARNETT. Mr. Chairman, it is true that we occasionally are 

contacted by Senators or Representatives, and maybe one of the advantages of being from New Mexico, without any processing centers, I have not received any such calls. 

Generally speaking, the board has very little political pressure. 

We received one letter on the six day closing from Publishers 

Clearing House, the only letter that I received as a governor in regard to the six to five day. 

Chairman ISSA. Isn’t it true that Publishers Clearing House 

ships at an extremely low rate, such that they are part of that 

group that doesn’t cover their own cost? 

Mr. BARNETT. That would be correct. But I didn’t get pressure either, Mr. Chairman. 

Chairman ISSA. Well, we will get to the postmaster in a minute 

and I will get to the political stuff, but I want to be very quick. 

Mr. Dodaro, the nature of this legislation not going through, 

there is a piece of language in the 2006 bill—and I want both of 

you answer to the extent you can—exigent circumstances. According to the law, there are a number of things the postmaster can 

do and the board of governors can do if they are in dire situation— 

exigent, dire, insolvent, they all seem to be pretty similar to me— 

including raising postal rates to cover that $1.5 billion you mentioned. Isn’t it true that they have authority they have not used if 

they are willing to trigger the fact that when you lose $16 billion 

on $64 billion of revenue, that is exigent circumstances to trigger 

things to save money or to gain revenue, isn’t it? 

Mr. DODARO. I am aware of the provision, became aware recently, but we haven’t really looked at it to know the full extent 

of it, that it can occur under the circumstances that you mentioned, 

so that those decisions, though, would have to be balanced against 

what potential mail volume might decline as a result of the raises 

in rates. So I would be happy to provide a more detailed answer 

for the record, Mr. Chairman. 

Chairman ISSA. Mr. Barnett, as I ask you to answer the same 

question, I might mention I am from the consumer electronics industry some years ago. We understand that if you lose money on 

every sale in order to make it up in volume, and thinking volume 

will take care of you, it will at your bankruptcy. So as you answer 

whether or not increasing the price and thus losing volume on 

something you are losing money on, how would you address that? 

Mr. BARNETT. We have had numerous board discussions on this 

in the seven years I have been on the board and we have discussed 

exigent rate cases at many of those board meetings. I might add 

I am the dissenting vote; I was the only board member to vote 

against the last three rate increases, based primarily on my colleagues’ statement that I am more concerned about loss of volume 

28 

than I am increasing revenue, although both are important. Our 

infrastructure depends on volume, and if we raise prices, we had 

great concerns on the board that volume would then decline even 

further, leading to further deficits. 

We have directed, at our last board meeting last week, that management look at every other option available. Once we made the 

vote to not go to five day delivery on August the 5th, we asked that 

they look at everything else available to us, which would be to reopen the labor negotiations, to look at the filing of an exigent rate 

case, and then accelerate, if possible, the consolidations in the processing plants as quickly as we can expeditiously do it. 

Chairman ISSA. Thank you very much. 

Recognize the ranking member. 

Mr. CUMMINGS. Thank you very much. 

Let’s not kid ourselves, Mr. Dodaro. If Congress says we want 

you to do something a certain way, and the postmaster came back 

and said, no, I am doing it my way, the postmaster would catch 

hell. I am telling you everybody up here knows that and everybody 

out there knows that. So he was caught in a hell of a bind. And 

I want to go back to something that Mr. Bilbray said in his testimony so we will be real clear. He said this, and I quote from his 

transcript on page 58, ‘‘Let me tell you, this is a tough job, and we 

have to deal with a lot of bureaucracy in the Administration, the 

Postal Regulatory Commission and Congress, and they are all our 

bosses. And we try to do the best we can, but we are really restricted on what we can do, when we can do it and what, you know, 

like I say, what we can do, and it’s tough. I mean, I was a congressman; I understand when you try to close a post office in my 

district. I was just as bad as everybody else out there and I understand them totally, and I wish I had served on the board of governors before I went to Congress because I think I would have been 

a hell of a lot better congressman in dealing with the post office.’’ 

I just want to make sure that is a part of the record. 

But let me go back to you, Mr. Dodaro. Does the GAO believe 

that the six day rider apply even if no money is appropriated? 

Mr. DODARO. Yes. We said the Congress has the ability to give 

operational guidance through the appropriations thing and, yes, 

that is what our legal opinion held. 

Mr. CUMMINGS. Because I am getting confused. Does that mean 

that the postmaster did the right thing consistent with that opinion 

or he did the wrong thing? Consistent with what you just said. 

Mr. DODARO. Right. I think initially the decision by the Postmaster General to go forward based on the first six month CR provision, we disagreed with that. 

Mr. CUMMINGS. Okay. And then when he reversed, what happened? 

Mr. DODARO. Well, we haven’t looked at the issue since then. 

Mr. CUMMINGS. I see. I see. Now, I would like to ask you about 

the Postal Service’s cash position and its financial outlook, Mr. 

Barnett. Is the board of governors given a routine update of the 

Postal Service’s financial condition? 

Mr. BARNETT. We are. 

Mr. CUMMINGS. And for the year ending September 30, 2012, the 

Postal Service wrote in its financial statement: ‘‘Although our cost 

29 

reduction and revenue generation initiatives are expected to possibly impact cash flow, we project that they may not, in the aggregate, be sufficient to offset potential cash shortfalls which could 

occur in the second half of 2013.’’ 

Now, Mr. Barnett, in your board meetings this year, has the 

Postal Service indicated that it may experience a cash shortfall in 

the second half of 2013? 

Mr. BARNETT. We have discussed it extensively at every board 

meeting and the answer is yes, the cost-cutting has possibly pushed 

that date off. But the manner in which we are cash flowing now 

is by not paying our prefunded RHB payments and we are not 

planning to make the one that is due on September 30th. 

Mr. CUMMINGS. So there will be a shortfall. 

Mr. BARNETT. There will be a shortfall. 

Mr. CUMMINGS. And when will that be? When do you predict? 

Mr. BARNETT. Well, we are already in the shortfall. As you know, 

we haven’t made the last two years’ payments and we are not going 

to make this year’s payment. If you are saying will there be sufficient monies to make payroll without making the payments—— 

Mr. CUMMINGS. Yes. 

Mr. BARNETT.—I believe we will through this calendar year. 

Mr. CUMMINGS. Now, in its financial statement for the year ending September 30, 2011, the Postal Service indicated that it ‘‘ended 

2011 with $1.5 billion of total cash and $2 billion of remaining borrowing capacity on its $15 billion debt facility.’’ For the year ending 

September 30, 2012, the Postal Service wrote: ‘‘We ended 2012 with 

$2.3 billion of total cash and no remaining borrowing capacity on 

our $15 billion debt facility.’’ In a recent financial briefing to the 

committee staff, the Postal Service indicated that its cash position 

has continued to improve. 

Mr. Barnett, do you know how much cash the Postal Service currently has on hand? 

Mr. BARNETT. I do. We have approximately nine days in operating income, Mr. Vice Chairman. 

Mr. CUMMINGS. And about how much money is that? 

Mr. BARNETT. Just approximately $2 billion. 

Mr. CUMMINGS. All right. Now, Mr. Barnett, do you agree with 

this report, do you agree that the growth in the shipping and package product is improving the Postal Service’s financial condition? 

Mr. BARNETT. It is. 

Mr. CUMMINGS. And despite the growth in the Postal Service’s 

shipping and package service, the Postal Service still reported a 

loss of $1.3 billion in the most recent quarter. Mr. Barnett, how 

much of that loss is attributable to the prefunding payment due to 

the Retiree Health Benefit Plan, do you know? 

Mr. BARNETT. I do not know. 

Mr. CUMMINGS. Can you get me that information? 

Mr. BARNETT. I am sure the Postal Service can get you that information. What is attributable to anything is a relative question. 

You could say all of it is due because all of it is, the $5.5 billion, 

but the answer is we don’t have sufficient cash to make any payment on the prefunding of the Retiree Health Benefit. 

30 

Mr. CUMMINGS. So if the Postal Service did not have to make the 

RHB payment, its financial outlook would be better, would you 

agree on that? 

Mr. BARNETT. It would be better, but we would not be solvent, 

no. 

Mr. CUMMINGS. Finally, while the Postal Service’s financial position is certainly concerning, it appears that the Postal Service will 

continue to remain solvent through the rest of this year and that 

the RHB payments are significant factors in the Postal Service’s 

operating losses. Do you agree with that, Mr. Barnett? 

Mr. BARNETT. Mr. Vice Chairman, I don’t. I think my learned colleague here would say if we are not making our payments that are 

due, we are not solvent; and we are not making the payments that 

are due. 

Mr. CUMMINGS. I see my time has expired. 

Thank you very much, Mr. Chairman. 

Chairman ISSA. We now recognize the gentleman from Florida, 

Mr. Mica. 

Mr. MICA. And I yield first. 

Chairman ISSA. Very briefly. Thank you. 

Mr. Barnett, prefunding is a statutory requirement. You are 

bound by law to do that, aren’t you? 

Mr. BARNETT. That is correct. 

Chairman ISSA. And six day delivery, we have established, although it comes with no money, or virtually no money, is a statutory requirement you are required to do. 

Mr. BARNETT. That is correct, Mr. Chairman. 

Chairman ISSA. So why does the board obey one law and ignore another? You obey a law that costs you $2 billion and you ignore 

a law that says you owe us $5.5 billion a year, and you have done 

it for two years. Why would you pick one law to obey, that you 

choose to obey, that actually costs you $2 billion? Where is the fiduciary balance there? If you are going to break a law, why is that 

the law you broke or didn’t break? 

Mr. BARNETT. Mr. Chairman, thanks for that question, because 

we do have a reason. The board has discussed it extensively. The 

real problem with the going from six to five day, knowing it will 

be challenged in court and not knowing what the result would be, 

is the tens of thousands of dollars that many, many businesses 

would have to implement in software updates and changes in their 

procedures. It also involves approximately 23,000 employees that 

would be directly affected by their futures and transfers and 

changes in work hours. 

Chairman ISSA. Okay, I get it, Mr. Barnett. I appreciate the gentleman. I think we got the answer: the union wanted to keep six 

day and they didn’t mind not paying their just debts pursuant to 

the law. 

Mr. MICA. Well, you know, this little exercise here I think points 

out the situation we find ourselves in, and Mr. Dodaro, our GAO 

representative, I think he summed it up only partially. He said the 

situation is dire. I think it is beyond dire, and it is probably going 

to get even worse. I think we are headed for a total meltdown in 

the postal system. Probably the only thing worse than the Federal 

Government, as far as its fiscal shape, is the United States Post 

31 

Office, and there is not much to be said there. And we have some 

of the same difficulty in facing our fiscal challenges, and, quite 

frankly, I am not sure if the board of governors can resolve this. 

I was just checking and we were able to pass some legislation out 

of the committee that could never pass the House, and probably 

wouldn’t pass the Senate, and all the interests here at play, making certain that nothing gets done or bad choices. I feel sorry for 

the board of governors because with the CR we didn’t provide the 

flexibility and the authority, put you on hold. So I think it is going 

to get worse. Maybe that will help us resolve it. 

But two of the primary areas that we are going to have to address, one is personnel, and I notice that personnel and infrastructure are your big cost items. First of all, personnel. I don’t know 

what you are doing at headquarters, but I actually thought I saw 

the number rise to 3,008 in the figures that I have of personnel 

right down the street. Not to mention that is just headquarters, but 

around these districts. So that is one thing, Mr. Barnett. Do you 

have a plan to reduce some of the overhead as far as management? 

Mr. BARNETT. Mr. Chairman, representative, yes. 

Mr. MICA. And they don’t have union contracts or do they? 

Mr. BARNETT. There are certain management contracts. 

Mr. MICA. Okay. But, again, you are going to have to address 

that. You need a plan to come back with far fewer. I remember visiting over there some years ago in one of the RIFs that you all did, 

and there were hundreds of vacant desks. I don’t know if that 

building is partially empty. Is it now? 

Mr. BARNETT. There are empty desks in that building, from my 

observation. 

Mr. MICA. But there are still 3,000 people just in D.C. So that 

is one thing. 

Then facilities. You have 32,904 facilities, and I asked how many 

are vacant. Now, they said 166 was what I got this morning. I don’t 

think that is accurate. They may be vacant, but there are thousands that are underutilized. I know my experience just in my district, in trying to consolidate or change out, there are post office locations in my district, I could give you five of them, that are so out 

of date, so expensive, in such poor areas for service. The problem 

is the postal authorities are totally mindless. No one can come up 

with a solution. 

Now, I have in one instance given you a solution and we were 

able to turn that into a valuable property, but it is a mindless mentality in the post office not willing to move forward in some of 

these. Do you think that can be changed? 

Mr. BARNETT. It is changing. There have been tremendous 

strides the last two years going to village post offices and reducing 

the hours they are open to two, four, six hours. 

Mr. MICA. Well, we will be doing some hearings in some of the 

empty facilities to highlight the lack of progress, just to give you 

advanced notice. And I am not just picking on you; we have done 

this and we will be doing it next week in our fourth building in 

Washington, D.C., the Nation’s capital, under other jurisdictions 

than the post office. 

But personnel and management, some things we can tackle, and 

then consolidation of the facilities and changing them out. 

32 

Yield back. 

Chairman ISSA. I thank the gentleman. 

We now recognize the gentlelady from the District of Columbia, 

Ms. Norton. 

Ms. NORTON. Thank you very much, Mr. Chairman. I may not be 

here when the Postal Service witnesses themselves come forward. 

I realize you are here, Mr. Barnett, but I do want to say for the 

record, and I am certain that members of the committee would 

agree with me, that we are enormously indebted to Postal Service 

workers for catching the letter that contained ricin and kept it 

from coming to the Congress. I think this indicates once again the 

dedication of Postal Service employees and their vigilance, and the 

risk today to being a Postal Service employee. They now become 

not only Postal Service employees who see that the mail gets delivered, but they have a security function and they carried that security function out with great excellence yesterday, and I thank you 

for that. 

The Senate passed a bill last year; this side did not. If I may say 

so, instead of going through these same issues every year in these 

hearings, five day, six day, why don’t we just pass a bill and then 

we will iron out the differences? This gets to be very repetitive and 

nonproductive. My major concern, as I think about the new model 

that Mr. Dodaro spoke about, is the need to treat the postal service 

like the independent business we spun it off to be, including the 

ability to use its extraordinary infrastructure to sell non-postal 

products. But let me get to the issues that are before us today. 

First let me lay the predicate for this question. I think they are 

going into their third year of default on prefunding of health benefits, and I suppose that is a kind of civil disobedience that they 

have been forced to. The third year, by the way, is coming up in 

September. One effect of these prepayments, Mr. Dodaro, is it not, 

is to offset the Federal deficit? 

Mr. DODARO. On the prepayments for health care? 

Ms. NORTON. Yes. 

Mr. DODARO. No, it is basically to provide the money in advance 

for the Postal Service. 

Ms. NORTON. I know what it does. Does it have the effect, 

though, of offsetting the deficit or making the deficit look smaller? 

Mr. DODARO. I would have to go back and look at that. I am not 

sure offhand. I think the money is segregated in a different account 

for the Postal Service, but I would have to check and give you a 

definitive answer. 

Ms. NORTON. Well, I believe it is in a trust account and is used, 

and I wish you would look at that because I think that its disguise 

of the deficit is one of the reasons that the Postal Service is seen 

as having to do what nobody else has to do; and, of course, that 

is what I want to get to. 

Is 75 years of prefunding health care considered a best practice? 

Mr. DODARO. Prefunding is considered a best practice. 

Ms. NORTON. That was not my question, sir. This is the only 

business and the only Federal Government that is prefunding —— 

Mr. DODARO. Actually, the Defense Department is prefunding. 

Ms. NORTON. How much are they prefunding? 

Mr. DODARO. They have prefunded $150 billion already. 

33 

Ms. NORTON. How much has the Postal Service prefunded? 

Mr. DODARO. I believe it is about 48. About 43, 46. 

Ms. NORTON. So would you recommend that for the Federal Government? And, if so, why haven’t you recommended it for other 

Federal agencies? Is this the best practice? Is this what we should 

be doing. And, if so, how many years in advance should agencies 

be doing what the post office alone is doing today? 

Mr. DODARO. Basically, the prefunding is not 75 years, it is 50 

years. 

Ms. NORTON. Oh, so you recommend 50 years of prefunding for 

every agency? 

Mr. DODARO. I am not saying what we recommend, I am saying 

what the law requires. 

Ms. NORTON. Do you think prefunding for Federal agencies, like 

the prefunding we require of the Postal Service, is to be recommended to the Federal Government? And, if so, why have you 

not recommended it for other Federal agencies? 

Mr. DODARO. Well, first of all, the Postal Service is supposed to 

be self-sustaining. 

Ms. NORTON. That is my point. 

Mr. DODARO. Right. 

Ms. NORTON. And, of course, whenever Congress wants to interfere, it can. Is that how you treat a private business? Do you think 

the post office is being treated like other private businesses? 

Mr. DODARO. Well, it is not exactly a private business; it is still 

a part of the Federal Government, set up as an independent agency. We have a lot of these organizations that have been set up. 

Fannie Mae and Freddie Mac are other examples, and Government 

corporations, whether it is FDIC or whatever. So there are a lot of 

entities like that. 

Ms. NORTON. Of course, with Fannie Mae and Freddie Mac, we 

bailed them out to the cost of billions of dollars. Do you think that 

is what we should do with the Postal Service as it now becomes insolvent? 

Mr. DODARO. I think that is a policy matter for the Congress. 

Ms. NORTON. But isn’t that the direction we are going? 

Mr. DODARO. Our recommendations are to make changes so that 

it doesn’t get into that. 

Ms. NORTON. It is already into that, Mr. Dodaro. It is time for 

somebody to recommend some changes that helps them get out of 

it. Now, the GAO itself issued a report in which it talked about alternative approaches to fund health care benefits. Which of those 

alternatives would you suggest? 

Mr. DODARO. We would suggest moving to an actuarial-based 

prefunding operation, as opposed to the fixed payment schedule. 

We have recognized that the fixed payment schedule that was set 

up in 2006 had large up-front costs, more than you would have in 

an actuarial-based system. So we think that would be a good move, 

which is what the Senate version of the bill would have done. 

Ms. NORTON. Thank you. Thank you, Mr. Dodaro. 

Chairman ISSA. I thank the gentlelady. 

We now go to the gentleman from Utah, Mr. Chaffetz. Could I 

have five seconds? 

Mr. CHAFFETZ. Sure. 

34 

Chairman ISSA. Mr. Dodaro, simple yes or no. Isn’t it true that 

Congress, long ago, passed laws requiring at least a minimum that 

actuarial prefunding by every pension plan in America held by private companies? It is the law. You go to jail for not doing it, right? 

Mr. DODARO. Yes. 

Chairman ISSA. Thank you 

Mr. Chaffetz. 

Mr. CHAFFETZ. Thank you. 

Appreciate you both being here. 

Mr. Barnett, what does the White House suggest that you do? 

Mr. BARNETT. I have not talked to the White House; they haven’t 

called me, so I don’t know. 

Mr. CHAFFETZ. So as my colleague from the District of Columbia 

is suggesting it is time for somebody with an idea, are you suggesting the White House has no plans, no suggestions, no direction 

for you in what you are supposed to do? 

Mr. BARNETT. I certainly didn’t mean to say that. I suspect they 

have been in contact with the United States Postal Service, just not 

with me or any of the board of governors. 

Mr. CHAFFETZ. Just not the chairman of the board. Okay. That 

is one of my concerns, is there should be some involvement, engagement here. 

Mr. Dodaro laid out three general categories, suggestions. What 

would you agree with or disagree with on that list as he laid out 

these three? 

Mr. BARNETT. I completely agree with all three and would add 

just a few more. But we are in 100 percent agreement with the 

three items he mentioned. 

Mr. CHAFFETZ. So what is prohibiting you? You talk about more 

flexibility and delivery in pricing, for instance, as one of those 

items, and yet try to make an adjustment there and then it gets 

pulled back. What is the hesitation? 

Mr. BARNETT. We have, of course, a regulator that we must file 

with, called the Postal Regulatory Commission, and it is an unduly 

cumbersome, slow process to do so; and in the current marketplace 

we need the flexibility to move quickly. We would recommend, for 

example, that the regulator perhaps could come back and examine 

the data that was done to make—the board of governors would, 

say, decide on a price change or possibly a new price for a new 

product, give the regulator the chance to go back and examine it 

and require some modifications after the fact, but not require the 

up-front filing, the delays and the time to go through it because it 

is just too slow and there is no flexibility at all. 

Mr. CHAFFETZ. So part of perhaps what we should look at is restructuring that process and how that Postal Regulatory Commission works, is that the suggestion? 

Mr. BARNETT. Mr. Chairman, Representative, completely. The 

regulation model we are under is like a utility model from the 

1950s, where we are a monopoly and we must file for rate increases, go through the expert witnesses, the whole bit. We are not, 

any longer, a monopoly in most of our products; we certainly are 

still in first class mail, but we are in direct competition in almost 

all our other products. 

35 

Mr. CHAFFETZ. Mr. Dodaro, did you want to comment? It looked 

like you wanted to say something about this discussion. 

Mr. DODARO. No. No. I agree with the comments. 

Mr. CHAFFETZ. Okay. 

Mr. Chairman, as we look at this issue, I really do believe, and 

I have believed from day one, one of the core issues that we have 

to grapple with here is how does the Postal Service become more 

relevant. You know, there are only so many times you can raise 

prices. There are only so many times that you can make your product more expensive in the marketplace. To me it is a question of 

relevancy. And the world is changing; we are becoming more electronic in our communications and people are more cost conscious. 

The Postal Service is having to deal with some very difficult things. 

For instance, for every penny of increase in the cost of fuel, they 

are going to have to deal with that; it is millions of dollars of costs 

to the Postal Service. Since President Obama took office until now, 

which happens to be the same time that I was elected, the price 

of fuel has doubled; and that is of real impact on the day-to-day 

lives and solvency of the United States Postal Service. 

I do want to actually compliment some of the work that has been 

done with some of the unions and some of the others in actually 

drawing back down the number of employees that are engaged. I 

only wished that the rest of Federal Government would have to go 

through such scrutiny, because what you would find, actually the 

Postal Service, as bad and as dire as the situation is, most other 

departments and agencies don’t have to go through these types of 

gyrations; they don’t have to go out and sell their services, they 

don’t have to justify a price, they don’t have to live within their 

means. And this is the only department and agency that I can look 

at that has made significant personnel changes to actually drive 

down the number of people that are involved and engaged in its 

agency. So on that side I do applaud. 

Now, on the other side, to my friends in the unions, there is 

going to have to be some more flexibility here. When they talk 

about collective bargaining, I think they are going to have to be 

some serious discussions about that. Both of these gentlemen concur with that. I happen to think that is going to be part of the 

issue. We are going to have to look more closely and have more cooperation on moving to cluster boxes and those types of simple 

things that will have multi-billion dollar effects on the Postal Service; maybe a little bit more inconvenient, maybe somebody isn’t 

able to book as many hours, but small things that will make a big 

difference in the solvency of the Postal Service and ultimately, Mr. 

Chairman, become more relevant. 

Yield back. 

Chairman ISSA. The gentleman yields back. 

We now go to the gentleman from Virginia, Mr. Connolly. 

Mr. CONNOLLY. Thank you, Mr. Chairman, and thank you for 

holding this hearing, you, with our distinguished ranking member, 

Mr. Cummings, 

Mr. Dodaro, I want to thank you for the legal opinion from GAO, 

it was clear and concise and, I think, dispositive. One may not like 

a law, but to counsel people to circumvent it or ignore it is a different matter entirely, and GAO, I think, made a real contribution 

36 

at least in understanding where we were legally, and I thank you 

for that opinion and for your colleagues as well. I think the chairman entered the opinion into the record. That is the opinion of 

March 21 and I now enter it into the record as part of my five minutes, without objection. 

Mr. CONNOLLY. Mr. Dodaro, you said there were three things 

that were fairly fundamental to reform. The first thing you mentioned was prepayment. And I was a little confused with the byplay 

between you and Ms. Norton of the District of Columbia. Clearly, 

in saying that is the first thing Congress has to deal with, and, by 

the way, I happen to agree with you. I wish some newspapers like 

The Washington Post would even acknowledge it is a problem. But 

you included it. Presumably you included it because you do think 

that there is some aspect of it that is onerous and needs to be reformed. Is that correct? 

Mr. DODARO. We believe that the 2006 law that set up the schedule for this front-loaded some of the prepayment penalties. Not 

penalties, excuse me, the amounts for prepayments. It was based 

on a fixed schedule up front, and we think if it is moved to an actuarial schedule that will help smooth out the payments over the period of time. But I want to be clear, we think prefunding needs to 

occur and that it needs to be done in a fiscally responsible manner. 

It is in the best interest of the Postal Service, for their future viability; it is in the best interest of the beneficiaries for their benefits. 

Mr. CONNOLLY. Your point is so stipulated and the chairman correctly pointed out that it is not a unique requirement. But the 2006 

legislation has some aspects to it that clearly put a burden on the 

Postal Service that are unique, is that not correct? 

Mr. DODARO. We think there is a means to modify that, moving 

to an actuarial approach. 

Mr. CONNOLLY. And the Senate recognized that in its postal reform bill that actually passed the Senate as S. 1789, is that not 

correct? 

Mr. DODARO. That is correct. 

Mr. CONNOLLY. And you reviewed that legislation? 

Mr. DODARO. Yes. 

Mr. CONNOLLY. Do you believe that legislation, in principle, is 

consistent with your recommendations for comprehensive reform? 

Mr. DODARO. On the issue of prefunding, we agreed with two of 

the three changes that they have put in place. The only thing that 

we would ask be reconsidered would be the requirement to go to 

an 80 percent total funding. We think it should be 100 percent. 

Mr. CONNOLLY. Mr. Dodaro, would it be fair to say that if we alleviate or reform the 2006 prepayment requirement in any fashion, 

that constitutes a Federal bailout of the Postal Service? Is that a 

fair characterization from your point of view? 

Mr. DODARO. No. Modifying the schedule, as long as the 

prefunding occurs to achieve the full cost of the post-retirement 

health care benefits, no; it is just changing the payment schedule. 

Mr. CONNOLLY. Does the prepayment in any way involve U.S. 

taxpayer dollars? 

Mr. DODARO. I don’t believe so. 

Mr. CONNOLLY. So wouldn’t a bailout imply that we are using 

taxpayer dollars? 

37 

Mr. DODARO. It usually is a connotation. 

Mr. CONNOLLY. No, no, no. General Dodaro, it is not a connotation. A bailout, a Federal bailout is with U.S. taxpayer dollars, is 

it not? I mean, if I use someone else’s money to help somebody else 

out, that is not a Federal bailout. 

Chairman ISSA. Would the gentleman yield? 

Mr. CONNOLLY. I would f the chairman will give me a little consideration. 

Chairman ISSA. Would you suspend the time? 

Mr. CONNOLLY. I thank the chair. 

Chairman ISSA. That is the best consideration the chair can give. 

Mr. CONNOLLY. And I appreciate it. 

Chairman ISSA. The chair is prepared to make it very clear on 

the record that in the negotiations we had with the Senate until 

the wee hours of the waning Congress, we had already agreed to 

go to an actuarial restatement. I would hope that the gentleman 

would agree also, though, that like the Railroad Retirement Act, if 

in fact we do not get an actuarial payment and there is a default, 

full faith and payment from the Federal Government would happen. So I am not expecting a bailout. The reason that we agreed 

to an actuarial one partially was the GAO’s finding that the 2006 

law, although well intentioned, was now unachievable with current 

economic conditions for the post office. 

Mr. CONNOLLY. If we can keep that clock frozen for one second. 

Chairman ISSA. As long as the ranking member doesn’t start 

pulling at me here. 

Mr. CONNOLLY. I thank the chairman and I am glad to learn of 

those negotiations, and his point is well taken. I am only pointing 

out, though, that I think there has been some loose rhetoric in the 

past when there has been any talk of prepayment relief of any 

kind, that that automatically is a Federal bailout. That is inaccurate and it is not fair, and the money involved so far is not U.S. 

taxpayer money; in fact, it is Postal Service revenue. 

Chairman ISSA. Right. And I think for purposes of today, if everyone wants to go from a $16 billion loss last year, down by a little over $2 billion, which would be the restated amount, we are 

happy to say it was only $14 billion had they been making an actuarial payment rather than an actual. The problem is you can’t be 

a little bit pregnant, to use an old expression. Also, a little loss of 

$14 billion is still a lot of money. 

Mr. CONNOLLY. It certainly is. I thank the chair. 

Mr. Barnett, are you familiar with the memo from King & Spalding with respect to five day delivery proposal? 

Mr. BARNETT. I am. 

Mr. CONNOLLY. And did that memo influence the board of governors in its decision ultimately to say we have to comply with the 

law? 

Mr. BARNETT. Yes, it did. 

Mr. CONNOLLY. And did you, at any point in your deliberations 

before or after the Postmaster General’s announcement about five 

days, look at the legal aspect of that and question the Postmaster 

General in terms of his legal reasoning or the reasoning he relied 

on? 

38 

Mr. BARNETT. The Postmaster General and the deputy are both 

members of the board. We had extensive discussions over several 

meetings on the first legal opinion dealing with the language prior 

to the current CR and then the current CR, so, yes, we have had 

numerous discussions with the Postmaster General. 

Mr. CONNOLLY. And just real briefly, bottom line, what made the 

board decide we can’t go forward with this proposal? 

Mr. BARNETT. The King & Spalding opinion was the primary 

motivator for the change. 

Mr. CONNOLLY. Which told you what, bottom line? 

Mr. BARNETT. Well, it told us, bottom line, that we would be 

going to court and that the disruption that would occur if a preliminary injunction were issued, particularly if they went to court July 

20th, a week ahead of the August 5th date and got a preliminary 

injunction, the disruption to the Postal Service and ultimately to 

the consumers of the Postal Service was something we felt was too 

grievous to take a risk on. 

Mr. CONNOLLY. Thank you. 

Chairman ISSA. I thank the gentleman. 

Mr. CONNOLLY. I thank the chair. 

Chairman ISSA. We now go to the gentleman from Oklahoma, 

Mr. Lankford. 

Mr. LANKFORD. Thank you, Mr. Chairman. 

Mr. Dodaro, you mentioned three things that Congress should do 

in this and you mentioned multiple things the USPS can do, as 

well, in the process on that. I want to highlight a couple of these 

things that have been discussed as far as additional revenue. What 

would you recommend USPS could do right now to deal with revenue issues, whether they be pricing or products or advertising or 

the many things that have been kicked around? What do they already have authority they could do? 

Mr. DODARO. They have the authority to change the pricing for 

some of the products where they are not covering their costs. I 

highlighted the periodicals and standard flat mails in some of the 

catalog areas. Clearly, in the periodicals area they have been losing 

money on that for the last 16 years. The amount that they lost 

money in 2012, I believe, was about $650 million. So that is one 

area that it could re-price. And the same on standard flat mails. 

Now, they may have to adjust the mix because there are varying 

products in there with the catalogs and other things. And there are 

some other areas where they are losing money on different products as well. So that is one thing that they could do. 

Mr. LANKFORD. Okay. Do they have any latitude, right now, on 

advertising? That has been discussed, whether it be products for 

sale at a post office itself or a village station, or whether that be 

actually advertising on the truck. I would assume they would not 

put a big advertising for FedEx on the side of their truck, by the 

way, as far as selling advertising, but to be able to produce that. 

Mr. DODARO. Yes, they can do advertising. 

Mr. LANKFORD. Okay. Because that has been discussed. 

Mr. Barnett, can I shift over to that? I am sure this has bee discussed as well with the board of governors. You have to deal with 

price and products; the higher the price, the lower the usage. We 

get that. And it is especially difficult for catalogs because catalogs 

39 

are in great competition right now with the Internet as one more 

step. What has been discussed at this point in how to be able to 

strike that balance? 

Mr. BARNETT. Well, just to give you an example, on the catalogs, 

for example, the catalogs become a feeder for, then, packaged delivery, or a potential feeder for packaged delivery, which is a great 

growth in our area. So we do have great discussions, lengthy discussions. We have a new director of marketing, vice president that 

came on about a year ago. She is doing a fabulous job. The board 

of governors has gone to meet with potential customers or existing 

customers with potential increases in New York, in Phoenix, in San 

Diego; we meet with them, they tell us what their needs are. We 

are trying our best to increase revenues everywhere we can. We 

are underwater in several of these categories. We are still stuck 

with a price cap; we still cannot increase prices in excess of the 

CPI. So while I don’t disagree with my colleague’s statement here, 

I am not sure that we can get there based on the limit of the CPI 

on the underwater products. 

Mr. LANKFORD. As far as packaged delivery, though, where is 

that moving? Because obviously every retail location will tell you 

they are getting hammered in a retail box store by Internet purchases, and there is more and more being shipped on that. Where 

are we right now in moving towards getting more revenue by increasing the number of packages that are coming to USPS, rather 

than other providers? 

Mr. BARNETT. Tremendous success story. We have had three 

years of 7 percent growth in package delivery, and we anticipate 

even further growth in package delivery. 

Mr. LANKFORD. Okay. 

Mr. Dodaro, you also mentioned, as well, that prefunding is in 

the best interest of employees of USPS. Can you talk about that 

some? Because there has been a lot of push-back to say that a lot 

of individuals say we don’t want to do prefunding; why are we 

being mandated? But you mentioned that is in the best long-term 

interest of those employees. 

Mr. DODARO. Yes, because at some point, if there isn’t enough 

revenue set aside, either in advance or being generated at the time 

to pay for those benefits, the benefits potentially could be changed 

and lowered, so the employees would not receive the benefits they 

thought they were going to receive. So I think it is in the best interest of the Postal Service, for their future viability, and the same 

for the employees. 

Mr. LANKFORD. Struggle through it right now, but because it protects retirees in the days ahead. 

Mr. DODARO. Yes. 

Mr. LANKFORD. Okay, thank you. 

With that, I yield back. 

Chairman ISSA. I thank the gentleman for yielding back. 

We now go to the gentleman from Pennsylvania, Mr. Cartwright, 

who is not here. Okay, Pocan. 

Mr. POCAN. Thank you, Mr. Chair. 

Chairman ISSA. Thank you. The gentleman from Wisconsin. 

Mr. POCAN. Thank you. 

40 

I am one of the new folks around here, so I am still not used to, 

you know, we pass a budget, but we don’t really pass a budget in 

Washington; and we use words like sequester. I never told my 

nieces or nephews I am going to sequester their toys if they don’t 

behave. So there is a lot that is new to me around here. 

Chairman ISSA. If the gentleman would yield. Have you learned 

exigent today? 

Mr. POCAN. Thank you. Lost five seconds. That is all right. 

And the last part is this pension requirement, because, as I understand it, it is extremely unique; no one else has to prepay 75 

years into the future. If I understand it right, someone who is not 

even born, who would go to work for the post office, you are already 

paying for their pension now. Seventy-five years into the future is 

a long period of time. I am getting shaking heads no. 

Mr. DODARO. It is 50 years, and this is prefunding only for the 

people that are currently employed at the post office or retirees, not 

future people. 

Mr. POCAN. Okay. All right. But it is the only agency that is 

doing 75 years in the future, is that correct? 

Mr. DODARO. I mentioned earlier that the Department of Defense 

is voluntarily doing it for the military. 

Mr. POCAN. But those are appropriated dollars, right, as opposed 

to revenue dollars that are brought in? 

Mr. DODARO. Well, that is how they get revenue, but they are 

prefunding their requirements in advance. 

Mr. POCAN. Right, but that is completely different than how the 

funding comes in from the post office, correct, because we don’t 

have the appropriated dollars? 

Mr. DODARO. That is correct, but—— 

Mr. POCAN. Okay, that is fine. I was just checking on that. 

The problem I have is that when I look at the Constitution, 

which we all had to swear to just a few months ago, I read Article 

I, Section 8, Clause 7, and it says we have to establish a post office. 

So, to me, there is a higher responsibility as we take a look at 

doing this and, therefore, we have to make sure that we are actually providing the service. I have also been a small business owner 

for over half my lifetime. In Brooklyn, Wisconsin, the small community of Brooklyn, honestly, I believe they rely more on the post 

office than they do in Brooklyn, New York. They don’t have some 

of the other alternatives. If you are going to keep people in those 

small communities in rural Wisconsin and across the Country, you 

need a viable post office, and that includes things like six day delivery and local post offices. 

If I could just ask questions in two different areas, if I can. One, 

Mr. Barnett, I guess two questions. One, were the board members 

briefed and on board with the postmaster’s decision to implement 

a five day a week mail delivery schedule prior to it being announced on February 6th? 

Mr. BARNETT. Yes, we were. 

Mr. POCAN. They were. And any union representatives on that 

board? It was implied that the union is the one who blocked it 

going from five to six days. 

Mr. BARNETT. All of the members of the board of governors, we 

only have five at the moment, of the nine, all are public interest, 

41 

public service appointees, so there are no union appointees or business appointees. 

Mr. POCAN. So it wouldn’t be fair to say that the union members 

somehow blocked. 

Mr. BARNETT. No, sir. 

Mr. POCAN. Okay, thank you. 

And then a question for Mr. Dodaro. I know that GAO has supported this move for the 75 years in the future, which is, again, 

unique. No other agency in government does that, that far into the 

future. But when you say you support that, if you have to look at 

what the post office is doing and essentially that if they are going 

to have to eliminate services in order to do it or that they will be 

cutting delivery days or slowing service in order to make these inflated payments, is that something that is still supported in order 

to prefund this? Because we know what a big chunk it was for 

years, it would have been still profitable and, as you said, we are 

front-loading a lot of the payments. In order to keep that going, we 

are hurting Brooklyn, Wisconsin and we are hurting those small 

businesses in my area. Is that something that you would support? 

Mr. DODARO. Well, in the context that the Congress has required 

the Postal Service be a self-funding operation, yes. And if you look 

at the fact that the decline in mail volume, particularly first class 

mail, is projected to go down through 2020 in the future, it doesn’t 

look like the revenue base is going to be there to pay these benefits 

later, so somebody is going to have to pay it at some point in time, 

and we think this is a prudent course. Now, we said that we are 

fine with modifying the prepayments, given the overall financial 

condition of the Postal Service, but it needs to be done in a fiscally 

prudent manner; otherwise, you are just pushing the problem down 

the road. 

Mr. POCAN. And, also, I believe you did say you are open also to 

providing additional services, and I think there is some legislation 

to do that, to allow them to be like any other small business who 

would adapt and take on maybe some new areas to raise some revenue. Is that correct? 

Mr. DODARO. Yes. We think they ought to pursue other revenue 

areas. I think when you move into non-postal areas you need to 

think about the competition with other entities, whether they 

would be subject to the same regulatory authorities that the other 

agencies would be involved. So it gets a little complicated. But they 

need to pursue alternatives in conjunction with the Congress. 

Mr. POCAN. Thank you. 

Chairman ISSA. You still have five seconds left. 

The gentleman may not have heard, a moment ago, but with Mr. 

Connolly I did make it clear that we have always said that the $2 

billion difference between the statutory prepayment and the actuarial responsibility we are always happy to remove. The challenge 

is the remaining $14 billion. 

And since you did say you were new, taking a little privilege 

from the chair, we have also always supported the innovation fund, 

the additional dollars. We do have to bear in mind the U.S. post 

office does not pay parking tickets. The U.S. post office does not 

pay taxes, including gas taxes, including license plate fees, and the 

like. So we also recognize that when they want to go into private 

42 

areas, we have to make sure they are not leveraging reduced cost, 

such as no property tax and so on. So there is a balancing and 

hopefully you will take a very active role in the postal reform bill 

that is still being authored here in the House as we speak, and I 

would invite you to do so. Thank you. 

We now go to the gentleman from Tennessee, one of the gentlemen from Tennessee, Mr. DesJarlais. 

Mr. DESJARLAIS. Thank you, Mr. Chairman. 

Just a few questions. First, Mr. Dodaro, did the GAO look to see 

if the modified Saturday plan met the requirements of the postal 

rider? 

Mr. DODARO. No. 

Mr. DESJARLAIS. Okay. 

Mr. Rolando, in December 2012 report from the GAO, it explicitly 

stated that the 2006 postal reform law did not require USPS to 

prefund 75 years of retiree health benefits over a 10-year period. 

Do you agree with that statement? 

Mr. ROLANDO. Barnett. 

Mr. DESJARLAIS. Oh, I am sorry, Mr. Barnett. 

Mr. BARNETT. I apologize. 

Mr. DESJARLAIS. Let me reread it. 

Mr. BARNETT. Thank you. I appreciate it. 

Mr. DESJARLAIS. I apologize for miscommunicating your name. 

December 2012 report GAO explicitly stated that the 2006 postal 

reform law did not require USPS to prefund 75 years of retiree 

health benefits over a 10-year period. Do you agree with that statement? 

Mr. BARNETT. I apologize, but I am not equipped to answer the 

question. I read the GAO, I read his testimony last night, and I 

agree with everything in it, but I am not quite following the question, and I apologize for not understanding. 

Mr. DESJARLAIS. Okay. Maybe I am not reading it clearly. The 

GAO report from 2012 explicitly stated that the 2006 postal reform 

law did not require USPS to prefund 75 years of retirement health 

benefits over a 10-year period. 

Chairman ISSA. Perhaps the GAO could. 

Mr. DESJARLAIS. Okay, Mr. Dodaro, do you know the answer? 

Mr. DODARO. Yes, Mr. Barnett is right. Our point there was it 

was only 50 years, not 75 years. 

Mr. DESJARLAIS. Okay, so you agree with that, then. 

Mr. DODARO. Yes. 

Mr. DESJARLAIS. Okay. And then I guess to either one, just to 

put one last persistent myth to rest, the same GAO report also 

stated, contrary to some claims, there is no liability held, nor contributions made, for any future employees who have yet to be hired 

or yet to be born. Do you agree with that? 

Mr. BARNETT. Mr. Chairman, Representative, we do, and I would 

like to note, if I could, that the board believes that we would hope 

the opportunity for postal reform might consider the prospect that 

all future hires would go to a defined contribution plan, would not 

affect any current employees in any way, but that in the future 

that is a better way of looking at retirement plans. We would also, 

in the same regard, like to have more flexibility at doing our own 

health plan and competitively shopping it. We believe we could 

43 

save our employees a lot of money by shopping our own health plan 

and having a better plan, a more affordable plan for our employees. 

Mr. DESJARLAIS. The Federal exchanges aren’t looking good? 

Mr. BARNETT. Well, we are a part of FEHB, and it is my understanding we have very little flexibility there. 

Mr. DESJARLAIS. All right. Thank you, gentlemen. 

Chairman ISSA. Would the gentleman yield? 

Mr. DESJARLAIS. I will yield. 

Chairman ISSA. I might note that every member here on the dais 

is leaving FEHB and heading to the exchanges at the end of the 

year, by law. We could accommodate you, I am sure, very easily on 

that. 

Mr. Dodaro, just using up the rest of this time, because I think 

it is important that we get this in, if we were to go to no payments 

to the health care retirement, isn’t it true that in a matter of just 

a few years you would end up with an unfunded liability? In other 

words, the $45 billion in prepayment would expire in a decade or 

so and then you would simply have people taking money out that 

are currently there, and no money coming in; and the likelihood is 

that the post office is not anticipating some windfall of profits in 

the future that would pay it? 

Mr. DODARO. That is correct. 

Chairman ISSA. And if this were a private company, and it is trying to be operated as at least a break even private company, what 

would be their payments, their actuarial payments into a fund like 

this? One billion, two billion, four billion? Right now it is $5.5 billion, which is arbitrary, we all agree to that. What would be the 

level payments they would make over the next several decades to 

meet this obligation? 

Mr. DODARO. About $3 billion. 

Chairman ISSA. Okay, so $3 billion instead of $5 billion, $5.5 billion. There is a delta there, and I hopefully we have made the 

record straight today that the loss is less if one were to go to this, 

but it still would be a loss of roughly $14 billion. 

Mr. DODARO. There is no question this is only one part of a 

broader package that is needed to deal with the full range of fiscal 

challenges. 

Chairman ISSA. Isn’t it true that the Postal Service has had statutory authority and, actually, a mandate to move from the chute 

to the curb, in other words, gain that efficiency of curbside delivery, 

and that there has been a transition, but that that transition has 

slowed to a crawl, and that is part of about $6 billion of their accumulated loss? 

Mr. DODARO. They have had a policy to do that, but they have 

some flexibility, and based upon what we have seen—we haven’t 

studied it for a while—it is made on a decentralized basis, so 

whether they get any push-back from the local communities or not. 

But you are right in the sense that it is very cost-effective to do 

that. In fact, to deliver an address to a door costs about $350 in 

2009; where, if you go to centralized delivery in cluster boxes, it is 

about $160. So it makes a big difference. 

Chairman ISSA. Thank you. 

The gentlelady from Illinois, Ms. Duckworth. 

Ms. DUCKWORTH. Thank you, Mr. Chairman. 

44 

Mr. Barnett, on April 10th of this year the board of governors announced your decision to delay the implementation of the modified 

delivery schedule that had been approved in January. Why did the 

board of governors decide to delay the move to a five day delivery 

schedule? 

Mr. BARNETT. Primarily because of a legal opinion that it would 

be unlawful to do so. 

Ms. DUCKWORTH. Did you seek this opinion, this outside legal— 

was it outside legal counsel or was it internal? 

Mr. BARNETT. It was outside legal counsel, and we did seek the 

opinion. 

Ms. DUCKWORTH. Okay. 

Mr. Chairman, I ask unanimous consent to enter into the record 

the King & Spalding legal memo dated April 5th, 2013. 

Chairman ISSA. The gentlelady was not here at that moment, but 

it is already in the record. 

Ms. DUCKWORTH. It is. Oh, okay. Thank you. 

Mr. Barnett, earlier this year, 87 of my colleagues joined me in 

sending a letter to the postmaster, expressing our concern that 

ending Saturday delivery would negatively impact the ability of 

Americans to receive home delivery of prescription drugs in a timely manner. Some of these drugs are not delivered as a package and 

actually come in first class mail. For example, anything delivered 

by a patch delivery system, Nicotine patch, pain killers, psychiatric 

drugs. Some of those are in a patch delivery system as well. 

Among the people who most rely on home delivery are seniors, 

service men and women, veterans, and the disabled. Many of them 

live on a fixed budget. In a subcommittee hearing last week, Carl 

Jansen, VP of Pharmacy Operations at CVS Caremark, which currently has the delivery contract for Tricare, for example, testified 

that ending Saturday delivery would impact their ability to maintain current margins and he indicated that he did not know if this 

would lead to cost shifting to customers. 

Have you looked at the impact that ending Saturday delivery 

would have on shifting costs to either business or consumers? 

Mr. BARNETT. Mr. Chairman, Representative, yes, we have had 

numerous board discussions and presentations by people from industry, by people from the Postal Service about what that impact 

would be. We are faced with the problem of losing billions of dollars 

a year, and we only have three or four ways to reduce costs that 

are of the magnitude to solve that deficiency, and this is one of the 

largest at $2 billion. It would make a significant impact. 

There are abilities now for emergencies and for the seniors. We 

don’t deliver on Sunday, so all of the same arguments you just used 

would be true on Sunday. The seniors don’t get their drugs delivered or their pharmaceuticals on Sunday; they sometimes don’t on 

Monday, as well. The Postal Service is and has a plan in effect for 

those people that have an emergency need or an urgent need for 

that, and there were contingent plans that, by the way, are part 

of the reason to take nine months or seven months to put in place. 

We need to get those things into where we have notification to the 

carriers about those people that have urgent needs. 

There is a way to shift them to packages that are not as expensive as people think, and there is also some ability through CVS 

45 

or others to work at getting the pharmaceuticals to them earlier, 

on Friday, for example, so that they wouldn’t need them on Saturday. 

Ms. DUCKWORTH. But the cost would still be getting shifted onto 

consumers and being shifted onto businesses. 

Mr. BARTON. We don’t take testimony, but some of the presentations to us have been that there wouldn’t be any additional cost, 

there would be a change in the manner in which they would arrive 

at their mailings. They will have to do them in a different fashion 

if it is five days a week, as opposed to six. There would be no additional cost. 

Ms. DUCKWORTH. Well, the VP of pharmacy operations at one of 

the largest pharmaceutical pharmacies in the Country disagrees 

with you and testified accordingly yesterday. 

I understand and very much appreciate what you just said, that 

you have been reaching out to business customers and that you understand the needs with regards to this issue. Could you tell us 

what types of concerns you have heard and if, when you altered 

your plan for implementation of five day delivery, it was affected 

by that dialogue at all. 

Mr. BARTON. The board attempted to take all of it into account 

in making its decision. There is a 70 billion piece drop in volume. 

We were at 213; we are now at 160. When you have that kind of 

decline in volume, you must look at modifications of delivery schedules. 

And I misspoke a minute ago; pharmaceuticals will be delivered 

on weekends, regardless. And the Postmaster General will be up 

here in a minute for the next panel; he will get into that more. So 

it was going to be delivered, regardless. 

But, yes, all of that is taken into account, and yet we face having to cut several billion, at least $5 billion more a year out, and I don’t 

know where else to do it except one big chunk of it is from six to 

five day. 

Ms. DUCKWORTH. I am over time. 

Mr. FARENTHOLD. [Presiding.] That is all right. If the gentlelady 

would yield for a second. 

I chaired that committee and it was my understanding of the testimony that though CVS Caremark had some concerns, they were 

more concerned with an overall cessation in Saturday delivery, 

rather than the modified plan. I would like to follow up with them 

on that one. Without objection, we will forward your specific inquiry for clarification to CVS and include that as part of the record. 

Without objection, we will do that and get that to you and include 

it as part of the record, because that is something we really do 

need to be clear on because it is an important issue, to make sure 

the seniors are able to get their medications on Saturday. It is a 

very important issue we will follow up on. 

With that we will move along to the gentleman from Michigan, 

Mr. Walberg. You are recognized for five minutes. 

Mr. WALBERG. Thank you, Mr. Chairman. 

Mr. Barnett, with only nine days of liquidity, when do you 

project that the Postal Service will run out of cash? 

Mr. BARNETT. I am unable to give you a date. We will be down 

to, our projections show two days of liquidity on October 16th. On 

46 

October 15th we will have a large worker’s comp premium payment, and we think we will be down to two days liquidity at that 

time. But that is the start of the Christmas mailing season, when 

we have tremendous increases in revenue in that quarter, starting 

October 1st. So we probably will be able to, from a cash flow standpoint, albeit not paying the prefunding and so forth, we are going 

on many more months, maybe a year or two. I do not have a date 

I can give you. 

Mr. WALBERG. So any contingency plans you have right now is 

based primarily on the holiday season coming and expanded revenues that come in from that. 

Mr. BARNETT. Mr. Chairman, Representative, we are in dire cash 

flow straits under any method we look at. We don’t want to in any 

way sugar coat that today. We are in real trouble and we need 

comprehensive postal reform yesterday. 

Mr. WALBERG. Do you have contingency plans, though, that you 

have seen? 

Mr. BARNETT. We have discussed contingency plans, Mr. Chairman, Representative. 

Mr. WALBERG. Has the board approved them? 

Mr. BARNETT. Mr. Chairman, Representative, we have not had a 

formal vote on contingency plans, but we have discussed them at 

length, and postal management knows the opinion of the board 

about what contingencies we would have to do. 

Mr. WALBERG. Well, let’s move on. Were you asked, as a board, 

to approve the Postal Service’s decision to implement the five 

month moratorium on the processing plant consolidation? 

Mr. BARNETT. We discussed the moratorium. We are a board that 

represents the public interest, and a part of that public interest is 

what might loosely be termed politics; and you have politics going 

on when you are trying to get comprehensive postal reform. Just 

as we had announced we hoped we could close lots of post offices, 

a wise decision was made collectively by the board, by postal management that that was going to upset Congress a great deal, and 

we went to the concept of a village post office and the reduction of 

hours in the post offices, and it seems to have stopped the political 

rhetoric or lowered the political rhetoric an immense amount, and 

we still got 80, 90 percent of the savings. In other words, we do 

keep, in rural areas, post offices open, but they are now open two 

hours a day rather than eight. We have fewer postmasters, we 

have fewer costs. It was, I will call it a political compromise, if you 

will, because we tried to listen, as part of representing the public 

interest is that kind of consideration. 

We didn’t have specific political consideration. Well, there was 

political consideration: do you do a moratorium. Well, we were 

promised, albeit incorrectly, that comprehensive postal reform was 

on its way. I can tell you I have been on the board six years. I have 

heard that every year for six years. I am like the kid on Christmas 

Day; I am waiting for the postal reform, but I haven’t seen it yet. 

Mr. WALBERG. Okay. 

Mr. Chairman, I yield back. 

Mr. FARENTHOLD. Thank you very much. 

At this point we will go to the gentleman from California, Mr. 

Cardenas. You are recognized for five minutes, sir. 

47 

Mr. CARDENAS. Thank you, Mr. Chairman. 

As reported in an article in Bloomberg on April 11th, 2013, the 

Postmaster General was quoted as without being able to cut back 

to five delivery days from six, the Postal Service will take its 

board’s advice and ask its employee unions to renegotiate 

multiyear contracts. 

Mr. Barnett, did the board of governors authorize the Postmaster 

General to take this action? 

Mr. BARNETT. Mr. Chairman, Representative, we directed him to 

take that action. 

Mr. CARDENAS. Okay. Was it discussed at the April 9th board of 

governors meeting, or any earlier meeting? 

Mr. BARNETT. We had two meetings in the last week and I am 

not sure of the dates, but it was discussed at both meetings, yes. 

Mr. CARDENAS. Okay. And do you know if the Postmaster General has spoken to any of the bargaining union leaders, renegotiating their agreements? 

Mr. BARNETT. Mr. Chairman, Representative, it is my understanding that the requests have gone out, and he will be here 

shortly and he can tell you more. We have not had a board meeting 

since that time. 

Mr. CARDENAS. Okay. So the board hasn’t discussed it further. 

Mr. BARNETT. Not further. 

Mr. CARDENAS. Okay. Thank you. Is it true that the U.S. Postal 

Service handles approximately 40 percent of the world’s mail volume? 

Mr. BARNETT. Yes. 

Mr. CARDENAS. That is about right? Okay. How much of U.S. 

mail is handled by private industry in this Country, roughly? 

Mr. BARNETT. Mr. Chairman, Representative, we have a monopoly on first class mail, so we have 100 percent of that. If you are 

talking about priority mail or package delivery and so forth, I don’t 

know that number. We would still, I think, have a majority of it. 

Well, packages, 20 percent. But there is a lot of criteria from first 

class all the way down to packages. 

Mr. CARDENAS. And today’s recovery cost of a first class piece of 

mail is approximately what, full recovery cost? 

Mr. BARNETT. The Postmaster General informs me that 50 percent contribution on the first class mail, and it is the most profitable. 

Mr. CARDENAS. So what are we charging today for first class 

mail? 

Mr. BARNETT. Forty-six cents. 

Mr. CARDENAS. Forty-six cents. And you are saying that that is 

full cost recovery on that piece of mail? 

Mr. BARNETT. Yes. 

Mr. CARDENAS. Okay. And you are saying that private industry 

doesn’t endeavor in this Country, they don’t get involved in first 

class mail, apparently? 

Mr. BARNETT. They are unable to use the mailbox to deliver. 

They certainly can deliver things to your driveway, to your front 

door, mail or packages. 

48 

Mr. CARDENAS. And when it comes to packages, how do we do 

when it comes to packages, are we losing revenue whenever we try 

to compete in that arena? 

Mr. BARNETT. Mr. Chairman, Representative, no. I think we are making money. We increased our revenues by more than $300 million last year. It is quite profitable. 

Mr. CARDENAS. Okay. So it appears that this Government entity, 

the U.S. Postal Service, in your earlier testimony, I am getting the 

feeling that one of the biggest problems we have isn’t that we can’t 

compete in these delivery systems at various levels, it appears that 

you are finding it hard to actually make decisions in a timely manner to make those adjustments to actually bring yourself into better revenue positions? 

Mr. BARNETT. Mr. Chairman, Representative, there are two primary problems. Every year there are more places to deliver the 

mail to approximately 150 million delivery sites a day and it grows, 

so the cost of delivering to all those delivery sites every day is a 

growing item; while there is a tremendous decline in the mail. So 

it is a system that, without other changes, is going to absolute failure. You can’t continue to have decline in mail. And my colleagues 

pointed out several times that through 2020 we project a decline 

in first class mail, and it is not that we don’t necessarily think 

there may be a decline after that; that is just as far out as we projected it. Personally, as a board of governors and for all the things, 

I think mail will continue to decline forever because of the ability 

of electronic diversion and other methods of communication. 

Mr. CARDENAS. Thank you. 

I yield back my time. 

Mr. FARENTHOLD. Thank you very much. 

I see I am up now, so here we go. I would like to start out with 

Mr. Dodaro. You are with the Government Accountability Office. 

You are a nonpartisan organization. You were designed to be the 

neutral arbitrators, the guys with accountants, green eyeshade 

deals. To quote the old Dragnet TV show, you are the just the facts, 

ma’am, people. Would that be a fair characterization of your organization? 

Mr. DODARO. That is correct, without the green eyeshade. 

[Laughter.] 

Mr. FARENTHOLD. All right. So as a representative of a large district in South Texas and now the chairman of the postal subcommittee, I hear from a lot of postal workers. They will come into 

my office, we will have a nice chat, or they will stand out in front 

of my office with signs. Either way, I hear a lot from them. And 

I have made some promises to them, and that is we need to get 

down to some of the numbers with prefunding. And I know we 

have talked about that a lot today, but I want to be perfectly clear 

on this so there can be no question. My fear is some of these postal 

employees are getting some bad information through the grapevine 

or from some outside organizations. Correct me if I am wrong here. 

If we were to do away with all prefunding completely, the Postal 

Service would still be losing money. Is that correct? 

Mr. DODARO. That is correct. 

Mr. FARENTHOLD. If we were to go to, as some of my colleagues 

on the other side of the aisle have suggested, a more actuarial 

49 

based with the Senate, we would save about $2 billion to $3 billion 

over what the prefunding requirement is today, is that correct? 

Mr. DODARO. That is correct. 

Mr. FARENTHOLD. All right. And as Mr. DesJarlais asked, we are 

not prefunding for people who haven’t been born yet, and we are 

looking at a rational deal accumulating money to pay these postal 

workers the benefits that they have been promised. If we don’t put 

money away, it is going to be up to the whim of Congress as to 

whether or not there is money there to pay them if they don’t accrue for it. Would that be a fair statement? 

Mr. DODARO. That is absolutely correct. 

Mr. FARENTHOLD. All right. Mr. Barnett, would you agree that 

those are accurate statements as well? 

Mr. BARNETT. Mr. Chairman, I agree. 

Mr. FARENTHOLD. All right. So let’s talk a little bit about Saturday. 

Chairman Issa, Mr. Barnett, asked you which law you chose to 

break, whether the prefunding payments or the Saturday delivery. 

My question on that is, as a business person, if I had the opportunity to go to court to save several billion dollars, even if my lawyer said, well, it is a questionable issue, it might be safer to go 

ahead, I think I might have gone ahead with it. You pointed out 

earlier in your testimony that there was a concern about the money 

that the private sector would have to do to adapt their shipping 

mechanisms and the like. Didn’t you already put a similar burden 

on the private sector when you said, well, we are going to stop Saturday delivery for all but packages and priority mail? Didn’t a good 

many of those people already spend the money and at least start 

to make those plans and adaptations? 

Mr. BARNETT. Mr. Chairman, I don’t have any personal knowledge of what they started, but there is no disagreement, the board 

has been unanimous now for over three years that it is going to be 

necessary to go from six days to five days. 

Mr. FARENTHOLD. Okay. 

Mr. BARNETT. It will happen. I can’t tell you when, but it will 

happen. 

Mr. FARENTHOLD. All right. I want to get one more thing to meet 

my commitment to my postal workers to get to the bottom of this. 

An actuarial-based prepayment of retirement in health care benefits is consistent with what is required by Federal law of UPS, Federal Express, and almost every other corporation in the Country; 

it would be very similar. 

Mr. DODARO. I am informed it is not exactly. I can provide a detailed list for the record. 

Mr. FARENTHOLD. Would you provide the details of how an actuarial would be different from what private sector companies are 

doing? Because I would like to know and I would like to make that 

available to the postal employees that I represent and throughout 

the Country. 

Mr. DODARO. Yes. You are correct for pensions, but it is not the 

same for health care benefits. 

Mr. FARENTHOLD. Okay. 

Mr. DODARO. So I will provide a more detailed record for the 

record. 

50 

Mr. FARENTHOLD. And you are saying that the Postal Service is 

in the hole 140 percent of current revenue, is that the number you 

gave? 

Mr. DODARO. Their debt and unfunded liabilities are 147 percent. 

Mr. FARENTHOLD. Okay. Now, if there were a private company 

in that situation, bankruptcy would probably be where they are, is 

that correct? 

Mr. DODARO. You would be teetering. 

Mr. FARENTHOLD. Okay. 

Finally, let me go to Mr. Barnett on something relatively unrelated. You testified that you all wanted more flexibility in rates, 

and I can understand that with respect to packages, but you have 

a monopoly on first class mail; you have a de facto monopoly on 

third class mail, catalogs and what a lot of people would refer to 

as junk mail; there are some people who will door hangers and 

things like that, but nobody that has the reach that you guys do. 

How do we give you that flexibility without giving you the power 

to do sweetheart deals and pick winners and losers based on political? I can understand maybe coming up with a frequent mailer 

program where, based on volume or objective standards, you come 

up with something, but there is a case with respect now you are 

offering a company that competes with newspapers, talking about 

offering them a sweetheart deal on rates. How do we give you that 

flexibility and, as a quasi-governmental agency still make sure you 

treat everybody fairly and in an objective fashion? 

Mr. BARNETT. Mr. Chairman, as I indicated, I think one way of 

doing it is to allow the board of governors and the Postal Service 

to implement immediately, with some notice, but relatively short 

notice, these rates or these changes, subject to the Postal Regulatory Commission then having the authority to say, no, you have 

unfairly calculated your numbers by improperly allocating what to 

monopoly status as opposed to the competitive side of the house. 

So I don’t think it should be completely unfettered, I don’t think 

that would necessarily work; although I think you would find the 

board of governors equally up to the task of balancing all of the aspects you just described as you would the Postal Regulatory Commission. 

Chairman ISSA. Mr. Chairman? 

Mr. FARENTHOLD. Yes, sir. 

Chairman ISSA. Perhaps the chairman would make sure that on 

the question of pensions, which I know you covered very thoroughly, the question of if a private sector pension did not fully accrue and have all the money in, for example, United Airlines when 

they went bankrupt, what would occur versus what would occur in 

the case of the post office. I think Mr. Dodaro is pretty qualified 

to contrast the outcomes. 

Mr. FARENTHOLD. I am about out of time, but I do think that 

question deserves an answer. We will get that question. Hopefully 

somebody will yield on my side and we will get that. I am already 

way over. I do want to get that answered; we will do it within the 

constraints of the time rules. 

So we will go to Mr. Cartwright now for five minutes. 

Mr. CARTWRIGHT. I have no questions for this panel. 

Mr. CUMMINGS. Would the gentleman yield? 

51 

Mr. CARTWRIGHT. Yes. 

Mr. CUMMINGS. Thank you. 

I want to go back to the question that was just asked, in fairness. 

With regard to what the chairman just asked, can you answer 

that? 

Mr. DODARO. Yes. The Pension Benefit Guaranty Corporation 

would step in and have to take over that situation. In that case 

they have a minimum amount that they pay to the pensioneers. It 

may or may not be anywhere close to what they were promised 

under the programs, but PBGC, the Pension Benefit Guaranty Corporation, would take over as they have for other plans where companies have failed in the private sector. 

Mr. CUMMINGS. Now, what about health benefits? 

Mr. DODARO. The health area, I don’t believe there is any comparable situation. I will go back and think about that, and if I have 

a different answer, I will provide it for the record, but I don’t believe there is so. 

Mr. CUMMINGS. Your aid is swiftly jotting down the praecipe 

there. What do we have? 

Mr. DODARO. Basically that the participants lose. The benefits 

will be cut. 

Mr. CUMMINGS. But your recommendation with regard to the 

health benefits is what, now? 

Mr. DODARO. That prefunding take place in a fiscally responsible 

manner. We believe this protects the Postal Service employees, as 

well as the Postal Service as an institution, and helps preserve 

their benefits; that it be done on an actuarial basis consistent with 

the Senate legislation that was passed; that a goal be set for 100 

percent funding over time. Those are our recommendations. 

Mr. CUMMINGS. And you would feel comfortable that they would 

be sufficiently taken care of no matter what? 

Mr. DODARO. Yes. Yes. If that happens, along with— now, you 

need the comprehensive legislation to make the Postal Service have 

the ability to make the prefunding arrangements. That is where 

the flexibility comes in and other issues. But assuming the Postal 

Service has the financial ability to make those prepayments, yes, 

I think that is in the best interest of the employees and the Postal 

Service. 

Mr. CUMMINGS. You also talked about making sure that they 

have the opportunity to raise rates, is that right? Did you say that? 

Mr. DODARO. Yes. I think they need flexibility in both pricing 

and in delivery. You know, in the delivery area, 80 percent of their 

costs are personnel costs. You are not going to eliminate your personnel costs unless you change your delivery stand. 

Mr. CUMMINGS. Right. 

Mr. DODARO. And when you have the mail volume dropping the 

way it is dropping, and projected to continue to drop, you need to 

have flexibility to change your delivery methods. Five day delivery 

is something we think should be considered. But they need pricing 

options with flexibility, too. Their main competition is the introduction of new technologies. They are occurring very rapidly, changing 

how people are communicating. If they don’t have the flexibility to 

make those changes, they are not going to be able to be competitive 

in the future. The Postal Rate Commission could stay in place as 

52 

a check against what they are doing, but unless they are given the 

flexibility, I just don’t see how they are going to be able to bring 

their costs in alignment with revenues. 

Mr. CUMMINGS. And so I take it that there is research that has 

been done to say that if the postmaster were to raise the rates, 

that that would not interfere with future business? In other words, 

you can raise your rates to a certain degree and lose business. I 

am assuming that you all have already taken all of that into consideration, is that right? 

Mr. DODARO. Well, you need to balance raising the rates. I mean, 

many of our suggestions go to cutting the costs. Our point is that 

you need to bring costs in alignment with the revenues. So I am 

not saying you should solely do raising the rates. I think you have 

to cut the costs first and use rate abilities, particularly for products 

where you are losing, not covering your costs already, as I mentioned with periodicals and catalogs. But you have to balance those 

issues appropriately. 

Mr. CUMMINGS. And on the downsizing, you know, there has 

been substantial downsizing already, and I take it that when you 

talk about downsizing, I think you mentioned that there should be 

some type of incentives for downsizing, people retiring? 

Mr. DODARO. Yes. 

Mr. CUMMINGS. And why did you come to that recommendation? 

What was the basis of that, sir? 

Mr. DODARO. Well, I think if you look at the decline in the mail 

volume, we have looked at there is excess capacity in the system, 

in the mail processing network, and they are already trying to consolidate the mail processing centers. And if you look at the decline, 

Mr. Barnett mentioned they went from 213 million pieces of mail 

to 160 pieces of mail, and they are expected to go further over a 

relatively short period of time. So you have excess processing capabilities and also in your retail operations as well. They are already 

cutting back the number of hours, as he mentioned, some places to 

two hours a day; and that is under just the current volume. If the 

volume drops further, the excess capacity will build, and then you 

are going to have to downsize because you don’t have revenue to 

support that network. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

Mr. FARENTHOLD. All right, patiently waiting has been the gentleman from Michigan. Mr. Bentivolio, you are recognized. 

Mr. BENTIVOLIO. Thank you, Mr. Chairman. 

Chairman Barnett, I have a few questions. I want to recap, make 

sure I understand this correctly, but I also want you to know that 

I have a fond affection for the post office; as a soldier overseas, it 

was the highlight of my day and a big morale booster to get mail 

from home. And I think I carried that over home; I always look forward to looking in my mailbox. But there are a few things that are 

clear: some days there is no mail at all and other days there is 

maybe one or two, in contrast 10 years ago, 15 years ago, before 

the Internet, there was all kinds of mail. Always looked forward to 

it and always looked forward to my postal delivery person to say 

hello to him. Always had good relationship with the post office. 

53 

But there are a few facts, and you have indicated those. You 

have a declining volume in first class mail, in which you have a 

monopoly, correct? 

Mr. BARNETT. Correct. 

Mr. BENTIVOLIO. Right. And you have increasing locations to deliver that mail, which you are required to do so. Where you are increasing, if I understand, your marketing shares in package delivery, correct? 

Mr. BARNETT. Mr. Chairman, Representative, that is correct. 

Mr. BENTIVOLIO. Okay. But you are required to compete with 

other commercial businesses in that area. 

Mr. BARNETT. That is correct, Mr. Chairman. 

Mr. BENTIVOLIO. So you have to compete on something while 

there are other competitors, of course. All right, now, for cost cutting, you are consolidating some sorting locations or mail—— 

Mr. BARNETT. Mail processing plants, yes, sir. 

Mr. BENTIVOLIO. Mail processing. Thank you very much. Now, 

you also are looking at cutting delivery down to five days versus 

six. Have you ever done any testing anywhere in the Country, any 

region, where you have done that; you have said, okay, folks, in 

this particular area we are only going to deliver five days; measure 

your cost savings and measure your customer satisfaction or whatever, some kind of evaluation? Have you ever done any tests like 

that? 

Mr. BARNETT. Mr. Chairman, Representative, I am unaware of 

any tests except that the presentations made to the board show 

that delivery over time has been all over the place. In New York 

City, I was told, in 1900 they delivered in New York City five times 

a day. In as late as in the 20th century they delivered twice a day 

to many areas of the Country. There are areas of the Country now 

that don’t receive mail delivery six days a week, I mean, the proverbial bottom of the Grand Canyon, that kind of thing. 

Mr. BENTIVOLIO. Okay. 

Mr. BARNETT. So there has always been some flexibility. But, Mr. 

Chairman, Representative, you hit the nail on the head: if you are 

not getting any mail and there is no volume, we have no choice but 

to eventually cut back the delivery time. 

Mr. BENTIVOLIO. Right. But you may have to deliver to my neighbor on that same day I don’t get any mail. So you still have to be 

there, correct? 

Mr. BARNETT. We do. Mr. Chairman, Representative, today that 

is our problem. The cost of going, whether you go by that mailbox 

or not, the cost is still there. In fact, there are enough people using 

one of our innovative ideas, Every Door Direct, which has been a 

real success. You can go as a small local businessman in a town 

and you can pay to go to every door within a zip code for a much 

lower price; and it is not large monies yet, but it is certainly an 

innovative idea that is working. 

Mr. BENTIVOLIO. Okay, excluding medicine delivery, pharmaceuticals, emergency mail, possibly a few other things, have you 

ever looked at delivering, for instance, using one carrier to deliver 

to one route Monday, Wednesday, and Friday, and route two, for 

instance, same delivery person on Tuesday, Thursday, and SaturVerDate Aug 31 2005 10:09 Sep 04, 2013 Jkt 000000 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 C:\DOCS\82436.TXT APRIL
54 

day? So you get the six day delivery. I mean, does that count? Is 

that something you could consider? 

Mr. BARNETT. Mr. Chairman, Representative, I think that postal 

management is considering every option that is available. Obviously, there are logistics and legal issues surrounding universal 

service. The union agreements, the union contracts, most of those 

would have to be renegotiated to accommodate some of that. But 

I am not sure the cost savings would be there sufficient to justify 

it. But I think they have thought of and are looking at every option 

that is available out there. 

Mr. BENTIVOLIO. So is there any test results or any areas where 

you have done this that maybe we can look at? 

Mr. BARNETT. Mr. Chairman, Representative, I don’t know of any 

test results. I do know we have polled it extensively. The board has 

asked and management has provided extensive polls over the last 

24 months showing very high numbers, in the 70 percent range of 

the public, is in favor of reducing delivery from six days to five 

days. And the business community has been, by and large, very favorable to closing. As a matter of fact, most of the governors report, 

as I do, back from my local businesses, I don’t get enough mail anymore that I care about Saturday delivery. Additionally, you should 

know that all the post offices are open on Saturday and that any 

businesses or individuals that need Saturday delivery can get a 

post office box, because it will be delivered on Saturday and will 

be available at post offices. So this would only primarily be those 

that didn’t have the need and don’t get a post office box. 

It is not a perfect scenario, and certainly you can come up with 

people that will be inconvenienced, but we are billions in the hole 

and somebody somewhere is going to have to be inconvenienced. 

Mr. BENTIVOLIO. Because I get the impression from the surveys 

and all the data that I have read, plus just looking in my own mailbox, that mail is declining. And I think, as everybody explained 

here, we are under dire circumstances. I think maybe looking at 

some more drastic measures might be at least worthwhile to look 

at. 

With that, I will yield back my time. Thank you very much, Mr. 

Chairman. 

Mr. FARENTHOLD. Thank you very much. 

At this point we will recognize the gentlelady from New York, 

Mrs. Maloney. 

Mrs. MALONEY. I want to thank all the panelists, thank you for 

your public service, and to be identified with my colleague on the 

other side of the aisle who said the highlight of his day was getting 

the mail. That is certainly true with the military and with many 

of us, and they do a terrific job in many ways getting mail to all 

across our Country. It has become a dangerous job, with ricin being 

discovered in the mail going to a United States Senator. Of course, 

it went through the mail service, workers were exposed to it. I 

know that in New York, many workers were exposed to anthrax. 

So with the new terrorism that, unfortunately, is with us, they are 

really in the line of fire in many ways. 

Postal services are very appreciated by communities, and nothing 

gets them more excited than a consolidation or a notice to close. 

And I have two notices in the district that I am honored to repVerDate Aug 31 2005 10:09 Sep 04, 2013 Jkt 000000 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 C:\DOCS\82436.TXT APRIL
55 

resent, and one of them, in the Old Chelsea area, is in a beautiful 

building that is owned by the post office, and they are proposing 

to sell the building and then to a place they are going to lease. And 

they are proposing to do this before they find the place they lease, 

and I respectfully request and believe that you should know where 

you are going before you sell a post office because, in New York, 

in an urban area, it is cheaper to stay in a building you own than 

to lease. So if our project and our goal is to save money, I think 

we should know where we are going before we close a post office 

and have some type of cost-benefit analysis. 

Also, do you look at other creative ways. Maybe in a post office, 

some are very large and beautiful, you could possibly rent some 

space to an attorney or someone that would help with the cost if 

the goal is to raise money. 

So my question is why in the world are you selling post offices 

before you even know where you are going to lease? Because I bet 

you money if you do that in my district, you are going to end up 

paying more money leasing than owning your post office site. Mr. 

Barnett? 

Mr. BARNETT. Mr. Chairman, Representative, in every case like 

that a cost-benefit analysis is done by the real estate division of the 

Postal Service. This specific question is probably better addressed 

to the Postmaster General on the next panel, but the board of governors would agree in general with your statements. We would not 

wish to do anything that would cost more money. 

Mrs. MALONEY. Well, I truly do believe it is a mistake to close 

anything before you know where you are going. Now, they are making a commitment to stay in the community. It is a post office that 

makes money, and, again, if our goal is to make money, I don’t understand why you would consolidate, close, sell, or do anything 

with a center that is literally making money. Can you explain that 

to me? 

Mr. BARNETT. Mr. Chairman, Representative, again, there will be 

a written, fully available cost-benefit analysis to any real estate 

transactions that are going to occur. We are in hundreds, if not 

thousands, of those around the Country today. 

Mrs. MALONEY. But where in the process is it done? It should be 

done now, while it is being considered, not after the fact. If there 

is any such analysis now, I don’t have it; and I have asked for it. 

So if there is not a law that says you have to have the cost-benefit 

analysis before the decision is made and before you move forward, 

I think it should be. That is just good government and good business. I can’t imagine a business selling their building to go lease 

something without first knowing where they are going to go and 

how much it is going to cost. And I am not kidding you, in New 

York it could be more expensive, considerably, to lease than to own 

your own building. The easiest way to live in New York in an 

urban area is to own your own building. And I would say in upstate New York, too. So I would like a clarification for the committee on what exactly is the procedure. And if you are doing this 

cost-benefit analysis, when do you get that cost-benefit analysis. 

Maybe GAO knows. 

56 

Mr. DODARO. We are aware they have a process. We haven’t 

looked at it for a while. I can provide some additional information 

for the record. 

Mrs. MALONEY. Well, I would appreciate that. Now, is there a 

law or a procedure that if it is, in fact, making money, you don’t 

close it? I would share with you that there were efforts to close 

other post offices in my district and I showed that they were making more money than any place in the State, so why are you trying 

to close them? And I think that you touched on it, Mr. Barnett. We 

are in a very competitive process right now, and if you close something people have other options, not only the Internet, but they can 

go to private providers. And if you think they are going to walk 

blocks away to someplace else, they are not going to do it; you are 

going to lose those customers. So it doesn’t look to me like a good 

business plan. Anyway, I am very concerned about it. 

I would also like to know the law on community outreach. Believe me, my community is reaching out to me, and I want to know 

are you required to have a community meeting so the community 

can be heard, or is that a discretionary decision, or how is that 

handled? I must say that the post office has been very responsive 

to many of my requests, but I would like to know what is the official procedure. 

Chairman ISSA. [Presiding.] The gentlelady’s time has expired, 

but the gentleman may answer briefly. 

Mr. BARNETT. The PRC and the Postal Service do have procedures in place. There are community meetings in every case and 

it is all set out with Postal Regulatory Commission procedures and 

USPS procedures. 

Mrs. MALONEY. Thank you. My time has expired. 

Thank you, Mr. Chairman. 

Chairman ISSA. Thank you. 

For the record, the postal laws of the United States, August 2011 

edition, on page 21, item 411 specifies cooperation with other government agencies as to subletting. But if the gentlelady would like 

it, we would arrange a bipartisan briefing on a number of the 

issues she brought up here today. 

With that, we go to the gentleman from Tennessee, Mr. Duncan. 

Mr. DUNCAN. Thank you, Mr. Chairman. I have been given the 

figures that there are now 471,000 postal retirees and 522,000 current employees. Are those numbers roughly accurate? 

Mr. BARNETT. Mr. Chairman, Representative, I am informed 

those are fairly correct. 

Mr. DUNCAN. And what I am really wondering about, I am assuming or guessing that you are paying the health benefit not only 

for them, but their families as well, is that correct? Do we know 

how many people total that you are paying health benefits for at 

this time? 

Mr. BARNETT. Mr. Chairman, Representative, I don’t. The Postmaster General will be up shortly. He will have those numbers. I 

am sorry, at the board level we don’t get into quite that detail. 

Mr. DUNCAN. Okay. Well, have you changed or reduced the retirement and health benefits for newly hired employees in the last 

few years? 

57 

Mr. BARNETT. Mr. Chairman, Representative, one of the things 

we hope that the comprehensive postal reform will do is clarify 

some of that. But when you say there are changes, there are only 

changes in the collective bargaining agreements with the unions, 

and they are some modifications as to new hires. 

Mr. DUNCAN. But basically you are still paying the retirement 

and the health benefits? 

Mr. BARNETT. The answer, Mr. Chairman, is yes. 

Mr. DUNCAN. Well, I guess what I am getting at, it is less than 

20 percent. In fact, I think it is only 16 percent of employees in the 

private sector have retirement plans with their companies, and also 

I was given the figures that the hourly pay for postal employees 

right now is running from around $24 an hour to $29 an hour; and 

in most places, almost every place in the Country, those are really 

good salaries. And I am just wondering, we all want to give people 

as much as we can possibly give them, but do you think the Postal 

Service would have trouble getting employees if you told these new 

hires that we were just going to pay you $25 or $30 an hour, but 

you weren’t going to get any pension or health benefits, since those 

seem to be the big expenses here or the big problems here? 

Mr. BARNETT. Mr. Chairman, Representative, without much de- tail, I can tell you recently we had some jobs available at $15 per 

hour and there were 90,000 applicants. 

Mr. DUNCAN. Well, all I am saying is that you certainly wouldn’t 

have any trouble getting employees in, I think, probably 98 percent 

of the Country, paying those kind of wages, $24, $25 an hour, even 

if you told new employees that, unfortunately, we can’t continue to 

pay the retirement and health benefits that we have always paid. 

On top of that, I think the retired postal employees should be the 

ones that are demanding the most fiscal conservatism in the future, or we are going to have real trouble paying these benefits 

that have already been promised, it seems to me. And I see you 

shaking your head up and down, Mr. Barnett. 

Mr. BARNETT. Mr. Chairman, Representative, we discussed these 

at length in the board and it is why I said earlier that we hope 

that the comprehensive postal reform will look at the possibility of 

going to defined contributions in the future, allowing us to run our 

own health plan, things of this type. Yes, we would like to run it 

more like a business, which will ultimately be to the benefit of the 

consumers, as well as our employees. 

Mr. DUNCAN. One last thing, just so that I have it straight. I saw 

where you have reached the debt limit of $15 billion, is that correct? 

Mr. BARNETT. Mr. Chairman, Representative, that is correct. 

Mr. DUNCAN. And you defaulted on the $11 billion prepayment. 

Mr. BARNETT. That is correct, Mr. Chairman and Representative. 

Mr. DUNCAN. So it is really worse than the $15 billion. And then 

the postmaster, in his testimony, says you are losing $25 million 

a day, which comes out to a little over $9 billion a year. So it seems 

like it is almost worse than what we have been talking about in 

the past. 

Mr. BARNETT. Mr. Chairman, Representative, very respectfully, I 

can tell you that we have our five-year plan, which we adopted 

years ago, has had some modifications to it, we can operate in the 

58 

black, but 100 percent of the reason that we cannot operate in the 

black today is because we cannot get postal reform through the 

Congress. 

Mr. DUNCAN. All right. Thank you very much. 

Chairman ISSA. If I could ask unanimous consent just to follow 

up for 10 seconds. 

Mr. Barnett, you were asked about lower wages. Based on your 

assessment, if we put in all of the efficiency changes and we optimize with current volume how we deliver, what we deliver, where 

we deliver it, can we break even and still pay the good wages and 

benefits we currently pay to our employees? 

Mr. BARNETT. Mr. Chairman, I don’t have an absolute answer to 

that, but it would be very difficult. 

Chairman ISSA. So the answer is almost close, that sort of thing? 

You are not sure we would break even, but you could come pretty 

close? 

Mr. BARNETT. Well, Mr. Chairman, we have a lot of things. The 

flexibility and the workforce rules, all of those things, defined contributions, the health plans, all of it are a part of the entire structure. 

Chairman ISSA. Okay. Well, my indulgence from the members 

should expire. 

As we go to the gentlelady from New Mexico, I do want to let 

everyone know that in the last Congress, and intended in this Congress, is to have substantially same wages and benefits going forward as we do. Our reforms were intended to, and I believe on a 

bipartisan basis we are going to try to keep the wages and benefits 

as close to what they are for the purpose of making sure that what 

we are looking for is efficiency to break even and not necessarily 

wage reductions. 

The gentlelady is recognized. 

Ms. LUJAN GRISHAM. Thank you, Mr. Chairman. And I want to 

thank both of our panelists for being here today. And a point of 

personal privilege, Mr. Chairman, panelist Barnett and the chairman of the board of governors is, of course, from my district, and 

that is the most important, from the State of New Mexico; and I 

am grateful for your service and for both panelists for engaging in 

this really important issue. 

My questions, like many of the others of my colleagues who have 

gone before me, we are clear that we have a revenue issue. We are 

clear that we have a loss of revenue problem. But what has not 

been, I think, stated by the panelists as robustly as I would like 

is, unlike a private business, this was a public service, and as we 

talk about cost-benefit analysis, about figuring out where some 

things are going to be more expensive than they might be in the 

private sector, it is because we are delivering a public service. And 

in a State like New Mexico, where we are rural and frontier, and 

including in my district, which is the most urban district, since 

2011, with 27,000 people out of the workforce for the Postal Service 

and work hours reduced by 40 million hours across the Country, 

the number one complaints I get in my office are long lines, having 

to travel long distances to find a post office. And I am very concerned about States like New Mexico as we try to figure out that 

59 

the fixed cost here is personnel, and to change that means that we 

don’t have an effective public service. 

So specifically more than just you need reforms and flexibility, 

what is the process for making sure that you have a high quality, 

very dependable, and an infrastructure that is going to benefit and 

protect States like New Mexico that have rural and frontier issues 

that are critical to having an open post office? 

Mr. BARNETT. A lot of answers to that, Mr. Chairman, Representative, but the concept of the village post office is most effective in 

the rural areas. The concept of a village post office is that we would 

put post offices in grocery stores, Targets, Walmarts, any place that 

might be like that, Home Depots, Office Depot, things like that; because they are open more hours than typical post offices, so you 

have more coverage. It is done at a lower cost, typically. And most 

people don’t need all of the services of a post office; they only need 

a stripped down version of the post office. 

Additionally, we are and we need to be more innovative at getting out the word that you can do most of your things on the Internet today. If you need stamps, all you need do is go on the Internet, 

order them, and they will be delivered to your house in a couple 

days, or your business. You don’t need to go to the post office to 

get stamps. We need to have more of that done. 

Our flat rate shipping boxes have been a real boon to that. You 

know, a box costs $5.65, $5.95, or, for the bigger boxes, a little 

more. You don’t need to go to the post office; you just need to put 

your things in there and put the postage on it. You can order your 

postage online. 

So we are doing as many things as we can to get more village 

post offices. 

Ms. LUJAN GRISHAM. And I love the village post office concept in 

many ways, and I am very fearful about whether or not you are 

going to get the kind of quality and relationship building between 

those folks and their constituents. And, really, a lot of these post 

offices and postal workers toot these folks, particularly older folks 

who aren’t using the Internet to the same degree. We have a huge 

growth rate in that population, but also in rural and frontier States 

you don’t have Internet coverage. And I think about people in areas 

where that is not going to be a possibility, and the more rural you 

are, the less opportunity you have for the kinds of Home Depots 

and Walmarts or big box stores don’t exist because they don’t have 

the population centers to support them. And in many areas, of 

course, as you know, in our State we don’t even have grocery 

stores; we might have a convenience store. And there are issues I 

have about consumer protection in that environment. 

So while I appreciate it is a concept that could work, we need 

strategies that are going to take into consideration their main factors and that the goal here, in addition to being able to be in the 

black, is that you have a public service and we have to serve these 

constituents. So I would really encourage you, with your leadership 

on the board of governors, to really think about ways that are 

going to be unique; more than just the flexibility to get there, but 

that you are looking at quality, productivity, those relationships, 

the rural fabric in these States related to the post office; and when 

60 

I was in aging, the Postal Service was a very effective partner in 

reaching those constituents. 

Thank you. I yield back. 

Mr. MICA. [Presiding.] Thank you. 

We recognize the gentleman from Georgia, Mr. Collins. 

Mr. COLLINS. Thank you, Mr. Chairman. 

Just in listening and writing down notes, we went all over the 

map, from the importance of the Postal Service. I don’t think anybody will detract from that. We have talked about how you have 

been in committees before. I serve on the Postal Service subcommittee. What concerns me about this is some of the things that 

are said. And really, as we go forward, and I know the next panel 

will have a similar issue, but we talk about Department of Defense, 

we talk about the post office and the prepayments being made, 

there is one truism among both, and I think we can just nod our 

head, is that if, on both counts, the taxpayer is ultimately on the 

hook. Yes. So it is not an issue of is this just a quasi-government 

organization. Both DOD and these prepayments, we are ultimately 

on the hook, the taxpayer is. 

What concerns me here is that in a time in which, admitted, Mr. 

Chairman, you’re low liquidity, you are not really sure you can get 

down as low as two days later this year, in a time in which the 

discussions have been made; and I read about the board of governors and your role. You do believe you have a fiduciary duty in 

your role to the Postal Service in your role, correct? 

Mr. BARNETT. Mr. Chairman, Representative, yes. 

Mr. COLLINS. Okay. That means there is a trust, that there is a 

trust with you and the board of governors, not just strictly you, but 

also I believe with the Postmaster General and others in this situation. What I keep hearing is, well, we thought of and we are looking at that; we have a five year plan that was many years ago; we 

have discussions that we want to do; we are exploring ideas—and 

these are direct quotes from today — exploring ideas that do not 

have high likelihood of being implemented. 

One, we keep talking about going to dealing with your health 

benefit plans. Now, let’s just get it out in the open here. To go to 

that without congressional intervention, which in this time, in divided government, is not going to happen, you are not going to be 

able to break these collective bargaining agreements and these 

health agreements to get that to happen. We are focusing on things 

that don’t matter. Because in the big picture they may sound great, 

they may help you get the flexibility, they may help you, but we 

are just throwing it out. Can we cut to the chase here? Are we just 

waiting on Congress to do this for you all? 

Mr. BARNETT. Mr. Chairman, Representative, we are waiting on 

comprehensive postal reform, because we cannot do any of these 

things unilaterally. 

Mr. COLLINS. Well, what can you do? 

Mr. BARNETT. We can’t go from six to five days. 

Mr. COLLINS. What can you do? 

Mr. BARNETT. Oh, what can we do? We are doing. We have reduced the workforce by over 200,000 employees in four years. That 

is a significant reduction. 

61 

Mr. COLLINS. Excuse me just one moment. Reclaiming my time. 

But we are also still entering into agreements, in a postal hearing 

just the other day, that are basically lost money type of agreements, sweetheart agreements, however you want to contact it. We 

are still doing things that, again, from a picture—what really 

strikes me here is we are reshuffling the deck on the Titanic and 

you are sinking. And we are saying, well, eventually, Congress, you 

have to come in and let us do these things, but I believe there are 

other things that we are not doing. In a sense saying that it doesn’t 

matter how great the post office, and the postal employees are wonderful people. I have greatest respect and admiration for them. But 

you are in an environment right now where they are being put as 

pawns is probably a good way to put it, in a situation in which we 

continually talk about what we could do, and if the Congress would 

just step in or the Congress would just do this. 

There are things that have been reported from the GAO that can 

be done that we are not doing. My only question is why. Are we 

depending on legal opinions? Are we depending on other things so 

we can’t do these things? Are we just a political aspect? I mean, 

I am sitting here asking for—you know, if it had only been Congress and there has been discussion about, and I know there is discussion out there about just turning it all back over and putting 

it back under the Government. That is just not a viable answer at 

this point. The people are not going to take a bailout of the Postal 

Service. It just seems to me that instead of making decisions in 

which you can—and there have been things and I don’t want a listing—there are things right now that I believe we could be doing, 

that have been reported out, we are not doing, and I think the 

American people just ask one simple question: Why not? 

Mr. BARNETT. Mr. Chairman, Representative, respectfully, we 

are doing them. We are consolidating plants. 

Mr. COLLINS. You have implemented every report from the GAO 

on things that you can do, everything that you can do at this point? 

Mr. BARNETT. Mr. Chairman, Representative, respectfully, yes. 

Mr. COLLINS. And also taking the six to five day, you are going 

to say that that has to come back to us and that you can’t touch 

that because of a legal opinion? 

Mr. BARNETT. Mr. Chairman, Representative, not just because of 

the legal opinion; Congress voted three weeks ago to say no, you 

cannot do it. 

Mr. COLLINS. But also the chairman of this committee basically 

stated as well that that was not the opinion in passing. It is in the 

record. Of the rider coming out. 

Mr. BARNETT. Mr. Chairman, I am unaware of any legal opinion 

by anybody anywhere that has ever been shown to me. 

Mr. COLLINS. Not a legal opinion. I think the biggest point here, 

and I will be working with you on this, working for others as we 

go forward on this, and just to simply say find something that can 

be done. Find something that can be done so we can move this forward. And if you want to blame Congress, then that is the easy 

thing to do; then it is going to be happening and we will have to 

do that, and we will move forward on it. But I think the Postal 

Service is a valued organization, constitutionally mandated, that 

62 

we need to fix and we need to get it back to a way that it serves 

what we need served. Thank you. 

Mr. MICA. I thank the gentleman and yield to the gentleman 

from Missouri, Mr. Clay. 

Mr. CLAY. Mr. Chairman, I am going to forego my time and ask 

unanimous consent if I can have 10 minutes on the second panel. 

And I will yield to him. 

Mr. MICA. Ten minutes? Well, I don’t have the authority to do 

that. 

[Laughter.] 

Mr. CLAY. Well, I am trying. 

[Laughter.] 

Mr. MICA. I don’t want any mistake here. I want to be full committee chairman, but I am not, so I don’t have that leeway. But I 

think that would be taken into consideration. Really, I guess some 

of it is up to the minority, to give him double time later. What do 

you think? 

Mr. CUMMINGS. I think that would be good. But is the gentleman 

yielding his time? I just want to make sure I understand what is 

going on here. 

Mr. MICA. Well, if he yields his time, then he is not going to get 

double time. 

Mr. CLAY. No, I ask unanimous consent for 10 minutes on the 

second panel. 

Mr. MICA. On the second panel. It is up to you. Then he gets 

nothing? 

Mr. CLAY. Then I won’t yield. 

Mr. MICA. Okay. All right, without objection, he will have 10 

minutes on the second panel. I didn’t say in what order. 

Have all members had their five minutes? We want to be fair to 

all of the members. 

Well, we are going to go for a second round. 

Mr. CUMMINGS. No, we are not. 

Mr. MICA. We are not was the decision made. Okay, look at the 

sigh of relief there. But I thank both of you for coming today and 

for being available as witnesses and both of you for your job in trying to help us find a resolution. It is an important service that the 

Government provides, the U.S. Postal Service. 

So with that I will excuse the witnesses and we will call the next 

panel, and, as we change, the chairman will recognize them and 

swear them in. 

Chairman ISSA. [Presiding.] We will take a short, necessary 

break. 

[Recess.] 

Chairman ISSA. The committee will return to order and I would 

now remind the witnesses they have previously been sworn and, 

with that, will recognize the Postmaster General. 

WITNESS STATEMENTS 

STATEMENT OF THE HONORABLE PATRICK DONAHOE 

Mr. DONAHOE. Good morning, Mr. Chairman, Ranking Member 

Cummings, and members of the committee. Thank you, Mr. Chairman, for calling this hearing. 

63 

The Postal Service is currently operating with a broken business 

model. Since the economic recession of 2008, we have been experiencing a significant imbalance between revenues and costs. This 

imbalance will only get worse in the coming decade unless laws 

that govern the Postal Service are changed. 

In the past two years, the Postal Service has recorded $21 billion 

in losses, including a default of $11.1 billion in payments to the 

United States Treasury. The Postal Service has exhausted its borrowing authority and continues to contend with dangerously low liquidity. We are losing $25 million a day, and we are on an 

unsustainable path. 

Primarily due to the rise of online bill payment, the use of first 

class mail has dropped 28 percent since the year 2007, which 

roughly equates to $8 billion in annual revenue that we would have 

otherwise had today. 

That steep decline in our most profitable category is not the 

cause of our financial problems. Our financial problems are due to 

the fact that we have restrictive laws that prevent us from fully responding to these changes in consumer behavior. Any private sector company could quickly adapt to market changes that we have 

experienced and remained profitable. However, we do not have all 

the flexibility that we need to grow revenue, reduce costs, and 

adapt in a changing marketplace. 

There are areas that we can act within the law, and we have 

been very aggressive in these areas. Since 2006, we have reduced 

the size of our workforce by nearly 200,000 career employees. That 

is 28 percent, without any layoffs. We have done it in a very careful manner. We have consolidated more than 300 mail processing 

facilities. We are in the process of modifying hours in more than 

13,000 post offices. We have eliminated 21,000 delivery routes. 

These actions have bent the cost curve and reduced our annual cost 

base by $15 billion annually. So this year’s cost is $75 billion. It 

would have been $89 billion had we not taken these actions. 

We have examined and acted on every reasonable and responsible action to match volume loss with cost reductions. No other organization, public or private, that I am aware of can claim a similar cost reduction while continuing to function at a high level. And 

yet we have to go much farther, much faster, and we are prepared 

to do so. 

In February of this year the Postal Service announced that it 

would introduce a new national delivery schedule designed to reduce our costs by approximately $2 billion annually. We did so 

after receiving advice from our legal counsel. We did so because the 

continuing resolution in existence at that time did not prevent us 

from taking this fiscally responsive action. The law was set to expire on March 27th and we urged Congress not to act to block our 

new delivery schedule when it enacted the next continuing resolution to fund the Government for the rest of the fiscal year. 

However, according to our legal opinions, House Resolution 933, 

to fund Government operations for the remainder of the fiscal year 

included language specifically designed to prevent the Postal Service from changing its delivery schedule. According to the law, we 

are now required to deliver mail as if it were the year 1983. 

64 

The Postal Service is a law-abiding arm of the Federal Government. Congress passed the law, we reviewed it, we complied with 

it and informed our customers, which we did last week. Our customers require certainty, especially of something as fundamental as 

our delivery schedule, and so we announced that we would delay 

implementation of our new schedule until we gained legislation giving us the ability to move forward. 

Mr. Chairman, we need the flexibility under the law to implement our new delivery schedule. We need the ability to develop and 

price products quickly; the ability to control our health care and retirement costs; the ability to switch to a defined contribution retirement system for newly hired employees; the ability to quickly realign our mail processing delivery and retail networks; we need a 

more streamlined governance model; and we need more flexibility 

in the way that we leverage our workforce. 

Contrary to the arguments that we hear from some parties, it is 

not enough to merely resolve prefunding of retire health benefits. 

We can implement our five-year business plan, close the $20 billion 

budget gap that will be here if we don’t act by 2017, and return 

the Postal Service to long-term profitability, but only if we gain the 

flexibility in each of these areas. If we do not gain this flexibility, 

our losses will continue and we will risk becoming a significant 

burden to the taxpayers. It is that simple. 

Mr. Chairman, we need Congress to affirmatively grant us the 

authority to operate the Postal Service in a financially responsible 

manner. We need full authority to carry out our responsibility and 

provide universal service to our Nation. Every day we record a loss 

of $25 million. Every day our financial hole gets that much deeper, 

and we cannot stay on this current path. 

Let me conclude by thanking this committee for its willingness 

to address tough issues and pass comprehensive postal reform legislation this year. The Postal Service is a tremendous organization 

with tremendous people and we need your help. Thank you. 

[Prepared statement of Mr. Donahoe follows:] 

65 


Insert offset folio 18 here 82436.018

~UNITEDSTA~T~E~S~ ____________ . ______________ __ ~ POSTAL SERVICE 

STATEMENT OF 

POSTMASTER GENERAL AND CHIEF EXECUTIVE OFFICER 

PATRICK R. DONAHOE 

BEFORE THE 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

UNITED STATES HOUSE OF REPRESENTATIVES 

APRIL 17, 2013 

Good morning, Mr. Chairman, and members of the Committee. Thank you, Chairman Issa, for calling this 

hearing to discuss options for returning the Postal Service to sound financial footing. The dire financial 

condition of the Postal Service persists. We experienced $15.9 billion in losses last year alone. Even 

more troubling is that, over the last six fiscal years, net losses have amounted to $41 billion. During that 

same time, mail volume has declined by 25 percent and revenue is down 13 percent ($10 billion). In 

addition, the Postal Service, in FY 2012. reached its statutory debt limit of $15 billion and defaulted on 

$11.1 billion in prepayments for Retiree Health Benefits (RHB). As I sit here testifying today, the Postal 

Service has approximately nine days of cash on-hand, a liquidity situation in which no healthy and thriving 

company would find itself. The situation is plain and is there for all to see. There is no way to sugarcoat 

our financial condition. But, it does not have to be this way. 

The title of this hearing calls for "options" to return the Postal Service to solvency. I can assure you that 

the Postal Service has a robust Five-Year Business Plan to turn our serious financial condition around. 

Although we continually explore ways to adapt our business model, we have, in some instances, been 

forced to delay or eliminate initiatives altogether, often due to Congressional involvement The most 

obvious example is the recent decision made by our Board of Governors, indicating we will not proceed 

with the proposed move to six-day package/five-day mail delivery, pending Congressional action. This 

proposal has a potential savings of $2 billion annually, when fully implemented. It is truly a lost 

opportunity. 

As indicated in the Board's statement, however, we will not simply stand idly by and hope someone else 

will act In this testimony, I will describe other strategic plans we are moving ahead with, in order to 

continue what has been a long-standing practice of taking action on all issues over which we have direct 

control. The Postal Service is losing $25 million per day. Each day that passes without enactment of 

meaningful postal reform legislation worsens our already dire financial condition. Until such reform is 

enacted, we will continue to develop and implement initiatives to preserve the future of the Postal Service. 

-1-
66 


Insert offset folio 19 here 82436.019

The Postal Service is facing a serious budget gap between revenue and expenses, absent 

comprehensive reform. This gap must be closed and, as you know, we identified a series of steps 

needed to close that gap. We are relentlessly continuing to attack every aspect of our operations over 

which we have control. But this gap cannot be fully closed without enactment of meaningful and 

comprehensive postal reform legislation. The type of change needed to ensure the survival of the Postal 

Service requires difficult decisions. The Postal Service, by taking out $15 billion in annualized costs over 

the last six fiscal years, has shown the will to make tough decisions. Our employees, unions, 

management organizations, and customers have shared in the sacrifices needed to keep the Postal 

Service solvent. Every entity with a stake in the future of the Postal Service has taken some kind of 

action, with one notable exception - Congress. It is time for Congress to act decisively, to make these 

difficult decisions and to enact long-lasting change that will ensure the viability and health of our nation's 

postal service. The Postal Service is the core of an $800 billion mailing industry in the U.S .. one that 

employs over eight million people. The time to act is now. 

This action requires a comprehensive approach, one which combines the best efforts of the Postal 

Service and its stakeholders, especially Congress. No single action or solution will be sufficient. For 

example, some believe that simply resolving the RHB prefunding requirement alone will adequately 

address our financial condition. The reality is that only through a combination of actions, including 

legislative reforms, will the Postal Service be able to achieve moderate net incomes and payoff debt by 

Fiscal Year 2017. The chart below illustrates how such a comprehensive approach would positively 

impact our financial condition. [Figure 1J 

legislative Re$OIfTl1S: 

3 I) 

Figure 1 

-2 
67 


Insert offset folio 20 here 82436.020

A Record of Accomplishments: 

In Fiscal Year 2012, even with continuing volume declines, the Postal Service delivered approximately 

160 billion pieces of mail, around 40 percent of the world's mail volume. In an Oxford Strategic 

Consulting report issued in 2011, the Postal Service ranked as the most efficient postal service among 

the world's Top 20 largest economies. Our employees do an outstanding job and our nation's postal 

system is the best in the world. In order to maintain this excellence, the Postal Service has continually 

sought ways to modernize its operations to match how customers use the mail today. The continued 

downward trend of total mail volume, particularly First-Class single-piece (stamped) mail, which has 

declined by a staggering 15 billion pieces, or 38 percent, over the past five years, has required the Postal 

Service to adjust its operations accordingly. The Postal Service continues to aggressively pursue 

strategies in areas over which it has direct control, in order to increase efficiency, heighten productivity, 

and manage costs. We have a proven track record, highlighted by the $15 billion in annualized savings 

captured over the last six fiscal years. We have done this through a variety of operational initiatives. 

COST SAVING INITIATIVES: 

Network rationalization: 

> 309 mail processing facilities consolidated since 2006. 

> Adoption of a two-phase approach to consolidate approximately 200 mail processing facilities. 

> Recent acceleration of some Phase 2 sites to June-Sept. 2013, without changing service 

standards. 

> Implementation of modified First-Class Mail overnight service standards. 

> Network consolidations will bring $3.4 billion in savings by 2017, including workload effects. 

> $1.1 billion of proceeds and savings, since 2006, from facility and land sales, lease terminations 

and subleases associated with over 1,500 excess facilities. 

Delivery: 

> Reduction of approximately 21 ,000 delivery routes, resulting in a more efficient delivery network, 

as shown by a 36 percent increase in deliveries per hours, since 2006. 

> Delivery Unit Optimization (DUO) will consolidate 1,500 delivery (non-retail) offices by 2015. 

> Implementing centralized delivery for both business and residential deliveries. 

Retail 

> Implementation of POSt Plan to modify operating hours at over 13,000 Post Offices, while 

preserving postal services, especially in small and rural communities. 

> Self-service expansions, plus Retail Partners. 

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'r Continuing to increase alternate access points, including Contract Postal Units, Approved 

Shippers, and Village Post Offices; postal products and services now available at over 100,000 

locations, plus the Internet 

Productivity Improvements: 

'r Reduced career employee workforce, without layoffs, by 198,000 (28 percent) over the last six 

and one-half fiscal years, through March 31, 2013, 

'r Workhour savings have removed over $50 billion of cumulative and projected costs over the last 

six fiscal years, 

" Continued reductions will bring the Postal Service closer to its goal to reduce career workforce to 

400,000 employees through attrition by 2017, 

" Total Factor Productivity (TFP) increased 6,3 percent since 2006, despite the massive volume 

and revenue reductions during this same period, 

The Postal Service has taken unprecedented steps in the area of cost savings, We have reduced costs 

by amounts that most private sector businesses would envy, But financial solvency cannot be reached by 

cost cutting alone, Finding new sources of revenue plays an equally integral role in the future of the 

Postal Service, And it is a future that can be bright, if Congress allows the necessary flexibility and 

legislative reform, One key to success, especially in the area of revenue generation, is gaining enhanced 

flexibility to adapt to a rapidly changing marketplace, The chart below shows how drastically revenue 

trends have shifted over the last six years [Figure 2], Having the flexibility to react more quickly to these 

marketplace changes will enable us to become profitable, by giving us the tools to operate more 

efficiently, create new products and innovations and control costs, Absent this flexibility, the Postal 

Service will continue to experience sustained losses, in spite of our long-term efforts to reduce costs, 

Figure 2 

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While we continue to seek out all possible efficiencies and cost savings, we also put tremendous effort 

into retaining existing revenue streams and seeking out new sources of revenue. One of the most 

exciting growth sectors for the Postal Service has been in our package business, which has seen 14 

percent growth over the last two years. Leveraging this growth, and maintaining an innovative approach 

to growing revenue is a key aspect of the Postal Service's strategic plans. 

REVENUE GENERATION INITIATIVES: 

Innovation Core Products and Markets: 

'» Enhancements to First-Class Commercial Mail. 

Two ounces for the price of one 

Picture Permit 

Intelligent Mail barcode (1Mb) provides visibility in mail and packages to control costs and 

improve service 

Introduction of Every Door Direct Mail (EDDM) 

.,. Package mail 

Improvements to Expedited Package services 

Significant enhancements to package tracking and visibility 

Simplified product lineup with no additional surcharges 

Priority Mail will now include $50 of insurance for retail customers and $100 of insurance 

for commercial customers, with no additional cost 

Metro Post same-day delivery market test 

'» New Negotiated Service Agreements (NSAs) with business mailers for competitive products. 

Allows customer to offer customized pricing options 

Encourages volume and revenue growth from key customer segments 

'» Promotions to encourage the integration of digital technology with mail 

Mobile Coupon and Click-to-Call promotions (over 1 billion mail pieces to date) 

Earned Value Promotion; first program targeting First-Class Single Piece mail 

2012 Mobile Commerce and Personalization Promotion (3.4 billion pieces) 

2012 Mobile Shopping Promotion (1 billion mailpieces in two weeks) 

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';> Increased price flexibility with transfer of various products from the "market-dominant" to the 

"competitive" product list. 

First-Class Mail Commercial Parcels (renamed First-Class Package Service) 

Parcel Post (renamed Standard Post) 

Outbound Single-Piece First-Class Mail International Packages (renamed First-Class 

Package I nternational Service) 

Post Office Boxes in areas where private mailbox providers provide a competitive 

alternative. 

The Critical Need: Enactment of Legislation 

The Postal Service, even with its suite of robust and creative initiatives for growing revenue, and its 

relentless approach to taking costs out of the system, continues to be stymied by the effects of 

Congressional inaction. Current law requires the Postal Service to prefund Retiree Health Benefits at 

unrealistic levels. Current law prohibits the Postal Service from moving to five-day mail delivery. Current 

law forces the Postal Service to overpay into the Federal Employees' Retirement System (FERS). And, 

current law limits the Postal Service in its ability to offer new products and services. These are just a few 

examples among many. This lack of flexibility in our business model continues to hinder efforts to close a 

widening budget gap. The Postal Service must generate roughly $20 billion in cost reductions and 

revenue generation by 2017 to return to financial stability and pay down debt. But our efforts will only go 

so far. Legislative change is needed now. The chart below illustrates that, even with continued efforts by 

the Postal Service to trim costs, without legislative change, the budget gap remains wide. [Figure 3J 

Figure 3 

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In February 2012. the Postal Service introduced its Five-Year Business Plan. which contained a set of 

strategies and initiatives designed to close the substantial and crippling budget gap we are facing. 

Attached to my testimony is an updated version of our plan. Legislative initiatives play an integral role in 

this plan. especially enactment of comprehensive postal reform legislation. 

Key Legislative Goals: 

During the 112'" Congress, although the House introduced a bill that was approved by this Committee, no 

action was taken on the House floor. As the 113'h Congress prepares to take up postal legislation once 

again, below are reforms that are urgently needed. They include: 

1. Require USPS Health Care Plan (Resolves RHB Prefunding Issue) 

2. Refund FERS Overpayment and adjust the FERS payment schedule 

3. Adjust Delivery Frequency (six-day packages/five-day mail) 

4. Streamline Governance Model 

5. Authority to Expand Products and Services 

6. Require Defined Contribution Retirement System for Future Postal Employees 

7. Instructions to Arbitrator 

8. Reform Workers' Compensation 

9. Right to Appeal EEOC Class Action Decisions to Federal Court 

Require USPS Health Care Plan: 

One of the most important proposals contained in our plan and one which represents tremendous cost 

savings is a change in the way we provide health care to our employees and retirees. More than 20 cents 

of every revenue dollar the Postal Service takes in goes toward health care costs. [Figure 4] The cost of 

this large component of our total operating costs, second only to wages, is largely outside of our control. 

Figure 4 

Current USPS Health Care Costs 

$13.4 Billion Per 

goes towards 

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There is a substantial opportunity for savings - approximately $8 billion each year through 2016 - by 

moving to a more modern, responsive and customer-focused system, This would be accomplished by 

allowing the Postal Service to sponsor its own healthcare plan. By moving away from the federal system, 

nearly all of our employees and retirees would reap the benefits of getting equivalent or better healthcare 

coverage and paying less for it. 

A Postal Service sponsored health care plan is critical, because it resolves the root cause of the Postal 

Service's retiree health benefits liability - soaring healthcare costs. Without addressing the liability issue 

in a responsible way, the Postal Service will be unable to afford to provide health benefits to retirees. In 

its proposal, the Postal Service would sponsor its own health care plan independent of the Federal 

Employee Health Benefits (FEHB) program. This would include employees, as well as current and future 

retirees. Congressional action to allow this fundamental change would dramatically reduce health care 

spending, helping the Postal Service take a significant step toward financial stability. It would also 

provide savings for employees and retirees. Our health care plan proposal provides savings and benefits 

in a variety of ways: 

Helps return the Postal Service to financial stability. Preliminary estimates indicate total cash savings 

for the first year would be approximately $2.1 billion. A savings of approximately $660 million in 

reduced premiums for employees and annuitants (about $700 annually per participant) is also 

projected. 

Eliminates the need for future scheduled RHB prepayments (ranging from $5.6 billion to $5.8 billion 

annually) under the Postal Accountability and Enhancement Act by reducing the unfunded liability to a 

manageable level. 

Leverages the tremendous buying power of more than one million employees and retirees to obtain 

better pricing. 

Achieves significant savings for the Postal Service, employees and retirees. 

Maintains the Postal Service's commitment to provide quality health care coverage to our dedicated 

workforce and retirees, as the cost of FEHB plans is unstainable, 

Implements best practices such as improved prescription coverage, integrated care and disease 

management, well ness incentives, and integrated Medicare and Employer Group Waiver Plans 

(EGWP) for retiree health benefits. 

Enables better choices with simple, more understandable options. 

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Regarding the RHB unfunded liability issue, below is a chart [Figure 5J showing how each plan 

component listed above eliminates the $50.9 billion liability, with a Postal Service-sponsored health care 

plan. Among the attachments to my written testimony, and submitted for the record, is a white paper with 

more detailed descriptions of our health care plan proposal. 

Figure 5 

Refund FERS Overpayment: 

Postal Service employees participate in one of three Federal government pension programs. These 

programs are administered by the Office of Personnel Management (OPM), and employees and the 

Postal Service contribute to the programs. OPM has determined that the Postal Service has overfunded 

its obligation to the Federal Employees' Retirement System (FERS) and that a surplus exists. According 

to the most recent actuarial estimate from OPM, the Postal Service has overfunded its FERS obligation 

by $2.6 billion, as of September 30, 2011. This estimated surplus is less than amounts previously 

reported, due to changes in the government-wide economic and demographic assumptions made by 

OPM. OPM's most recent calculation (before adjustments using postal-specific assumptions and 

demographics) shows that the surplus is projected to have grown to approximately $3.0 billion by 

September 30,2012. 

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In December 2012, the Postal Service's Office of the Inspector General (OIG) issued an update to a 

previously released paper on the causes of the FERS surplus. The Postal Service agrees with the major 

conclusions in the OIG's report. First, the distinctive characteristics of the Postal Service workforce, 

including lower salary increases than the rest of the Federal government, suggests that our FERS surplus 

is larger than the OPM's current calculation, and OPM should use Postal Service specific data to 

calculate the surplus. Second, in order to prevent excessive surpluses from accumulating in the future, 

OPM should adjust the USPS' FERS contribution rate. The current FERS charges are too high, as 

evidenced by 20 years of surpluses, and contribute to the Postal Service's financial crisis. Third once 

calculated, the current deficit should be refunded to the Postal Service. The Postal Service, using postalspecific demographics and assumptions, estimates the FERS overfunding amount to be approximately $6 

billion. Directing OPM to utilize postal-specific demographics and assumptions in calculating the correct 

amount of the FERS surplus and returning the full amount of that surplus to the Postal Service is 

important, and needs to be completed this year. The Administration agrees with this approach, as 

evidenced in its 2014 budget request, which requires OPM to calculate FERS costs using the specific 

demographics of the Postal Service workforce. 

Adjust Delivery Freguency /six-day packages/five-day mail): 

On Feb. 6, the Postal Service announced a proposal to move to a six-day package/five-day mail delivery 

schedule, effective the week of August 5, 2013. Savings projected from this move, when fully 

implemented, are estimated to be approximately $2 billion annually. This move would create a positive 

operational income in FY 2014, if implemented in August, as originally planned. The proposal provides 

mail delivery to street addresses Monday through Friday. Mail addressed to P.O. Boxes would continue 

to be delivered on Saturdays. Post Offices already open on Saturdays would not have been affected by 

this proposal. Packages would continue to be delivered six days per week, and Express Mail, currently 

delivered seven days per week, would not be impacted. The proposal was designed to serve a dual 

purpose; to respond effectively to the increase in package growth - a 14 percent volume increase over 

the last two years - and to address the realities of the public's changing mailing habits. The proposal 

implemented the primary recommendations made by the Postal Regulatory Commission (PRC) when it 

reviewed our five-day proposal. 

Following introduction of the proposal, a series of actions took place. Some Members of Congress 

supported the change, while many others opposed it. In March 2013, Congress completed work on H. R 

933, the Continuing Resolution (CR) funding the federal government for the remainder of Fiscal Year (FY) 

2013. Although we strongly urged Congress not to include a requirement that would prevent us from 

implementing this change, the CR was enacted with restrictive language directing the Postal Service to 

maintain six-day delivery for all products. 

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The Postal Service twice sought the opinion of outside legal counsel. They first advised that the Postal 

Service had the authority to move to five-day delivery. Following enactment of the CR, the Postal Service 

posed a series of questions to the same firm. In a second opinion, they concluded that the law, as 

enacted, prohibited the Postal Service from moving forward with implementation of its proposal. The 

Government Accountability Office (GAO) also released an opinion that concluded the CR continued the 

applicability of the provision requiring six-day delivery. On April 9, the Postal Service's Board of 

Governors released a statement noting that, due to the inclusion of the restrictive language in the CR, the 

Postal Service had no choice but to abide by the law and delay implementation of the six-day 

package/five-day mail delivery proposal. As noted in the April 9 statement, this was a disappointing 

development. We believe the timing was right to implement this change, especially in light of 

overwhelming continued support for five-day mail delivery by a vast majority (over 70 percent) of the 

public. Additionally, in his FY 2014 budget proposal, released on April 10, the President again included a 

provision to allow the Postal Service to move to a five-day mail delivery schedule. 

Although some Members of Congress held the opinion that the Postal Service could move forward, 

despite enactment of the CR, I had previously testified during a Senate hearing on Feb. 13 that I would 

follow the law, and the Board directed me to do just that Certainly, in these serious financial times, 

forgoing such a significant savings is not a decision that was arrived at lightly. But I will not break the law 

and I will not negatively impact our customers. The uncertainty that would have proceeded from 

continuing to implement our proposal, given the possibility of a legal challenge, would have meant that 

many of our mailers could potentially have suffered significant monetary losses from business expenses 

made in anticipation of six-day package/five-day mail delivery. We continue to support moving to a sixday package/five-day mail delivery schedule and will continue to advocate for the authority to implement 

this change. 

Streamline Governance Model: 

The Board of Governors has the responsibility to manage the Postal Service, but does not have adequate 

authority to do so. In order to meet the challenges it faces both today and in the future, the Postal Service 

must be given the tools to become a more nimble, streamlined organization, better able to respond 

quickly to the needs of a dynamic marketplace and to adjust our operations as demand for products and 

services evolves. The Postal Service does not need any additional government bureaucracy to slow us 

down. We urgently need the flexibility to implement our Five-Year Business Plan. 

In terms of network costs, the Postal Service Board of Governors should have the clear authority to make 

structural changes that reduce the costs of the retail, processing and delivery networks. Currently, the 

Governors must submit operational changes to the Postal Regulatory Commission (PRC) for an advisory 

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opinion following a lengthy, litigious, administrative proceeding that does not promote timely and effective 

implementation of necessary, efficient cost reduction decisions, The current process imposes substantial 

costs on the Postal Service, delays savings and should be eliminated. At a minimum, PRC procedures 

should be substantially streamlined. 

Another facet of restoring financial sustainability is the growth of revenue through product and pricing 

innovation, both with respect to existing lines of business and other lines of business. Giving the Board 

greater authority to exercise business judgment in this area does not mean the end of oversight by an 

external entity. A more nimble and well-defined regulatory approach is required that minimizes 

unnecessary bureaucracy, recognizes the Postal Service faces intense competition with respect to all of 

its products, and allows the Board to respond effectively to changing conditions, Even the PRC 

recognized in its Annual Report that the current system of regulation is not achieving the objective of 

financial stability, 

Giving the Postal Service greater flexibility over pricing and product innovation would further advance the 

goal of providing universal service in a financially sustainable way. This is demonstrated by experience in 

other countries in which postal operators have been given such flexibility. The Postal Service, like other 

postal operators, is in the best position to determine the strategies necessary to ensure financial stability, 

In addition, the Postal Service faces the same competitive pressures as other postal operators, and has 

strong commercial incentives to be efficient and responsive to its customers' needs in order to ensure its 

products are competitive, Extensive price and product controls are therefore not necessary. Governors' 

decisions on new products and pricing should be subject to after-the-fact reviews or handled through the 

complaint process. Pairing much greater flexibility over priCing and product innovation with additional 

flexibility to address network costs would put the Board in a position to create a multi-faceted and 

balanced approach to restoring financial stability, 

Authority to Expand Products and Services: 

The Postal Service must be allowed authority to establish new revenue sources and respond to a 

changing marketplace, Certain provisions contained in H,R, 2309, introduced in the 112'h Congress, 

would have been helpful in providing flexibility to the Postal Service to offer products and services that 

would improve our net financial position, The Postal Service's financial viability is dependent not only on 

cutting costs but also generating additional revenue. As such, legislation enabling the Postal Service to 

offer additional products and services is a key component of our ability to continue to generate new 

revenue and improve our financial condition, 

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Require Defined Contribution Retirement System for Future Postal Employees: 

The Postal Service's current employees participate in one of three federal government pension programs, 

all of which are defined benefit plans. But the Postal Service is changing. Employees coming in now 

have a much different future than current employees. We should provide a retirement system that 

benefits both the employee and the Postal Service. The Postal Service proposes this new retirement 

system for four main reasons, including: 

1. The ability to meet obligations under the Postal Reorganization Act (PRA) 

The Postal Service is required to provide wages and benefits comparable to those provided in the 

private sector. The FERS system is not comparable to the private sector and is more costly. 

Permitting this move would allow the Postal Service, like the private sector, to adjust to market 

conditions by modifying plan design, portability, provider services, employee engagement and 

other factors. 

2. Permits a reduction in labor costs. 

Benefit costs constitute roughly 48 percent of total labor costs, including RHB prefunding. Even if 

the RHB prefunding requirement were removed, benefit costs would still make up nearly 40 

percent of the Postal Service's labor costs. As has been well reported, approximately 80 percent 

of the Postal Service's total costs are labor costs. We cannot resolve our fiscal issues without 

addressing these costs. 

3. Separates Postal Service retirement system from the rest of the Federal Government. 

There continue to be ongoing debates regard(ng Postal Service overfunding of both the CSRS 

and FERS retirement systems. These tensions will continue and will likely escalate, given that 

the Postal Service has funded substantially more of its pension obligations than the remainder of 

the federal government. Allowing the separation of the Postal Service's retirement obligations 

would resolve these disputes. 

4. The Postal Service's employee base is changing, 

Our emerging workforce is younger and less likely to stay with one employer for their entire 

career, as most of our established employees have done. This type of portable and flexible 

retirement program holds a greater appeal for the younger demographic. 

It should be noted that this change would not impact existing retirement systems for current employees. 

Instructions to Arbitrator: 

More than 85 percent of the Postal Service's career employees are covered by collective bargaining 

agreements. The Postal Service has included in its legislative goals the request that Congress enact 

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provisions that instruct interest arbitration panels to consider the financial condition of the Postal Service 

in interest arbitration awards. Although some argue that interest arbitrators do this already, they cannot 

function like bankruptcy courts under Chapter 11 in the private sector. The panels cannot restructure the 

Postal Service's regulatory or business models. They do not have the authority to look at the entirety of 

the Postal Service's finances-indebtedness, pricing, operations, service standards, capital sources, debt 

relief, etc. 

All the arbitration panels can do is address wages and benefits for a particular bargaining unit. Even there 

the panel's power is limited, because they cannot alter or modify statutory benefits like retiree health care 

or defined benefit pension plans. Given these inherent limitations (which were explicitly recognized by 

the panels in the two most recent awards involving the NRLCA and the NALC), we believe it is especially 

important for Congress to make certain that the arbitration panels take into consideration the Postal 

Service's financial condition in the areas they do have authority to address: wage rates, leave, health care 

contributions, workforce mix, job protections and related matters and to make that legislatively explicit. 

The Postal Service needs legislative language requiring arbitrators to consider the Postal Service's 

overall financial health. 

Reform Workers' Compensation: 

Postal employees injured on the job are covered by the Federal Employees' Compensation Act (FECA), 

administered by the Department of Labor's (DOL) Office of Workers' Compensation Programs (OWCP), 

which makes all decisions regarding injured workers' eligibility for benefits. The Postal Service has made 

tremendous strides in reducing its accident and injury rate, as measured by the Occupational Safety and 

Health Administration (OSHA). Since 2003, the rate of reported injuries has dropped by over 50 percent. 

Despite the declining level of accidents and injuries in our workforce, our workers' compensation costs 

and liabilities continue to grow. We pay approximately $1.4 billion per year to the DOL, and our workers' 

compensation liability is approximately $17 billion. The requirement to participate in the OWCP program, 

which does not allow cases to be settled, makes it extremely difficult to remove participants, and allows 

participants to continue to receive payments after reaching retirement age, is an extreme financial burden 

on the Postal Service. 

We currently have 16,999 employees on the periodic roll, being paid for total wage loss. Some of these 

employees have been on the workers' compensation rolls since before postal reorganization in 1971. 

Although previous legislation, including H.R. 2309, would have provided flexibilities with regard to 

workers' compensation, specific provisions are still needed, such as providing the Postal Service with the 

ability to settle federal workers' compensation claims. We urge that any future legislation include specific 

provisions to address this costly area of the Postal Service's total operating expenses. 

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Right to Appeal EEOC Class Action Decisions to Federal Court: 

Similar to the significant strides made in reducing accidents, the Postal Service has reduced EEO formal 

complaints by 40 percent since FY 2004, ensuring compliance with the law. Today, however. the Postal 

Service is subject to class actions in the Equal Employment Opportunity (EEO) process that we believe 

have been improperly certified. Defending against these class actions is extremely costly and 

burdensome, regardless of their merit. We believe we should have the right to appeal to the federal court 

final decisions of the EEOC. This is similar to the Postal Service's existing authority to appeal decisions of 

the Postal Regulatory Commission (PRC). 

Moving Forward: Next Steps and Upcoming Proposals 

All of the issues discussed here are serious, but they are also eminently fixable. Each of these issues, 

and the respective solutions, must be taken together to bring about both long-term and short-term 

change. Solving Q.Q]y RHB pre-funding or modifying our delivery schedule alone will not suffice to bring 

the Postal Service back to financial stability. We continue to seek ways to mitigate the extreme 

circumstances under which we are currently operating, while striving to avoid becoming a burden to the 

American taxpayers. In their statement released on April 9, the Postal Service's Board of Governors, in 

addition to discussing the delay in implementing six-day package/five-day mail delivery, also directed the 

Postal Service to pursue additional strategies to continue finding ways to survive. These include: 

>- Reopening negotiations with the Postal unions and consultations with management associations. 

>- Pursuing administrative actions necessary to reduce costs, 

>- Evaluating the option of an exigent rate increase, to raise revenues and address products not 

currently covering their costs 

We intend to move forward on these and all of the other proposals I have discussed in this testimony, 

This is the responsible thing to do, Our employees continue to do an excellent job, our customers are 

working with us, and we are intensely focused on bringing the Postal Service back to financial stability. 

But we cannot do it alone. 

Mr. Chairman, time is of the essence, Every day that delays enactment of meaningful and effective 

postal reform legislation, the negative income gap grows, We are losing $25 million a day, Without 

legislative reform, the Postal Service's debt, in order to sustain operations, would need to climb to $58 

billion in 2017. Every option has to be put on the table. These legislative goals cover a wide array of 

concerns and issues, No one Single solution is enough, however. We agree that piecemeal efforts 

simply will not work, 

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Earlier, I mentioned making hard decisions, That must be done now. The financial problems of the Postal 

Service will not go away and they grow larger every year, Delaying reform for another year or more will 

only accelerate our already dire financial condition, Our liquidity will continue to be threatened and the 

day may come when we have insufficient cash to pay our employees or suppliers. Talk of an insolvent 

Postal Service has already made some customers look for other alternatives. 

Mr. Chairman, in order to preserve our mission to provide secure, reliable, and affordable universal 

delivery service to all U.S. residents - and do so without burdening the American taxpayer - the Postal 

Service needs urgent reform to its business model. The American people deserve a financially healthy 

and vital Postal Service. We must make the difficult decisions necessary to ensure a reliable Postal 

Service for our customers and a bright future for our employees. The Postal Service is committed to 

working with you, and the rest of the Committee to achieve that goal. Thank you. 

### 

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Chairman ISSA. Thank you. 

Mr. Rolando. 

STATEMENT OF FREDERIC ROLANDO 

Mr. ROLANDO. Thank you, Chairman Issa and Ranking Member 

Cummings and the other members of the committee for inviting me 

to testify at today’s hearing. 

This hearing is vitally important to the 190,000 letter carriers I 

represent, as well as the 7.5 million private sector workers that are 

employed by the printing, publishing, paper, direct marketing, ecommerce, and shipping industries that rely on a strong Postal 

Service. Indeed, our affordable universal service is crucial to the 

American economy and to American businesses that generate 95 

percent of all mail. 

My written testimony offers a comprehensive set of options to restore the Postal Service to solvency. This afternoon I will cover the 

issues you specifically asked me to address in your invitation. 

On cost savings, the NALC and the other postal unions have contributed billions in savings through collective bargaining. That 

process concluded for us just 12 weeks ago. The new NALC contract emerged from an interest arbitration that focused on the financial condition of the Postal Service and led to an award that 

will provide the Postal Service with huge savings in the years to 

come. 

As we did during the great recession, when we worked tirelessly 

with management to adjust routes in response to reduced mail volume, we have done our part to preserve the viability of the Postal 

Service through the bargaining process, but more must be done and 

we need the Congress to do its part as well. 

I will highlight two cost-cutting reforms from my written testimony. First, the Congress should repeal or dramatically reduce the 

retiree health prefunding mandate that has caused over 80 percent 

of postal losses since 2007 and pushed us towards insolvency. Applying private sector retiree funding standards to the Postal Service will give us the best chance to adapt, expand our e-commerce 

delivery volume, and develop new services for our customers as traditional mail volume declines. 

Some suggest that lifting or reducing the prefunding burden 

amounts to a taxpayer bailout, but no taxpayer funds will go to the 

Postal Service; and retaining the current prefunding policy will increase, not decrease, the risk of a future taxpayer bailout. Forcing 

the Postal Service to slash service, reduce quality, and degrade its 

unique last mile delivery network will simply drive more business 

away and tip us into a death spiral. We cannot destroy the village 

to save it. 

Second, we recommend that Congress give the Postal Service the 

flexibility to negotiate with its unions to establish a set of postalonly plans within FEBA. This would allow us to use incentives to 

reduce costs and improve health among postal employees. FEBA 

does a good job of controlling premium costs, but we could cut postal employee health care costs further if our health plans used single network providers for hospital services and prescription drugs. 

We could also cut costs for future retirees by better integrating our 

plans with Medicare and by taking advantage of low-cost prescripVerDate Aug 31 2005 10:09 Sep 04, 2013 Jkt 000000 PO 00000 Frm 00085 Fmt 6633 Sfmt 6633 C:\DOCS\82436.TXT APRIL
82 

tion drugs through an employer group waiver plan. Most of the 

savings that the Postal Service wants to achieve by leaving FEBA 

can be achieved within FEBA with the right kind of reforms. 

Your invitation also asked about our position on an annual federal appropriation for the Postal Service. Of course, for most of its 

history, the Postal Service in America has been funded by both taxpayers and ratepayers, even though we have received no taxpayer 

subsidies since 1983; and it is certainly true that the Postal Service 

benefits the Nation as a whole, not just ratepayers, by facilitating 

national markets, strengthen democracy through postal voting and 

campaign mailings, and promoting local communities with newspapers and periodicals. But we do not support an annual appropriation to strengthen the Postal Service. Other reforms can do the 

job without help from taxpayers. 

Finally, you asked for our views on governance reform. We 

strongly support a fundamental reform of the governance structure 

of the Postal Service. The goal should be to attract dynamic and 

entrepreneurial management to the Postal Service and to create a 

board comparable to private sector boards of directors that govern 

multibillion dollar enterprises. Creating a board with men and 

women that have deep experience running large national companies and partnering with unionized workforces would help us preserve affordable universal service. In the context of such a restructuring, NALC is prepared to work with Congress, the White House, 

the Postal Service and its stakeholders to develop a strong and viable business and regulatory model for the 21st century. 

Let me conclude by saying the potential insolvency of the Postal 

Service is no accident. It is not merely the result of technological 

change, the bad economy, or poor management, though those factors have contributed. Intended or not, it is primarily the result of 

congressional decisions in 2006 to mandate retiree health 

prefunding and to impose strict price controls on postal rates. We 

will have to continue to make difficult changes, but reversing or revising these policy choices are crucial to saving the Postal Service 

and I urge this committee to do so. Thanks again for inviting me. 

[Prepared statement of Mr. Rolando follows:] 

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National Association of 

Letter 

Testimony of 

Fredric V. Rolando 

President, National Association of Letter Carriers 

to a hearing entitled 

'QJtions to Bring the Postel Service Beck from Insolvency' 

100 Indiana Ave. NW 

Washington, DC 20oo1·?144 

202.393.4695 

www.nalc.org 

to the House Committee on Oversight and Government Reform 

April 17, 2013 

I. IntroductIon 

My name is Fred Rolando and I am proud to serve as the elected President of the National 

AsSOCiation of Letter Carriers (NAlC). a union that represents nearly 190,000 City Letter 

Carriers who live and work in every Congressional District In America. 

Leit,.,r carriers are rightly proud of the value we deliver to the American economy every day. 

The Postal Servce offers excellent services at the most affordable rates in the wond, Postage 

rates in the United States are 50·100 percent less than they are in Europe, even though we 

serve a geographical area that is much larger than any served by any European Union postal 

operator. And the quality of Our service is rated among the best in the world. Indeed, a 2012 

study of postal services in the G·20 group of nations by Oxford Strategic Consulting of the UK 

concluded that the USPS is the best postal service among the world's wealthiest countries (see 

Attachment 1 for the Executive Summary of the report). 

Although mail volume is declining, and altemative forms of communication are taking the 

place of mail, the Postal Service remains a vital component of this country's economic and 

communications infrastructure. Even as the volume of letter mail is falling, the volume of 
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packages is exploding. In the last fiscal year, USPS still handled 160 billion pieces of mall. 

Almost one half of all bills are still paid by mail. The majority of bills and statements received by 

households are still delivered by mail. Trillions of dollars move through the postal system every 

year. The Postal Service generates annual revenue in excess of $65 billion and the mailing 

industry employs 8 million Americans. In September, 2011, Postmaster General Donahoe 

accurately described the importance of the Postal Service to the overall economy in testimony 

before Congress: 

The importance of a healthy and thriving Postal Service cannot be ovenstated. The 

mailing industry, of which the Postal Service is only one component, depends on the 

continued evolution, growth and development of our organization. Over 8 million 

Americans are employed by thousands of companies and businesses which are deeply 

invested in the mall. The mailing industry, with the Postal Service at its core, is a major 

driver of the nation's economic engin~enerating over $1 trillion each year. Our 

collective actions-partlcularly those of the Postal Service and Congress-to secure the 

future of the nation's postal system will directly affect a significant portion of the 

American economy. The mailing industry makes up approximately seven percent of the 

country's Gross Domestic Product (GOP). Failure to act could be catastrophic. 

Although we very much oppose the direction the Postmaster Generalis leading the Postal 

Service, we do agree with him on this. Now is the time for Congress to act to preserve one of 

America's greatest institutions, the U.S. Postal Service. 

Thank you for the invitation to this important hearing. And thank you for framing the financial 

crisis facing the Postal Service as you have. Congress does indeed have many options for 

saving the Postal Service, other than to slowiy dismantle one of the most important parts of the 

nation's economic infrastnucture. The option being punsued at present - relentless downsizing -

is doomed to failure. It will drive more business away and lead the Postal Service into a death 

spiral. This option is being driven by policies adopted by Congress in 2006 - massive prefunding of future retiree health benefits combined with strictly Inflexible price controls - that 

none of you would accept if applied to important bUSinesses in your districts. These policies are 

just as destnuctive to a public enterprise like the Postal Service as they would be to any private 

enterprise, 

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This testimony will offer a wide variety of options to "bring the Postal Service back from the 

brink of insolvency." But the USPS needs more than options to temporarily stave off insolvency. 

It needs a new business model that builds on its nnst- and last-mile strengths and provides the 

enterprise with new executive leadership an'd new freedom to adapt to the changing needs of 

the 21'" Century. Before Congress can Intelligently legislate, it must reach a consensus on this 

new business model. We hope this hearing will begin the process of reaching such a 

consensus. 

II. Origins of the Crisis 

The crisis facing the Postal Service is now in its sixth year. Although there are serious 

underlying factors driving the postal Crisis, the scale and severity of this crisis is largely due to 

past actions taken by Congress. In 2006, the Congress passed and President George Bush 

signed the Postal Accountability and Enhancement Act (PAEA) of 2006. That legislation 

mandated a massive level of pre-funding of future retiree health benefits with a schedule of 

annual payments totaling $58.8 billion over the following 10 yeans with additional pre-funding 

thereafter to be amortized over 40 yeans initially, and eventually oller 15 yeans as the 

amortization period was reduced. (The $59 billion figure was the upper end of the estimated 

unfunded liability for such benefits over the nex1 75+ yeans - see page 29 of the 2006 USPS 

Annual Report.) The PAEA also placed strict price controls on the postage rates charged for 

magazines, catalogues, and letter mail (so-called market-dominant products), The new law gave 

the Postal Service a one-time-only option to adjust postage rates in 2007 to build the cost of the 

new pre-funding mandate into its prices before the new price index system kicked in (in an 

omnibus rate proceeding before the Postal Regulatory Commission), But the onset of what 

turned out to be the wonst recession in 80 yeans led the USPS to forego that option. So USPS 

costs soared at a time when its revenue plummeted as the economy crashed. 

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Though well-Intended and enacted at a time when the Postal Service was earning profits. 

the PAEA had a disastrous effect on the Postal Service. In a kind of perfect storm, the agency's 

finances were devastated by the pre-funding mandate, the price controls and the Great 

Recession that decimated the housing and finance industries which generate so much mail 

volume. On top of all this, surging fuel costs and the loss of First Class Mail to electronic billpaying and internet communication added to the 105ses. 

In the popular media and, unfortunately in many of the statements issued by members of 

Congress, the fiscal crisis at the Postal Service is often portrayed as a simple story of 

technological change. Although internet diversion is a serious and growing problem, not least 

because the ongoing crisis at the USPS seems to have accelerated the trend. it is not the main 

driver of USPS losses In recent years. As Table 1 Indicates. nearly 80% of the Postal Service's 

$41 billion In reported losses stem from the $32 billion in pre-funding costs since 2007: 

Tabla 1. 

The Policy Legacy of the 2006 Postal Reform Bill (PAEA) 

Pre-fundin, Payments to the ...,.,aJ Servlc~ Retiree Health B.enoefrt Fund 

(PSRH8F) vs..Reporud Net fnCOomCl 

~. lOC7-~-,I:-:-l':-: __ ,-:---:--==c.:-i 

\ lot ! I!SBHBE bpeflW I RcQQrted Net fncpmc I 

~ I (Ibll) ! (Sbll) 

~_ s.a.JS$ ! .$H·il 

1 __ """ -tu.,.,.,--_-t-__ -:::-,,:--_-i 

i 1009" : 

I ""'8 ... ,.0'-1 ! Total, ! I .$41.114 -

I. 

~.. Prefundlng expenses account (qr nearty 8.O"X of reported ---- USPS losses I over the past sIlt ~an slnce they~were ffm lmpoaed In 2007. 

i .......... ~."... .. lQQ't(wl.....,""')Q)I~_~U.4IOSIA~~~h . 

I 'W114cknoIt/wru~~h!l11l111ftl) __ toll.\JII'l_ • ."...1O ....... 1Nf.11.lkIl~1rIlO11. 

,"'-'no M-.J...,...,.<tI<lWro.--~lQ)J.lCll. 

In the first quarter of the current fiscal year, the Postal Service earned a profrt of $100 million. 

but reported a /055 of $1.3 billion after recognizing a $1.4 billion expense for pre-funding. 

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Meanwhile, as other delivery CDmpanies were able to raise rates to handle rising gasoline prices 

and other overhead CDsts, the Postal Service was prohibited from raiSing rates above the very 

low levels of inflation experienced during the Great Recession - see Table 2: 

Tabla 2. 

Consumer Price Index: 

CPI·Postage vs. CPI-Prlvate Delivery 

Postage ... te. for most USPS 

volume were apped at the 

general rate of Inflation even 

though the pre. funding W07 ],5% 6..,. mandate caused C05tS to soar. 

'008 "" 14.:n(; 

""'" 4.'" ... ". Shared sacrifice requires the 1010 ~8" 14.2% 

2011 ''''' H.N use of a more releyant price 

lQ11 ;15'1(; "", Index: CPI for Delivery 

A"'C.IiI'I(;.. 3.5" 7.'" Services which tracks delivery 

(2007- prices in the private sector. 

lOll) 

The pre-funding mandate, "",.hIch no other business or govemmental ageney faces, not only 

crippled the Postal Service's finances, it also led the Postal Service to pursue relentless 

downsizing and service cuts that are driving even more mall volume out of the system. Rather 

than use its resources to retool to capture new volume in the booming e-commerce Industry or 

find new products to offer through Its unmatched first-mile and last-mile delivery networks, the 

Postal Service has used it all to cover pre-funding CDSts. Worse, postal management has been 

hunkered down in crisis mode ever since the mandate took effect, devising ever more draconian 

reductions in service that threaten to plunge the Postal Service into a death spiral - where 

deClining volume begets service cuts, prompting even further volume losses and new service 

cuts. 

Over the past few years, the USPS has removed lens of thousands of CDllection boxes and 

is reducing operating hours in more than 10,000 post offices, weakening its first mile network 

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and driving away more business. Now it wants to degrade its last-mile delivery network by 

cutting Saturday delivery, even though a third of the Postal Service's business customers say 

they want to keep Saturday delivery {according to USPS market research}. 

The members of the NALC have lost confidence in Postmaster General Donahoe - Indeed 

the 7,000 elected delegates of the NALC biennial convention in Minneapolis unanimously 

adopted a "motion of no confidence" in July 2012. For these reasons, and because we are 

convinced that the business strategy the Postmaster General is following is doomed to failure, 

we have called for the PMG's resignation. We respectfully think you should do so too. 

It gives us no pleasure to take this position. But our members and other postal employees 

have made tremendous sacrifices in recent years to save the Postal Service and those 

sacrifices should not be made in vain. NALC worked cooperatively with the Postal Service 

during the Great Recession to adapt to plunging mail volume. We eliminated more than 12,000 

routes even as we added more than three million new delivery points. In recent years, we have 

boosted city carrier productivity dramatically, increasing average delivery addresses per route 

from 492 in 1 999 to 616 in 2012, an increase of more than 25 percent. This has meant 

increasing the physical demands of our jobs by extending the hours we work on the streets from 

four hours to more than six hours a day, in all weather conditions. (Nots that once the economy 

stabilized, the Postal Service unilaterally walked away from the joint process we used during the 

recession.) 

In fact, the Postal Service has eliminated more than 193,000 jobs since 2006. And postal 

employees have not just sacrificad jobs - we have also done our part in recent rounds of 

collective bargaining to cut costs in the face of declining volume and revenues. Earlier this year 

the last two unions, NALC and the Mail Handlers, completed the most recent round of contract 

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negotiations, using the interest arbitration process, Last year, the Rural carriers Union did as 

well and the APWU negotiated a cost-saving contract. Through the process, arbitrators fully 

considered the financial condition of the Postal Service and issued awards that will save the 

Postal Service billions of dollars over the next three years. 

The Des arbitration award issued just three months ago called for a two-year wage freeze, 

reduced the cost of cost-of-living adjustments and more than tripled the number of noncareerlflexible schedule city carriers to reduce labor costs and to give the Postal Service more 

operation flexibility to capture more parcel business. According to the arbitrators deciSion, new 

career city carriers will earn 25% less when they are hired, and the Postal Service will be able to 

pay some 30. 000 non-career carriers 33% less in wages than non-career carriers under the old 

contract. The Das award also called on city carriers to pay more for health Insurance, shifting 

one percent of the cost of premiums from the USPS to the employees each year over four 

years. 

As I mentioned earlier, the other postal unions made similar cost-cutting sacrifices that have 

generated huge savings. We have done our part to save the USPS. Now we urge Congress to 

do its part. 

As the Committee deliberates over postal reform, we urge you to reverse or fundamentally 

modify the PAEA's unintentionally destructive policies on pre-funding and priCing, and to take 

action to prevent the Postal Service from downsizing itself into a death spiral. But those steps 

alone wiIJ not save the Postal Service. That will require an even more fundamental restructuring 

of the Postal Service's goveming structure, executive management and regulatory environment 

to allow the Service to compete for e-commerce volume and to use Its unmatchable networks to 

offer new services. That is the conclusion reached by Lazard Company's due diligence 

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investigation of the Postal Service commissioned by the NALC and conducted in 2012 (see 

Attachment 2). We hope to advance Lazard's recommendations In the legislative process and 

NALC looks forward to working with Representatives in both parties to find solutions that will 

preserve the U.S. Postal Service. 

In this testimony, we will offer our views on a full range of policy solutions to the crisis at the 

Postal Service. It is our hope that the Committee will hold additional hearings on crucial topics 

such as reform of the pre-funding mandate, measures to reduce the cost of postal employee 

health benefits, new products and pricing reforms, and the debate over Saturday delivery. 

II. Repeal or Reform the Mandate to Prefund Future Retiree Health Benefits 

It is strange, but true, that the Postal Service is the most finanCially sound, failing company 

in America. Its pension obligations (under CSRS and FERS) are nearly fully funded even in the 

face of penSion cost allocation methods developed by aPM that are grossly unfair to the Postal 

Service (according to independent, private sector audits that are discussed below). It has also 

prefunded half of its future retiree health benefIts. No other civilian agency in the executive 

branch has pre-funded these costs at ali, and according to a recent Towers Watson survey of 

Fortune 1000 companies, only 38% of such private companies prefund at all and the median 

level of funding among those that do is just 37%. In the private sector, pre-funding is voluntary. 

Responsible companies pre-fund when they are profitable or use their surpluses in their pension 

funds to cover such costs, as encouraged by the tax code. 

Unfortunately, the PAEA's uniquely burdensome prefundlng mandate is literally killing the 

Postal Service. Implemented at the outset of the global financial crisis, the excessive level of 

pre-funding required by the PAEA has consumed all of the Postal Service's borrowing authority 

and has pushed the agency to the verge of Insolvency. No privata company would have 

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funneled tens of billions of dollars into a retiree health fund In the midst of a deep recession. The 

Postal Service needs immediate and Significant relief from this mandate without it, no other 

reform can save this institution. 

In the last Congress, the Senate did attempt to reduce the pre-funding burden in S. 1789. 

That bill lowered the target level of pre-funding from 100% to 80%, replaced the fixed schedule 

of prefunding payments with a two-tier set of pre-funding payments (normal cost payments and 

amortization payments to reduce the unfunded liability), and opened access to the Postal 

Service Retiree Health Beneflts Fund (PSRHBF) a few years early for use to cover the cost of 

current retiree health premiums. The last provision provided significant short-term relief from 

the pre-funding burden, freeing up cash by moving the date the PSRHBF can be used to cover 

premiums from 2017 to 2012. But the actual level of pre-funding under S. 1789 was reduced by 

just 6 percent, as shown in Table 3. The level of prefunding would remain very high and the 

USPS would likely default on the payments req uired in S. 1789 in a year or two. We believe 

much more substantial relief is required. 

There are a number of options Congress should consider to solve the prefunding problem: 

1) Repeal. The simplest solution would be to repeal the PAEA's pre-funding mandate 

altogether and to allow the Postal Service to use the Postal Service Retiree Health Fund 

to cover the cost of retiree health premiums with the $45 billion in funds now deposited 

in the Postal Service Retiree Health Benefits Fund (PSRHBF). Over time, the fund would 

be depleted and the USPS would return to covering these costs from operating revenue 

on a pay-as-you-go basis. This would give the Postal Service time to restructure and 

adapt in the intermediate term and eventually allow it to return to the private sector 

standard on covering retiree health costs for companies in multi-employer plans. 

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The objection to this alternative is that taxpayers might eventually be required to cover 

the cosl of postal employee retiree health costs, if the Postal Service lacked the funds or 

ceased to exist. The GAO has emphasized this point in its analysis of the issue. 

Underlying this concern is Ihe notion that ratepayers musl cover all present and fulure 

USPS costs, a convention adopted in 1970 and fully implemented by 1983. Sut for more 

than 200 years before 1983, the Post Office was funded by taxpayers and ratepayers. 

To say that we must adhere to the post-1983 convention forever assumes that the taxpaying public receives no benefit from the Postal Service and therefore should never 

have to pay any of its cosls. We believe Ihis assumption is wrong - all Americans 

benefit from the Postal Service, taxpayers and ratepayers alike. As a public service and 

as a crucial part of the nation's economic and political infrastructure, it supports national 

unity and national markets, encourages economic growth, and contributes to the cultural 

and political life of the nation, 

While we do nol seek nor support taxpayer operational subsidies for the Postal Service 

loday, we do nol believe the fear of a possible need for taxpayer support for retired 

postal employee health benefits in a doomsday scenario for the future can justffy 

crippling the Postal Service today with an unaffordable mandale, Moreover, no olher 

agency of the government, and I might add no institution or agency in the legislative 

branch of the government (which includes the House, the Senate, the GAO, the CSO 

and Ihe CRS) currently pre-funds future retiree health benefits at any level. Future 

taxpayers will cover Ihe cost of health benefits for retired legislative branch employees. 

Would future postal retirees be any less worthy of la)(payer-provlded health benefits as 

compensalion for their service to the country? The answer is: Of course not. 

In any case, retaining a crushing prefunding mandate today makes It more likely, not 

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less likely, that taxpayers will eventually have to cover the cost. Driving the Postal 

Service into a death spiral will not protect taxpayers. Reform that allows it to restructure 

and thrive will, 

2) Repeal and replace. Another option would be to repeal the PAEA's pre-funding mandate 

and replace it with a more reasonable and affordable mandate. For example, it could be 

replaced with a private sector "best practices" funding standard - which wouki require 

the USPS to contribute to the PSRHBF in years when it is profrtable. The law could 

dictate a defined percentage of profits be allocated to the PSRHBF or require the USPS 

maintain a pre-funding percentage tied to private sector practice among firms that prefund. Or the law could require the USPS to maintain the level offunding in the PSRHBF 

to a level tied to best practices In the private sector - the 37% median level of funding 

among Fortune 1000 companies in the private sector, for example. 

3) The USPS OIG proposal. The USPS Office of Inspector General offers a creative 

solution to the pre-funding mandate. It would repeal the PAEA's prefundlng payment 

schedule and allow the current assets in the PSRHBF to accrue interest over time while 

the USPS continued to pay for its retiree health insurance premiums with operational 

funds. The PSRHBF would continue to grow with eamed interest and wouki not be 

available to the USPS until it covered a certain percentage (to be set by Congress) of 

the unfunded liability. It wouki effectively serve as a reserve fund to cover the cost of 

retiree health in the future if the Postal Service could not make the payments in the 

future. This would provide breathing space to reform the USPS and partially address the 

GAO's concerns, even though It would still treat the USPS more harshly than other 

agencies and private companies. The proposal is outlined in a letter to Sen. Sanders 

reproduced as Attachment 3. 

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4) Cover retiree health with the fairly calculated CSRS pension. During the 1121h Congress, 

bills offered in both the House and Senate, sought to protect future taxpayers from future 

postal retiree health liabilities by permitting the Postal Service to use postal pension 

surpluses in the Civil Service Retirement and Disability Fund (CSRDF) reported by 

independent audits (USPS-OIG/Hay and PRC/Segal) to cover the cost of future prefunding, Indeed, the only-bipartisan postal bill considered by the House of 

Representatives (H,R, 1351) in the 112th Congress, which drew 230 co-sponsors from 

both parties, called for fairly and accurately measuring the Postal Service's pension 

surplus In the postal CSRS account of the CSRDF and transferring the surplus to the 

PSRHBF, That bill never got a vote in the House, In the Senate, the original bills offered 

by Sens. Carper and Collins (S, 1010 and S, 353) that were later combined to create S, 

1789 contained similar language on the CSRS surplus, However, concerns that 

transferring funds from the CSRDF to the PSRHBF would present scoring problems led 

the senators to drop the provision from S. 1789, (The senators may have also reacted 

to a GAO report that questioned claims that the USPS was over-charged by the OPM for 

retirement costs, but the same report acknowledged that the PRC and OIG methods 

were "reasonable" and that the choice of methods used is a 'pollcy decision" for 

Congress,) 

It is crucial to reverse this legislative decision, and to address the problems that led 

to it, as we tackle postal reform in the 113111 Congress, However, this can be done in a 

way that minimizes the impact on the deficit that would result from a large transfer from 

the CSRDF to the PSRHBF, Indeed, it may not be necessary to transfer any funds at all 

to significantly reduce the cost of pre-funding, This can be done in five steps: 

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a) In the Office of Personnel Management's annual valuation of the CSRS postal subaccount within the Civil Service Retirement and Disability Fund, mandate the 

adoption of modem, private sector accounting and actuarial methods called for by 

Accounting Standard Codification No. 715. (FASB -ASC 715, CompensatlonRetirement Benefits from the Financial Accounting Standards Board). This was the 

poJfcy recommendation of the Postal Regulatory Commission's report on Civil 

Service Retirement Cost and Benefit Allocation Principles prepared by respected 

experts of the Segal Company (June 29, 2010). The methods proposed by the PRC 

report produce a lower surplus than those advocated by the USPS OIG report on the 

same matter prepared by the Hay Group in January 2010, The Postal Service's 

Share of CSRS Pension Responsibility (Report Number: RARCWP-10-001, January 

10,2010). As mentioned above, a GAO review of these reports as well as the 

accounting and actuarial methods currently employed by the Office of Personnel 

Management (OPM) concluded that all three sets of methods are "reasonable" and 

that the choice of methods is a "policy decision: Congress should mandate the 

PRC's methods because the OPM's current methods are unfair and Inequitable to 

the Postal Service, its customers and its employees. See Chart 1, which 

demonstrates the inequitable allocation of pension costs resulting from the OPM's 

methods. It shows that the Postal Service pays 83% of the CSRS pension costs of a 

retiree who worked Just 50% of his career for the USPS, leaving the OPM to pay 

17% for the other half of the employee's career for the tax-payer supported Post 

Office Department. 

As suggested above, mandating the PRC audit's reform recommendatlon had strong 

support in the last Congress a majority of the House of Representatives cosponsored a bill (H.R. 1351) and bills introduced by Senators Carper and Collins at 

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the beginning of the 112th Congress also endorsed these methods. In addition, the 

Obama administration expressed its support for a CSRS transfer as part of postal 

reform, as explained In a letter from Director of Legislative Affairs Director Robert 

Nabors to Representatives Elijah Cummings and Darrellissa on October 13, 2011. 

The letter Is reproduced as Attachment 4, which was sent after the GAO report on 

pension allocation methods was issued. 

b) In order to minimize any budget impact of mandating the use of fair actuarial 

methods and assumptions, Congress should repeal Section 1848(h)(2)(C) of USC 

Titie 5, which requires the transfer of any postal pension surplus to the USPS Retiree 

Health Benefit Fund following valuations in 2015, 2025, 2035 and 2039. The 

required transfers mandated by 1848(h)(2XC) were enacted by the PAEA in 2006. A 

repeal of this transfer provision would eliminate the need to amortize (with mandatory 

payments from the General Fund) any increase in the CSRDFs unfunded liability 

resulting from the transfers. (Such amortization payments are required by another 

provision in Title 5.) 

Note: A repeal of the transfer provision would minimize any budget score associated 

with a policy of accurately and fairly defining the Postal Service's pension obligations 

and give policy-makers up-to-date and accurate information on the Postal Service's 

legacy costs. It makes sense because the PSRHBF will not need the surplus funds 

for decades - and the surplus pension funds might never be needed if Congress 

enacts the reforms ou1lined below to properly invest the PSRHBF (item 5) and to find 

ways to reduce future retiree health benefit costs (item 6). 

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c) Congress should repeal the PAEA's fIXed schedule of pre-funding payments and 

replace it with the two-tier prefunding payments called for in the President's budget 

(normal cost and amortization costs), but establish a right to access the fairly 

calculated CSRS postal surplus in the future to cover the cost of retiree health 

benefits if the PSRHBF should ever be exhausted. (The 80% funding target and the 

immediate access to the PSRHBF to cover current retiree health premiums in S. 

1789 should be retained in any new legislation.) 

d) Congress should require the OPM Board of Actuaries to take the accurately 

measured CSRS postal surplus into account when calculating the unfunded liability 

for postal employee retiree health benefits, a step that would eliminate the need to 

make amortization payments over the next ten years or more. (In practical terms, the 

USPS would make a normal cost payment each year to the PSRHBF and the 

PSRHBF would cover the cost of current postal retiree health premiums - resulting 

initially in a growing PSRHBF, even before taking into account the fund's earnings.) 

This Instruction would apply the best practice of private sector pension funds to the 

Postal Service. Indeed, the tarx code allows companies to apply surplus pension 

funds to the cost of post-retirement health liabilities (see section 420 of the Internal 

Revenue Code). 

e) In order to address misleading claims that reforms such as those described above 

represent "taxpayer bailouts: Congress should adopt the Statutory PAYGO reforms 

proposed by the Obama administration. The President's budget proposes to amend 

the PAYGO act to treat the transactions of the Postal Service Fund as "budgetary 

effects," thereby measuring Postal Service transactions on a unified budget basis for 

PAYGO purposes. 

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5) Invest the PSRHBF in the Thrift Savings Plan. The PSRHBF is unique in the federal 

govemment. No other agency has a retiree health fund. Although it dfffers from so-called 

VEBA plans (Voluntary Employee Benefit Associations) in the private sector because 

retired postal employees are guaranteed retiree health benefits by the FEHBP law even 

IT the balance in the PSRHBF goes to zero, it is very similar to such plans since Its 

assets are dedicated to cover benefits for a specific group of people with a tie to a single 

employer. In this case, the PSRHBF is dedicated to pay the Postal Service's share of 

health insurance premiums for retired postal employees - starting in 2017. 

Unfortunately, the PSRHBF is invested solely In low-yielding Treasury securities - and 

given that long-term health care costs are expected to grow faster than the interest rates 

payable by Treasury securities for the foreseeable future, the unfunded liabifity will 

almost certainly keep growing over time. No VEBA in the private sector would invest its 

assets so conservatively, especially since the annual cash requirement for the PSRHBF 

($3 billion per year) is a fraction of the $45 billion in assets. 

In an ideal world, the PSRHBF would be held on the Postal Service's books and 

invested appropriately (in a properly diversified portfolio of stocks, bonds, real estate, 

etc. overseen by a profeSSional investment manager) to minimize the PSRHBF's 

unfunded liability - and therefore minimize any amortization payments from the USPS In 

the future. Transferring the PSRHBF to the off-budget Postal Service might present 

budget scoring problems (unless the budgetary effects proposal outlined above is 

adopted) and the Treasury Department has traditionally opposed the investment of 

government trust funds in private securities. 

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However, NALC believes there is a way for the PSRHBF to earn higher, private sectorbased returns without moving it from the OPM's books - which should reduce the federal 

deficit. The PSRHBF could be invested in the index funds offered by the Thrlft Savings 

Plan. The Federal Retirement Thrift Investment Board already invests a pool of nearly 

$300 billion of federal and postal employee retirement savings in these funds - so 

investing the funds of the PSRHBF, which also holds assets dedicated to post-retirement 

benefits, would not be setting a new precedent. The TSP's Ufecycle 2040 Fund has 

eamed an annual return of 5.0% since its Inception in 2006, much greater than the 2·3% 

returns paid latety on Treasury bonds. 

6) Give the Postal Service and its unions the ability to reduce retiree health costs within 

FEHBP. NALC and its members are willing to do our part to reduce the cost of future 

retiree health benefits at the bargaining table if Congress treats the Postal Service, its 

employees and the mailers fairly on pension costs. The best way to reduce the prefunding burden on the Postal Service is to reduce the cost of health insurance in 

general, and retiree health insurance in particular. 

Generally, the OPM and the FEHBP program have done a relatively good job in 

controlling health care costs. Indeed, the federal government's health care costs are 

lower than those of other large employers in the private sector, and the FEHBP program 

has restrained health care inflation better than employer plans in the private sector. 

Nevertheless, there is more that could be done to reduce health care costs - which 

could reduce the cost of prefunding retiree health benefits. 

The Postal Service has asked Congress to let it leave the FEHB Program and set up its 

own health care program, The postal unions, including the NALC, oppose leaving 

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FEHBP. But most of the savings the USPS thinks it can achieve outside of FEHBP could 

be achieved Inside of FEHBP - if the USPS and its unions were allowed to negotiate an 

exclusive set of FEHBP plans to be offered to postal employees and future postal 

retirees (current postal retirees should keep the plans they have). This 'postal FEHBP 

exchange' could work with aPM to implement health plan innovations to incentivize 

good health and require the use of single network providers for medical services, 

hospital care and prescription drugs in order to cut costs. In addition, the 'postal FEHBP 

exchange' could achieve improved integration with Medicare and seek permission from 

aPM to implement a private sector-style Employer Group Waiver Plan (EGWP) to bring 

down the cost of drugs. Lower retiree health costs would translate into lower pre-funding 

payments. 

It is urgent that Congress take action to repeal or reform the pre-funding mandate. We 

cannot imagine any member of the House, regardless of party or ideology, who would accept 

such a mandate being applied to a single private sector employer in his or her district. Yet 

because It is applied to a federal agency, it is ignored. But the negative Impact it has on the 

Postal Service is hurting the entire postal industry. Of the eight million workers in our industry, 

just over a half-million work for the USPS. The vast majority of the workers in our industry work 

in private companies across the country. The pre-funding mandate is not Just dragging the 

USPS down; It's weakening an entire industry that employs workers in every community in the 

country. 

III. Six-day last Mile Delivery Is the Postal Service's Core Function 

The core competence and core asset of the Postal Service as an enterprise is its 

unmatchable, six-days-per-week, last-mile delivery network. It is a strategic asset that must be 

protected to return the Postal Service to health. It should not be sacrificed to maintain the 

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disastrous pre-funding policy introduced in 2006. Congress should follow the lead of the U.K. 

govemment's postal regulator, Of com, which concluded In March that six-day delivery should 

remain part of the Royal Mail's universal service obligation. 

Therefore, we urge the Committee to mandate six-day delivery in the law - and remove the 

possibility that Congressional appropriators might inappropriately seek "unified budgef savings 

by elim inating the six-day requirement even though the USPS receives no taxpayer money - a 

mistake the Obama administration made when it proposed to end Saturday delivery in its 

proposal to the Super Committee created by the Budget Control Act of 2011, and which it 

repeated in the past three budgets. 

The Postmaster General has put forth a number of flimsy arguments in support of his fiveday mail delivery proposal, even as he has failed to be fully forthcoming on the job losses his 

plan will entail. I wish address these arguments and note our concems about jobs next. 

First, the PMG's claim that the proposal would save $2 billion annually is clearly false. The 

PRC found in 2011 that the Postal Service's original five-day delivery plan, which did not involve 

the delivery of any packages or prescription drugs, would save at most $1.7 billion, even thoug h 

that figure dubiously assumed almost no loss of mail volume due to reduced service. The Postal 

Service had claimed that Its plan would save $3.1 billion. It made this claim even though Its own 

conSUltant, Opinion Research Corporation (ORC), concluded that the combined impact of 

slower service standards from Its network optimization plan (involving mail processing plants), 

post office closings and the end of Saturday delivery would reduce total mail volume by 7.7 

percent and result in a loss of $5.3 billion in revenues. A loss of reVenue exceeding the $3.3 

billion in cost savings estimated by ORC would result in a net loss of $2.0 billion. These 

findings, based on 2010 data, were not shared with the PRC during its review of the flve-day 

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plan or its review of the networi< optimization plan. When the findings were discovered in 2012, 

the Postal Service dubiously disavowed them as "flawed" - though ORC has never disavowed 

its work. See Attachment 5, which provides a summary estimate of the impact of the planned 

service cuts on mall volume and postage revenue. It was introduced as an exhibit in the PRC 

proceeding by the American Postal Wori<ers Union. 

The Postal Service's own mari<et research shows at least a third of business mailers value 

Saturday delivery (see below), induding the weekly newsmagazine and newspapers that 

absolutely depend on it each week. Cutting Saturday delivery will drive periodical and 

advertising mail away (direct mari<eters will switch to delivery with newspapers) and make 

things worse, not belter. As we learned in recent media reports, the Dow Jones company has 

already started to move Saturday deliveries of The Wall Street Journal to other delivery 

companies In anticipation of the Postal Service's move to end Saturday delivery. New York 

magazine and The Economist magazine have done so as well. Bloomberg Businessweek 

recently announced plans to do the same. Indeed, the Association for Magazine Media has 

criticLzed the move to five-day delivery, And while the trade assodation for many advertising 

mailers has not taken a position on Saturday delivery, many individual companies like Valasis 

Inc, (one of the nation's largest direct mailers), Hallmari< and e-8ay oppose the change. The 

savings the Postal Service claims would be overwhelmed by the loss of revenues, At a 

minimum, the Postal Service should submit its new five-day plan for review by the PRC before 

Congress decides this matter. 

Second, the Postmaster General falsely claims that the move to fwe-day mail service will no! 

slow the delivery of mail. That is preposterous. The PMG admits that mall in collection boxes 

won't be collected on Saturdays and that mail will not be sorted to delivery point sequence on 

Friday nights, By definition this will slow the mail for American mailers - collection box mail will 

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be delayed a day and mail destined for P.O. Boxes not sorted on Friday nights won't be in those 

boxes on Saturdays. When there is a federal holiday, the mail will be delayed even further. 

Slower service will drive business away, reducing revenue and driving the Postal Service to 

make even more self-<Jefeating service cuts. 

Third, the Postmaster General claims the USPS's customers are supportive of this change, 

citing so-called "market research: Specifically he says: "Market research shows that seven out 

of 10 Americans support five day delivery." Not only is that statement Incomplete, it's grossly 

misleading. Public opinion polls are not market research. The results are not surprising when 

the folks polled are misleadingly told that the elimination of Saturday delivery is essential to 

save the Postal Service and are not told that the main cause of the Postal Service's losses is 

the pre-funding burden. Indeed, those polled are typically given a choice between the 

elimination of Saturday delivery andlor higher postage rates or closed post offices - the option 

to end pre-funding is never offered. Moreover, polling the recipients of mail misses the pointthe vast majority of mail (90-95%) Is generated by businesses for households (including 

business reply envelopes used by consumers to pay their bills). Although city carriers feel 

strongly that we serve the public, the vast majority of paying customers of the Postal Service are 

business mailers. Their views on Saturday delivery are critical. 

A 2009 survey of 4,1 00 businesses conducted by the USPS and the Mailers technical 

Advisory Committee (NMTAC) found that 32% of them opposed the shift to five-<Jay. Another 

2009 survey of 1,144 small businesses (less than 250 employees) for the USPS by the Maritz 

Company found that 68% supported the plan - meaning that up to 32% didn't There are more 

than 25 million businesses of all sizes in the United States. If a third of these businesses oppose 

the plan, as the Postal Service's own surveys show, then literally millions of businesses will 

suffer from the Postal Service's plan. 

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Members of the Committee should not blindly follow uninformed public opinion when It 

comes to Saturday delivery. Of course, in electoral terms, 7 out of 10 Americans is a landslide. 

But in business terms, failing to serve 1 out of every 3 customers is a prescription for 

bankruptcy. How can (he Postal Service succeed if they cut a service - Saturday delivery - that 

millions of business customers need? And tf a substantial number of those spumed business 

customers find altemativ6s or reduce their volume of mail, how can the majority of customers 

who claim to support the plan not face even further cutbacks and/or higher prices from the 

Postal Service? If that happens, 100% of Americans would be hurt and 100% of American 

businesses would suffer. The bottom line is clear: The Postmaster General's five-day plan is an 

anti-business plan that is not in the public's Intenest either. 

Fourth, and most outrageously, the Postmaster General told reporters on February 6 that 

the employees of the Postal Service support his frve-day delivery plan, basing it on the random 

conversations he has had with employees in post offices over the past year. Worse, he 

misleadingly implied that I personally accepted the plan and that "letter carriers" support his 

plan. This is pure nonsense and (otally untrue. City letter carriers overwhelmingly oppose this 

plan. I know, I was elected to my job by them, and more than 90% of them voluntarily belong to 

NALC. Other postal employees feel the same way. Ali four postal employee unions issued 

statements on February 6"' opPOSing the PMG's plan. Congness should know that the PMG 

does not speak for all postal employees. 

Ftfth, the Postmaster General claimed that he listened (0 his customers and altered his 

original five-day plan to provide Saturday delivery of packages, including the delivery of 

prescription drugs. While we are heartened that the PMG would listen to his customers, we 

wonder why he won't listen to the millions of businesses that value Saturday mail and periodical 

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delivery as well, and we are concerned that the PMG will risk our recent gains in package 

delivery market share by adopting his plan. The PMG proudly cites the 14% growth in package 

volume in recent years. And in the first quarter, the USPS reported a 19% growth in revenue 

from Parcel Return and Parcel Select, the services private delivery companies use to take 

advantage of the Postal Service's first- and last-mile capabilities. Indeed, in its press release 

announcing the first quarter results, the Postal Service cited the 'comparative advantage" of its 

last mile delivery network as the driving force behind its strong growth in package delivery. 

But that growth and that comparative advantage have been built on a shared, multi-product, 

last-mile delivery network. By delivering letters, flats, and parcels together, the cost of USPS 

package delivery has been kept quite low. How will the Postal SeNice remain the most 

affordable provider of package delivery to residential neighborhoods if it gives away this pricing 

advantage? Economists call this the economies of scope. Will the Postal SeNice's plan 

recklessly throwaway these economies just when the e-commerce boom is gaining 

momentum? How much business will we lose from FedEl< SmartPost and UPS SurePost by 

eliminating Saturday delivery? Will new competitors emerge to offer Saturday delivery seNice 

for newspapers, direct mail and flats that will cause even more volume loss? We believe the 

answers to these questions will make it very clear that the elimination of Saturday mail delivery 

makes no business sense. 

Finally, on the Saturday delivery issue, the Postmaster General has not been entirely 

forthcoming wrth Congress or the public on the negative employment impact his plan will have 

on the U.S. economy. In his press conference, he said that the plan would eliminate 22,500 

jobs. But his press materials make reference to 35,000 full-time equivalent jobs. Back in 2010, 

when the plan was first formulated, the Postal SeNice met individually with the four unions and 

provided the following esUmates of job losses for the plan to cut Saturday mail delivery: 25,846 

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full-time city carriers, 53,240 full- and part-time rural carriers, 2,250 clerks and other employees 

in APWU crafts, and 450 mail handlers for a total of 81,786 full- and part-time jobs. As we saw 

with the suppressed evidence during the PRC proceeding on network optlmization, the Postal 

Service doesn't really know how much, if any, savings will result from all their service cuts. 

Based on the constantly shifting numbers on jobs, it doesn't seem to know how many jobs are 

at stake with its proposed elimination of Saturday mail delivery. The Postal Service Is not being 

straight with the Congress or the public. This must change. 

Fortunately, the support for Saturday delivery remains very strong in the House of 

Representatives. Rep. Sam Graves has Introduced a sense of the Congress resolution 

supporting the continuation of six-day delivery service. That bill, H. Res 30, now has 170 cosponsors from both parties. We hope this Committee will embrace the spirit of H. Res 30 in the 

postal reform legislation it drafts this year. 

IV. Pricing and products reform 

In the absence of the pre-funding mandate, the introduction of a streamlined system of rate 

regulation would have made a lot of sense in 2006. Replacing the costly and time-consumlng 

system of setting postage rates through months of expensive litigation between competing sets 

of mailers was a laudable goal. Unfortunately, the Congress saddled the Postal Service with a 

huge new mandate at the same time It implemented the price cap on its rates. The cost of the 

pre-funding mandate was never built into the Postal Service's prices because the USPS did not 

conduct the one-time, final omnibus rate case called for in the PAEA. (The USPS rightly did not 

want to raise rates in the midst of the recession.) Even without the crushing burden of prefunding, the cost of mail delivery on a unrt basis was bound to rise as intemet diversion reduced 

mail volume, but the Postal Servlce cannot charge mailers the true cost of delivering the mail. 

This pricing regime is not sustainable and is contributing to the mindless downsizing that 

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threatens to destroy a key part of the nation's economic infrastructure. 

At a minimum, the Postal Service should be given the right to adjust its rates with a ona-tlme 

proceeding before the Postal Regulatory Commission. The omnibus postage rate review and 

adjustment that was authorized by the PAEA. but that did not happen In 2007. should be 

conducted in 2013. If Congress insists on the prefunding mandate, then It is only fair that at 

least some of its cost should be built into the postage rates the Postal Service charges its 

customers, Such a one-time rate case proceeding is needed to provide reasonable balance to 

the huge sacrifices postal employees have made In recent years. 

But in addition. the Postal Service must be able to generate greater revenues to balance 

the cost-cutting it will continue to pursue. No struggling enterprise can mindlessly downsize its 

way back to health. It must have a growth strategy and be able to generate new revenues. 

There are three ways that the Postal Service can increase revenue: grow the existing business 

In sectors of the mailing industry that are expanding (package delivery. returns and acommerce). better align prices to reflect costs (pricing reform). and find new uses of the Postal 

Service's networks that can help finance and preserve the valuable last mile delivery networks 

that the country depends on for commerce, communication and voting. The USPS Is already 

dOing the first and will continue to succeed so long as it does not destroy Its own comparative 

advantage by degrading its last-mile network. But Congress must enact reforms to help USPS 

increase revenues in the second and third ways. 

First, on pricing reform, the case can be made to eliminate the price cap altogether, as the 

regulator in Great Britain has done recently. Postal operators no longer have the ability to 

abuse their monopolies - there is an electronic or physical alternative to every service they 

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provide. The USPS has no market power whatsoever - if it raises rates too high, customers will 

leave the mail system. There is market discipline in place. Ontheotherhand,mailers 

legitimately want some protection against capricious rate Increases. But the USPS needs 

greater flexibility to set rates that will cover its costs. 

The reforms proposed by President Obama are a good start, but the price Index system for 

mari<et-dominant products must be updated and must be based on an appropriate benchmari< 

index. The Consumer Price Index for All-Items is not the most appropriate Index. The Postal 

Service is part of the national delivery industry, a transport-based, energy-intensive industry that 

has unique characteristics. Although the USPS is by definition more labor-intensive than private 

companies like FedEx and UPS - we deliver to 152 million addresses six days a week. not 15 

million addresses five days a week - the USPS faces the same cost pressures as those 

companies. At a time of soaring energy costs, the rates charged by private companies that 

provide delivery services have increased at more than twIce the rate of postage - see Table 2 

above. If the USPS is to preserve its networi<s, it must be given pricing flexibiltty. Congress 

should modernize the price indexing system and replace the CPI-AII Items with the CPI for 

Delivery Services. It Is the appropriate private sector benchmari< and It will help with the budget 

scoring on the legislation. 

Second, on products, the overly restrictive definition of a postal product contained in the 

PAEA should be liberalized. The reforms proposed by Rep. Peter Defazio's postal reform bill 

(H.R. 630) show the way. Opening the mall to beer and wine sales also makes sense. But the 

range of services the Postal Service could provide is much greater and it should be given the 

right to find new uses for its networi<s. Whether its meter reading for utility companies as an 

alternative to expensive smart meters, or partnerships with private banks to serve Americans in 

rural and depressed urban areas where commercial banks have no presence, or recycling 

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computer parts in partnership with private companies, the Postal Service needs greater 

commercial freedom. We believe an innovation commission as proposed by H.R. 630 could 

reveal a wide range of possibilities. That commission should study the possibility of using the 

nation's post office network as the backbone of a National Infrastructure Bank, and Congress 

should consider giving every American the right to vote by mail in federal elections. A more 

entrepreneurial Postal Service could do what the Post Office has done since it was mandated 

by the Constitution - evolve to meet the changing needs of the country. But to achieve a more 

entrepreneurial culture, the govemance structure of the Postal Service needs to be reformed. 

will tum to this topic next. 

V. Governance reform 

At a moment when the Postal Service faces the gravest crisis in its history, its Board of 

Govemors might soon be known as a Board of Vacancies. The Board of Govemors is made up 

of nine presidential appointees, plus the Postmaster Genenal and the Deputy Postmaster 

General. At the moment, four of the nine appointed seats are vacant and one govemor is In his 

one-year hold-over period following the expination of his term. The gridlock that has hampered 

the appointment process in genenal has really damaged the Postal Service in particular. When 

you consider that the temns of two of the five commissioners on the Postal Regulatory 

Commission have also expired, the appointments problem is even deeper. But what truly makes 

the problem a crisis is that the PAEA's guidelines for appointments to the Board have not been 

followed. 

The PAEA amended the law to require that 'at least 4 of the Govemors shall be chosen 

solely on the basis of their demonstnated ability in managing organizations (in either the private 

or the public sector) that employ at least 50,000 employees: Although all of the govemors who 

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serve are honorable people, this policy has not been followed. As our advisers at Lazard 

reported to us, the Postal Service lacks a Board with the kind of business experience needed to 

create a vision for a revitalized Postal Service - nor does it have the kind of execu1ive talent 

needed to execute such a vision, Instead, the Board has approved the "shrink to survive' 

strategy that Lazard believes is doomed to fail. 

NALC calls on Congress to overhaul the governance structure of the Postal Service to give 

it the best chance for a tumaround. NALC will work with any leadership team that develops a 

strategy for growih and is dedicated to the long-term viabiHty of the Postal Service. 

VI. Addressing the Cash Crisis: Return of the FERS Pension Surplus 

The reforms we have advocated in this testimony are essential to the survival of the Postal 

Service well into the 21" Century. But we also face a short-term solvency crisis. The 

prefunding mandate, the Great Recession, and the misguided business plan of current postal 

management have left the Postal Service desperately short of cash, If the Postal Service had 

been allowed to follow private sector practice on prefunding, rt losses in recent years would 

have been manageable, its cash position stronger, and its ability to adapt would remain intactand it would still have more funds set aside for future retiree health benefits than most private 

sector companies. Instead, it has exhausted its borrowing authority and tis management has 

pursued reckless cost-cutting in a crisis environment that is surely driving business away, 

In order to prevent an economically damaging interruption of service and to give the 

reforms outlined below the time they need to work, Congress must also restore the liquidity the 

Postal Service needs to operate. Fortunately, there is a surplus in the Postal Service's FERS 

pension account that nobody disputes. Due to falling discount rates, that surplus declined from 

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$11.4 billion in 2011 to $3.0 billion in 2012. But if returned to the Postal Service, it is still 

enough to pay down its debt and maintain operations as it implements other refonms to restore 

its viability. Congress should change the law to allow for this transfer from the FERS postal 

account in the CSRDF to the Postal Service. 

Note, however, that the actual surplus in the postal FERS account would be much larger If 

measured properly, according to a recent report from USPS Office of Inspector General 

prepared by The Hay Group. The report, entitled Causes of the Postal Service FERS Surplus 

(Report Number: RARC-WP-13-001, October 12, 2012), found that if the OPM were to use 

USPS-specific economic, demographic and mortality assumptions in its annual valuation of the 

FERS postal sub-account within the Civil Service Retirement and Disability Fund, the actual 

surplus would have been $24.0 billion in 2011. A subsequent update to the report released on 

December 4, 2012 (RARC-WP-13-002) incorporated the OPM's lower interest rate assumptions 

for 2012 - and therefore reduced the OIG's estimated surplus to $12.5 billion. 

The use of USPS-specific assumptions increases the measured FERS surplus because the 

Postal Service's work force is different than the rest of the federal workforce; its employees are 

a distinct group with markedly different demographic and mortalrty characteristics. HistOrically, 

salary increases in the Postal Service have lagged those in the federal government overall and 

life expectancy among mainly blue collar postal employees is less than It is, on average, for 

mainfy white collar federal employees. A fair valuation of the postal sub-accounts requires the 

use of USPS-specific assumptions. 

Rep. Stephen Lynch, the ranking member of this Committee's postal subcommittee, has 

drafted legislation (H.R. 961) that directs the OPM to use accurate, postal-specific assumptions 

and the resulting FERS surplus of $12.5 billion should be used to stabilize the Postal Service's 

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finances as other reforms are put in place. A transfer of the FERS postal surplus would set the 

stage for a major turnaround at the Postal Service, provided that the reforms outlined above are 

enacted and the Congress prevents current postal management from driving America's Postal 

Service into a death spiral. 

VII. Conclusion 

It is our sincere hope that this Committee win hold other hearings on the issues we have 

raised in our testimony. Many of the proposals we have made are addressed in one form or 

another in H.R 630, the postal bill introduced by Rep. DeFazio. We urge this Committee to give 

the bill serious consideration as you begin the process of drafting reform legislation, NALC is 

committed to working together with both parties to fashion a bi-partisan reform bill that will 

preserve a strong and vibrant Postal Service for decades to come. Thank you for conSidering 

our views. 

30 
113 

Mr. FARENTHOLD. [Presiding.] Thank you very much, Mr. 

Rolando. Since the chairman has stepped out, I will recognize myself first for questions, and I would like to start with you because 

the prefunding really is a big issue that we are facing, and I want 

to be perfectly clear on where you and the members of your organization are on that. You do believe we do need to set aside some 

money. Are we really just arguing about how much money we set 

aside? You don’t want to do away with prefunding completely, correct? 

Mr. ROLANDO. We believe prefunding is a good thing, and the 

gentleman from GAO said this about five times this morning, if it 

is done in a fiscally responsible way. It is not fiscally responsible 

to exhaust your borrowing authority, to drain your savings, and to 

use all your resources to take money from one of your pots and put 

it in another pot. It is not fiscally responsible. As long as the Postal 

Service has the surpluses to do what was intended, to then fund 

for prefunding, we think it is a great idea. 

Mr. FARENTHOLD. All right, we heard testimony from the GAO 

that if we completely did away with prefunding, there would still 

be a deficit. So under your scenario there, we would put no money 

away for your retirees. Is there a number that they have to work 

into their budget and their planning that is a reasonable amount 

to put away to ensure that your retirees are paid the benefits and 

given the health care that they were promised? 

Mr. ROLANDO. The number is $45 billion. That is how much we 

have put away. 

Mr. FARENTHOLD. But that is not going to last. So you want to 

zero it out and just use what you have until it is out or until the 

Postal Service is making money? 

Mr. ROLANDO. No. When we have surpluses, we should continue 

to prefund. But as we are right now, we have $45 billion. Again, 

you have to look at the source of the prefunding. It was thought 

that at the time, in 2006, looking out over—the gentleman earlier 

said it wasn’t 75 years. He is correct; it is more like 92 years is 

the amount of time that they did the assumptions for, for about a 

92 year period. What he is confused about is the time that they 

were going to take to pay it off was 50 years. 

Mr. FARENTHOLD. Would you all support a, I think the term was 

actuarial-based accrual system or payments? 

Mr. ROLANDO. Yes. We have several options in my written testimony. There are several ways to prefund. We do believe in 

prefunding, we do believe it should be fiscally responsibly done, 

and we do believe it should be done out of the surpluses. 

Mr. FARENTHOLD. All right, so I guess we are arguing about 

what fiscally responsible is. And, again, I don’t want to put words 

in your mouth, but you are saying only if there is a profit or an 

excess do we put some away; we don’t actually find efficiencies or 

make changes to our service, dropping down to five days, for instance, or raising postal rates to get there. 

Mr. ROLANDO. What is not fiscally responsible is taking all your 

money out of the bank, all your borrowing authority, and all your 

resources, and pretending that you are in default to put money of 

your own into another account and call it prefunding for the future. 

114 

Mr. FARENTHOLD. All right, we will go to the Postmaster General. Thank you, as well, for being here. I would imagine there is 

a slightly different opinion on your part as to what needs to be 

done with respect to meeting the obligations and keeping the promises you made to current employees? 

Mr. DONAHOE. Yes. First of all, we stand very firm in making 

sure that we keep the promises to the employees. This organization, when we were hired, Fred and I, we had the promise of health 

care, and we have to live up to that. I would tell you that rather 

than worrying about how much to prefund, we need to step back 

and take the suggestion that you heard from both of us, that we 

take over our own health care plan. And, truthfully, we could work 

it within the FEHBP. I have no issue with that. As long as we were 

able to compete it, make it affordable and cut the cost for our current employees, and then use the full effects of Medicare, which we 

pay into—ratepayers are paying Medicare; postal employees are 

paying Medicare—and conduct our health care like any other business. As a matter of fact, Mr. Chairman, if we did that, we are on 

record in our testimony showing that we actually break even and 

there is no further need to prefund. We would provide top quality 

health care for all the postal employees employed right now and 

into the future. 

Mr. FARENTHOLD. Well, I know the OPM is looking at some of 

the same ideas you want for the entire Federal workforce. 

Mr. DONAHOE. I would love to spend more time with the OPM, 

and I would invite them to spend time with us as a group, the 

unions and the management associations, and we can sit down and 

go through step by step. What we find with the OPM, truthfully, 

Mr. Chairman, is they play four corners offense on us; and that 

was something that used to happen before the time clock for basketball. So we would encourage you guys to take the lead, force 

that issue. We are ready to step up. 

Mr. FARENTHOLD. All right, let’s talk a little bit about the current path the Postal Service is on. Assuming we in Congress do 

nothing and you continue down the path you are on, what are your 

plans for when you run out of money? 

Mr. DONAHOE. Well, let me address that in a couple ways. Number one, we are accused very often of moving the goal posts here. 

The reason the goal posts move is because we have very efficient 

employees who do a great job every day, and we have worked very 

hard to make up the substantial drop in revenue. I told you the 

first class revenue is dropping; it will continue to drop. We think 

we will lose another $5 billion in first class revenue. We will make 

some up from a package perspective; that will close some of the 

gap. But what we need is congressional action now so that we do 

not face that problem. 

The biggest problem we face is a concerned confidence in the 

mail itself. That is something that goes across all postal employees, 

including the industry itself. So the faster you act to give us the 

flexibility to get this place back on firm financial footing, the better 

the entire industry will be. 

Mr. FARENTHOLD. Thank you very much. 

I see I went over. We will give Mr. Cummings six and a half minutes. 

115 

Mr. CUMMINGS. Thank you very much. Thank you, Mr. Chairman. 

Mr. Donahoe, tell me something. Are you familiar with what Mr. 

Rolando just said about his suggestions with regard to health care 

and the postal system? Are your plans almost identical or what 

would be the difference, if you know, between what he is talking 

about and what you are talking about? 

Mr. DONAHOE. I don’t think it is radically different. Fred and 

Cliff Guffey, from the APWU, have both talked to us about the importance of controlling our own health care plans. It is fair for our 

current employees and for our retirees. From our perspective, what 

we propose has been any changes that we will take on with health 

care, including taking over our own, we would include the union in 

terms of oversight of that plan. So I think we are pretty close as 

far as where we would like to go. There may be a difference as far 

as Fred’s statement around the FEHBP. I think that we could live 

with it as long as we were able to achieve the bottom-line savings 

that we think we need. 

Mr. CUMMINGS. Mr. Rolando, the letter carriers have been a 

strong proponent of the Postal Service maintaining a six day mail 

delivery. You testified that ‘‘it is a strategic asset that must be protected to return the Postal Service to health’’ and it should not be 

‘‘sacrificed to maintain the disastrous retiree health fund 

prefunding policy.’’ You also mentioned that the postal regulator of 

the United Kingdom concluded last month that six day delivery 

should remain part of the rural mail’s universal service obligation. 

Can you elaborate on the reasons for that decision, and are there 

specific characteristics of the mailing industry in the United States 

that may have led to that decision? In the United Kingdom, rather. 

Mr. ROLANDO. I believe it has to do with the whole downsizing 

strategy of sacrificing your networks that you need to achieve the 

growth to replace the revenue that is being lost. Once you start out 

with a strategy of dismantling your network, you lose the ability 

for growth, especially in what we are facing here in the United 

States, and I don’t believe it is much different in the United Kingdom, with what is going on in the whole retail world and what we 

are seeing with e-commerce and so forth, and the way the American people are going to shop and the way they are going to want 

to use the mail. You have your e-commerce same day, next day delivery, you have Amazon, eBay, Google, Walmart, the major chains 

all competing for that retail market, and the one thing they have 

in common is the United States Postal Service in order to receive 

those packages, whether it is same day, one day. And if we start 

out our growth plan with a strategy of downsizing the very network that is going to get us all that business, I think we are going 

in the wrong direction, and I believe the United Kingdom sees it 

the same way. 

Mr. CUMMINGS. I would assume, Mr. Donahoe, that you would 

have a little different answer there, and I am assuming that you 

would say that we have a situation where perhaps we need to 

right-size our workforce so that—and some testimony came up in 

the previous panel where they were saying that you are going to 

have a lot of capability, but you are not going to have the work. 

So how do we balance all of that? You follow me? 

116 

Mr. DONAHOE. Sure. 

Mr. CUMMINGS. There has to be a balance, because I think, at 

the rate we are going, we are getting ready to fall off a cliff; and 

if we are not careful, I know I heard others talk about alternative 

plans, but I am trying to figure out how do we do that at the same 

time and be reasonable with regard to an outcome? 

Mr. DONAHOE. Yes. I think the key thing for the Postal Service 

is to look at the revenue lines going forward, and we think that we 

can halt revenue at about $65 billion. Now, with that $65 billion 

in revenue, you have changes going on in terms of the products 

themselves; a slower decrease in first class, pretty stable in terms 

of direct mail, standard, and an increase in packages. Given that 

$65 billion in revenue, resolving the health care alone is worth saving somewhere between $6 billion and $7 billion a year. Our current cost structure right now has us at about $74 billion with that 

included. So if you address that, if we continue with the consolidations we have been making, we employ the work that we have been 

able to do with the unions for a lower cost employee, which has 

worked out very good coming out of the negotiations and arbitrations, and address the six to five day of package delivery for six 

days, mail for five days, we can get our cost structure down to 

about $61 billion to $62 billion. That $2 billion in profit every year 

can be applied against our debt, get us back on firm footing, and 

put us in good shape going out in the future. 

The thing we have to be very careful in terms of a country like Great Britain, they charge $0.95 for a stamp now. If we charge 

$0.95 for a stamp, we would completely lose our first class volume, 

and that would bankrupt this organization. So it is a very careful 

balance of pricing, product, taking cost out, more flexibility in 

labor, and addressing these big killer costs like health care. 

Mr. CUMMINGS. Are you frustrated that when you want to go into 

an area, a new area, that you seem to run into obstacles, some of 

them placed by members of Congress? 

Mr. DONAHOE. We run into obstacles. We run into obstacles. One 

of the things that we try to do is focus on core growth. Fred mentioned the package business. It has been great. The carriers have 

been doing a great job; the rural carriers have been doing a great 

job. We have been growing faster than the competition, picking up 

market share, as well as working with the competition, FedEx, 

UPS, DHL. So that has been a real bright spot there. 

We have other areas; trying to merge up direct mail with electronic communication these days, where something that comes in 

your mailbox can actually be scanned by your cell phone and you 

can make a purchase that quick. So we have been able to take advantage of those. 

Where we get a little bit worried and sometimes frustrated is 

suggestions that we get into some areas that we don’t think we can 

really make money, nor compete, nor even really have a part in 

those areas. So there is a little bit of frustration there. 

Mr. CUMMINGS. Thank you very much. 

Mr. DONAHOE. Thank you. 

Chairman ISSA. [Presiding.] The gentleman from Tennessee. 

Mr. DUNCAN. Thank you, Mr. Chairman. I am very interested in 

all the big picture testimony that I have heard today, but I have 

117 

a more specific question I want to ask in just a few minutes, but 

you heard me ask the last panel. Do you know how many people, 

total, you are paying for their health care now, counting families? 

Mr. DONAHOE. I will get you that information. We have health 

care for retirees, health care for currents. But we do have some 

people that we employ who opt out of health care because their 

spouse provides it or something like that. So I will get you that information. 

Mr. DUNCAN. Okay. And, of course, the children would come 

under that plan also. 

Mr. DONAHOE. Yes. 

Mr. DUNCAN. So I just was curious about the total number. 

Mr. DONAHOE. Yes. 

Mr. DUNCAN. But I had a man from Tennessee who has run a 

shipping store and he has participated in your approved shipper 

program for many years, but he recently had to renew his contract 

and was told he can no longer be able to use the click and ship site, 

and would have to go some private sites. And he wrote me this, he 

said: Now I apparently am grandfathered in, but I won’t be listed 

on the post office’s online locator because I use the post office’s 

website to process mail rather than a private vendor. Again, I can 

be an approved shipper for the U.S. Postal Service so long as I 

don’t use their own website to process my mail. This is both stupid 

and ridiculous on the face of it. As I note, I can and, in the shortterm, will have to use a private vendor, and all these issues go 

away except that this level of stupid shouldn’t go unchallenged. 

The post office should have any such programs go to their site first, 

if not exclusively. And someone who has some influence with them 

will have to raise the issue because according to folks at the Postal 

Service, they can’t do anything about it. 

Now, do you know what he is talking about? 

Mr. DONAHOE. I have an idea. I will follow up if you could get 

me that information privately. But what we are doing is this: We 

are actually bidding a system out in the private sector right now 

to replace some of the click and ship software that we have, and 

we are transitioning companies onto that. That is what he sounds 

like he is getting caught in the middle of that, so we will follow 

up. 

Mr. DUNCAN. All right. Thank you very much. 

Mr. DONAHOE. Thank you. 

Mr. DUNCAN. Thank you, Mr. Chairman. 

Chairman ISSA. Would the gentleman yield? 

Mr. DUNCAN. Yes, I will yield. 

Chairman ISSA. I would like to use this time to ask a question 

of the postmaster. We have inquired a little bit about the so-called 

Velassis contract. Is it fair to say that this is a low-profit contract 

or a no-profit contract to the post office? That is what we have as 

figures, is that correct? 

Mr. DONAHOE. I think it is a contract that we feel that we can 

grow revenue with. Velassis came to us with a proposal, as many 

other companies—— 

Chairman ISSA. No, no, I appreciate it, Mr. Donahoe. Profit and 

revenue are two different things. 

Mr. DONAHOE. Right. 

118 

Chairman ISSA. We already heard you are losing money in this 

category. So you are going to get more volume of something you 

don’t make money on at the expense of the newspapers of America, 

basically, because that is really what this contract does, is, to a 

great extent, it takes what people usually pay for in their newspapers, moves it through the postal system, increases your volume. 

But do you exist to move volume or do you exist to provide an essential service? And the reason I ask that is if the service is being 

provided elsewhere by entities, although it is a declining area, entities, they make a profit on it and the private sector, but you are 

going to take it in, not make any money on it. What is the basis 

for it other than revenue? I mean, is it justified against reducing 

the rate of decrease of the post office? 

Mr. DONAHOE. We will make money on this because what happens, Mr. Chairman, is we bring that type of volume in across all 

of our routes. You are spreading that cost across routes and the 

revenue per delivery actually goes up. 

Chairman ISSA. Okay, so let me rephrase that. You are losing a 

lot of money. 

Mr. DONAHOE. Right. 

Chairman ISSA. You don’t currently have a pathway to break 

even. This is about maintaining or increasing volume in a losing 

operation by including nonessential services being provided by others, is that correct? 

Mr. DONAHOE. No, no, no. We will make money on this product. 

We will make money on this product the way the price is structured. What we are saying is our routes are going out today on a 

Monday through Saturday basis, and even in a Monday through 

Friday world. The key for us in the future is revenue per delivery. 

So you have first class revenue and packages at a high end, but 

things like standard mail and periodicals, they still bring revenue 

to the organization. 

Chairman ISSA. You lose money on periodicals. 

Mr. DONAHOE. Yes, we do. 

Chairman ISSA. Okay, so you lose money on periodicals; you lose 

money on nonprofit; you lose money on political mail; you lose 

money on basically all the work you do on behalf of people, all the 

junk mail I get soliciting me to give somebody else money, they do 

it because they make a profit doing fund-raising by direct mail, and 

you lose money on that, is that correct? 

Mr. DONAHOE. In terms of nonprofit and periodicals, we do lose 

money. 

Chairman ISSA. And you lose money on Saturday delivery. 

Mr. DONAHOE. And we lose money on Saturday delivery. We 

would be better off delivering packages on Saturday, mail Monday 

through Friday. It gives us the ability to collapse the volume that 

we have in the system, down 27 percent in the last five years, to 

a much more tighter network. That is why we are making that proposal. 

Chairman ISSA. Thank you. 

We now go to the gentleman from Virginia for five minutes. 

Mr. CONNOLLY. Thank you, Mr. Chairman. 

119 

With respect to the chairman’s point about making a profit, Mr. 

Donahoe, is postal service referenced in the Constitution of the 

United States? 

Mr. DONAHOE. Yes, sir. 

Mr. CONNOLLY. Does it mention FedEx or UPS? 

Mr. DONAHOE. No. When the Constitution was written, they 

weren’t around. 

Mr. CONNOLLY. Does it mention a profit, that that service is dependent on a profit? 

Mr. DONAHOE. Post roads, if I am not mistaken. 

Mr. CONNOLLY. So it is actually a service mission. I am not saying you should lose money, but we have to take into account the 

fact that the Constitution actually mandates your service. 

Mr. DONAHOE. Yes. 

Mr. CONNOLLY. So that makes you unique, does it not? 

Mr. DONAHOE. Well, PAEA also instructed us to move towards a 

more profitable—— 

Mr. CONNOLLY. I understand. I am only talking about the constitutional issue here. 

Mr. DONAHOE. Okay. 

Mr. CONNOLLY. Mr. Donahoe, you announced in February your 

determination that you were going to eliminate, except for parcel 

delivery, I believe, and maybe some other exceptions, six day delivery and go to five, is that correct? 

Mr. DONAHOE. That is correct. 

Mr. CONNOLLY. And you said you thought you had the legal authority to do so at that time. 

Mr. DONAHOE. When we made the announcement in February, 

yes. 

Mr. CONNOLLY. In November, however, prior to that, you signed 

a document dated November 15th to the SEC, part of the Sarbanes-Oxley compliance, in which you said that actually the language requiring six day mail delivery frequency remains in effect. 

Mr. DONAHOE. We believed that at the time. 

Mr. CONNOLLY. So what happened between November and February that changed? 

Mr. DONAHOE. Here is what happened. As you well remember, 

the time ran out on the lame duck session. We were able to see no 

completion with postal legislation. Our board had a meeting and 

our board said you have got to do whatever you can do to continue 

to move to either raise revenues or cut costs moving forward. So 

they asked us to come back with a plan, and we came back with 

a plan in the January meeting with a couple of options. 

For years and years, Congressman, we always assumed that we 

would have no control over health care until we dug in and saw 

that we had options. 

Mr. CONNOLLY. Mr. Donahoe, thank you. Unfortunately, my time 

is limited and I am trying to follow the logic here. So I appreciate 

that. 

So at that January board of governors meeting, did they endorse 

your legal reasoning with respect to your power to go from six to 

five? 

120 

Mr. DONAHOE. We laid out the fact that the way the CR was 

written, we felt we were on firm legal ground to do that and they 

endorsed our move. 

Mr. CONNOLLY. They had a formal vote and endorsed it? 

Mr. DONAHOE. They did not have a vote. We discussed it and 

they said proceed and proceed at haste. 

Mr. CONNOLLY. So when the GAO, in March, responded to my inquiry and opined otherwise, at the time you issued a statement 

saying you disagreed with the GAO, is that correct? 

Mr. DONAHOE. The GAO issued a statement after the CRs were 

both passed in the House and in the Senate. We still are not so 

sure that we agree with the GAO’s statements back on the original 

CR, but after the CR–933 was passed, we felt we were required by 

law to deliver mail six days a week. 

Mr. CONNOLLY. You felt you were no longer required? 

Mr. DONAHOE. No, I am sorry. We felt that we were required to 

deliver, and that is why we made the statement. 

Mr. CONNOLLY. Okay. And what persuaded you, was it the King 

& Spalding memo? 

Mr. DONAHOE. Yes. What happened was we used the same firm 

for both interpretations. King & Spalding gave us an interpretation 

for the first CR, along with our internal legal counsel; the second 

CR internal legal counsel and King & Spalding. We did not want 

to disrupt our customers; we felt it was prudent, because we knew 

there would be a lawsuit coming somewhere, to make the right decision. 

Mr. CONNOLLY. Right. Okay, understood. 

Mr. Chairman, I would ask, if there is no objection, that the King 

& Spalding memo be entered into the record. 

Chairman ISSA. It has already been entered. 

Mr. CONNOLLY. Oh, great. I thank the chair. 

I am going to run out of time. I want to pick up on Mrs. 

Maloney’s question about metrics, because one of the things, frankly, a lot of us actually would like to be supportive of reforms that 

can streamline and save money and make us more efficient, but in 

looking at decisions made, they are sometimes, frankly, puzzling in 

terms of the metrics. What analysis, what empirical data is going 

into making decisions to close this but keep that open, or to move 

to a leased rent in New York and sell a building you own? And I 

am wondering if you can provide the committee with some kind of 

background by way of what is informing you to make decisions 

under the rubric of cost savings, and are these net decisions? Are 

you also taking into account the fact that they may also be associated with the loss of revenue, so that the net savings may be something else again? 

Mr. DONAHOE. Well, all of those decisions are based on the fact 

that we have too much infrastructure in the organization, and the 

infrastructure boils down to two things. If you want to maintain six 

days and all the infrastructure, if you are a customer, you have to 

pay for it. If you want to maintain it, if you are an employee, you 

have to take lower wages, because that is the only differential. 

What we have done from a real estate perspective, to give you an idea, in the last six years we have sold $1.1 billion worth of real 

estate. The chairman mentioned that he would sponsor a seminar 

121 

here, I guess you would call it that, where we would come in. I 

would be more than happy to walk through, for you and your staff 

and anybody here, exactly our approach on large facilities, small facilities, lease versus buy, and all of the opportunities we have in 

there to make decisions. 

Mr. CONNOLLY. I would welcome that. 

Chairman ISSA. I look forward to moving forward in a forum environment. 

I might note for the gentleman from our founding State that the 

Constitution reads that the Congress shall have the power to, and 

in this case, to establish post offices and post roads. I will take note 

we no longer establish post roads, and there is no constitutional 

mandate to have a post office. It is, in fact, a tradition, it is an establishment of Congress, and, most importantly, it is something everybody on this dais believes in and wants to make work. But I 

think for purposes of citing the Constitution, we have the ability 

to eliminate the post office, spin it off as a completely private entity. We have a lot of abilities. I do believe it can be fixed, and I 

think that is the reason that we have the hearing here today. 

With that, I would like to go to the gentleman from Wisconsin 

at this time. Or, Mr. Cartwright, the gentleman from Pennsylvania. 

Mr. CARTWRIGHT. Thank you, Mr. Chairman. 

Mr. Donahoe, the Postal Service was required by the Postal Accountability and Enhancement Act to make fixed annual payments 

of between $5.4 billion and $5.8 billion over 10 years to prefund the 

costs of future retiree health benefits accrued by current employees 

and retirees. As a result of its deteriorating financial condition, the 

Postal Service defaulted on $11.1 billion in prefunding payments 

for fiscal years 2011–2012. The Postal Service has also stated that 

its financial condition may prevent it from making its $5.6 billion 

due in September. 

Now, many have criticized this prefunding requirement. In fact, 

you said in your statement that it is set at unrealistic levels, is 

that correct? 

Mr. DONAHOE. I think that it is, but as I have also said, I think 

there is a solution to eliminate prefunding with our own health 

care. 

Mr. CARTWRIGHT. The fact is that no other business or government entity has to face this kind of prefunding requirement, am I 

correct in that? 

Mr. DONAHOE. Mr. Dodaro said that the Federal Government, 

through the military, does. I think that most companies that provide retiree health benefits are required in some way, shape or 

form to fund them. 

Mr. CARTWRIGHT. Mr. Donahoe, do you agree that the prefunding 

mandate, as it applies to the Post Office, is unfair? 

Mr. DONAHOE. I think it has hurt us financially. But I think it 

is the responsible thing to do. If we expect, as employees, to have 

health care in retirement, we have to pay for it. It cannot be funded by the taxpayers. And I think that we owe it to this body to put 

our plans forward. I think Fred and I both agree, there is a solution here. And we would ask Congress to act on those and give us 

the opportunity to compete health care. 

122 

Mr. CARTWRIGHT. I want to jump in here, Mr. Donahoe. In April 

2012, the Senate did pass the 21st Century Postal Service Act, 

which contained a provision easing this burdensome prefunding 

payment requirement. The provision would have required the Postal Service to fund 80 percent of the actuarial liability of retiree 

health costs over 40 years. 

Mr. Donahoe, what financial relief would the Senate’s provision 

provide for the Postal Service, and do you believe more can be 

done? 

Mr. DONAHOE. Yes. The Senate provided some relief based on 

changing the actuarial formulas and requiring us to only pay 80 

percent. What we would propose, and we would ask Congress to sit 

down and look at our plans to actually move away from the current 

health care structure we have now. It is much more efficient, it includes Medicare and we wouldn’t need to be arguing about 

prefunding at all. We think we have a solution. 

Mr. CARTWRIGHT. President Rolando, I have a question for you. 

The media often reports that labor costs represent a much higher 

percentage of the Postal Service’s total expenses compared to competitors. And they frequently cite an 80 percent figure at USPS. 

Can you explain for us why the USPS’s labor costs are higher than 

their competitors? 

Mr. ROLANDO. Yes. Actually that figure has come down about 10 

percent over the last few years. The answer is simple: we are very 

labor intensive. We go to every house six days a week. You can 

lower that labor cost. You could eliminate delivery altogether and 

have everybody come pick up their mail at the post office. But 

again, we are here with a universal service obligation. We are not 

looking to turn this thing into a corporate profit machine. 

Mr. CARTWRIGHT. Mr. Rolando, do you feel that the percentage 

of labor cost is appropriate for the kind of service that we get from 

our national Postal Service? 

Mr. ROLANDO. Absolutely. The productivity, and I think the Postmaster General has said this many times, the productivity is not 

the problem. The employees are working harder than ever. Their 

street time has increased by 25 percent over the last few years. 

Mr. DONAHOE. If I can comment on the labor, if you don’t mind. 

Mr. CARTWRIGHT. Please. 

Mr. DONAHOE. I think an interesting thing to look at, I mentioned before when we were talking about total costs, the goal 

would be to get down to a $62 billion cost level. That would put 

us in reasonably profitable territory and give us the opportunity to 

pay debt down. But even at that level, our labor costs still consists 

of about 76 percent of all costs. Because as you shrink your labor 

costs down, we also are going after a lot of the other non-labor 

type, non-personnel type costs, transportation, fuel, things like 

that. So to the first point, we are labor-intensive. The key is 

shrinking the pie, it is not worrying about what portion of the pie 

is in there. 

Mr. CARTWRIGHT. Thank you very much. 

I yield back. 

Chairman ISSA. Thank you. 

123 

Mr. Donahoe, if you were a private company, and you defaulted 

on your health care for your retirees, the Federal Government 

doesn’t step in and provide the money, do they? 

Mr. DONAHOE. No. We would not have health care for the employees. 

Chairman ISSA. Okay, and you don’t pay your health care for retirement, it is substantially paid by the ratepayer, is that right? 

Mr. DONAHOE. I pay a portion of it, 30 percent. The ratepayers 

pay 70. 

Chairman ISSA. So the only reason that we could just forego that 

money would be if we didn’t mind having the taxpayer pick up 

what the ratepayer and the employee do not pick up eventually. 

We have already had a legal decision that you would still get it, 

even if you don’t pay into it. You are aware of that, right? 

Mr. DONAHOE. I think we are absolutely, positively responsible 

for paying for our own health care. 

Chairman ISSA. I agree. You gave a figure of 70 some percent, 

your goal to get to $62 billion. What would be the head count, the 

full time equivalent, a number of personnel today versus if you 

reach that goal, forgetting about how you reach it? How many people would work for the Post Office? 

Mr. DONAHOE. We think that by 2016, with what we have laid 

out from a consolidation standpoint, including the six to five day 

change, it would be about 400,000 career employees, with about 

60,000 non-career full-time employees. They are a 40-hour person 

that works at a substantially lower cost. 

Chairman ISSA. And that is a hundred and how many thousand 

less thank you have today? 

Mr. DONAHOE. Right now, as we sit here today, 497,000, it is 

about 97,00 people. 

Chairman ISSA. Okay, so you need 100,000 less people, round 

number. 

Mr. DONAHOE. Yes. 

Chairman ISSA. Mr. Rolando, are you prepared to lose your 

share, obviously you are only one of the unions, of that 100,000 

people through attrition, retirement and buyouts? 

Mr. ROLANDO. Well, again, we don’t agree with that downsizing 

strategy. 

Chairman ISSA. Do you agree that you need to pay your health 

care costs? You already said you don’t want a bailout. You don’t 

want taxpayer money. You do agree that going to actuarial, you are 

still going to have about a $14 billion loss. How do you propose to 

make it up? 

Mr. ROLANDO. As I said earlier, we believe that the downsizing 

strategy is what is going to put us in a position of insolvency. It 

would actually increase our chances of that happening. 

We believe that we need to maintain these networks. 

Chairman ISSA. So you are maintaining your $14 billion, after 

adjustment, net loss. Who is going to pay for it? You have already 

said you didn’t want the taxpayers’ money. You are not bankable. 

Mr. ROLANDO. Who said we need the taxpayers’ money? 

Chairman ISSA. You said you didn’t need the taxpayers’ money. 

Mr. ROLANDO. Yes, that is correct. 

124 

Chairman ISSA. So the bottom line is, you have no money, you 

are insolvent. Whether you agree or disagree with the kinds of 

changes the Postmaster and his predecessor have done, they have 

been done. What is your end game to get out of this? I made it very 

clear from the dais, we are happy to work with the Postmaster and 

the board on all kinds of changes, including, obviously, consideration of health care, actual health care changes that would be chosen in alternative to the current one. Obviously, rescheduling the 

actuarial payments necessary to meet the obligation of your current and future retirees. 

But you have a $14 billion loss. I called you in here today, not 

to beat you up, but to make you tell us how do you get there. If 

we go from six to five and reschedule your health care today, if we 

do that today, we take the loss, recognized loss from $16 billion to 

$12 billion, we take it down by $2 billion by rescheduling, we take 

it down another $2 billion by getting rid of six day. If we did both 

of those, it has dominated most of the time the ranking member 

and I and others have spent, we get you to a $12 billion loss. 

If we go to cluster boxes and quickly move America to secure 

storage, to where your letter carriers put a package, particularly 

medicines and so on, they put it in a lock box instead of trying to 

slip it through a chute which it doesn’t fit through most of the 

time, we save $6 billion. That takes you from $12 billion loss to a 

$6 billion loss. But it does substantially reduce the number of letter 

carriers, through efficiency, not through a cut in service. If we did 

those things today we could get you to a $6 billion round loss. 

Are you supportive of those changes, putting in cluster boxes so 

that there would be secure storage, so that your letter carriers, 

your remaining letter carriers, would go to clusters, they wouldn’t 

go to chutes at 37 million homes? Yes, it reduces the number of 

union employees. But yes, it also saves the Post Office. Can you be 

supportive of that? 

Mr. ROLANDO. Yes, sir, we are very supportive of whatever size 

workforce it takes to make the Postal Service have a plan for 

growth. We don’t believe those savings exist to go from six to five 

day. To the contrary, we think it would cost us money. We do believe, if the Congress will help us out with the prefunding and give 

us what we need to negotiate the health benefit changes we need, 

which will certainly decrease the liability in prefunding, address 

the pension surpluses, give us some pricing relief and some of the 

other things that we have been discussing in these bills the last 

couple of years, that we will be fine, without destroying our networks. We are prepared to have whatever workforce, whether it is 

more or less, to make sure that the Postal Service can grow into 

the future. 

Chairman ISSA. You didn’t answer the question. I appreciate all 

that, and we want to work with you on all that. But the cluster 

boxes are important. Because if the Postmaster, who has currently 

dropped to a dribble the amount of these conversions, was given a 

mandate to make these changes, to supply secure storage for every 

American, so that in fact over the next few years, you transition 

to where Mr. Cummings, who I think has a chute at his house, my 

old house I grew up in, a chute in the house, if we went to a cluster 

125 

box but knew our medicine was locked securely in there, the Post 

Office would save $6 billion by CBO estimate. 

Can you support that? That doesn’t reduce service. In fact, for 

105 million people, it doesn’t change service, because three out of 

every four people already have a box they walk to. Can you support 

that? Because it affects letter carriers more than anybody. 

Mr. ROLANDO. I can’t speak to alleged savings. But I can tell you 

this. If the Postmaster General decided that that is what they were 

going to do with new, current, whatever deliveries, and whatever 

they had to deal with with the public regarding that, we would certainly conform to whatever workforce was necessary to do that, of 

course. 

Mr. CUMMINGS. Would the chairman yield? 

Chairman ISSA. Of course I would yield. 

Mr. CUMMINGS. I usually don’t do this, but I am listening very 

carefully. 

Chairman ISSA. You always listen very carefully, Elijah. 

Mr. CUMMINGS. Mr. Rolando, I am trying to really make sure 

that your testimony is clear. But it is not really clear to me. I want 

you to clarify this. It is based on what the chairman just asked. We 

are trying to figure out, all of us up here know that there is probably going to be some downsizing. We call it right-sizing. And there 

is nobody that I can think of that wants to have jobs more than 

I do. I want jobs. I want jobs. I want to keep as many people working as possible. 

The question becomes, though, I have been listening to what you 

have been saying about maintaining the networks, that is what you 

call them. But if you have more people than the work, the work 

to do, I am trying to figure out, what is the value of the network 

if it possibly destroys the very entity. I think this question goes to 

your credibility. Because we are trying to, I think the chairman has 

been fair, he said okay, help me, help me to help you. We need to 

know that. What is the answer to that? Because we want people 

working. But at the same time, we don’t want to destroy the entity 

at the same time. 

And the question is, these networks, if the networks don’t have 

the work to be networking, am I missing something? 

Mr. ROLANDO. Not at all. We are interested in the Postal Service 

being able to grow and replace the revenue that we have lost 

through the different technology, recession, whatever it might be. 

We want to replace that revenue. 

We want to maintain the networks to the extent we need those 

networks to accomplish that type growth, as I spoke to earlier with 

regard to e-commerce and so forth, and the unique advantage that 

we have, the competitive advantage in the ability to adapt to the 

way people shop in the future, whether that is six days a week, 

seven days a week, five days a week, whatever that ends up being. 

But we don’t want to start out with a downsizing strategy of 

changing a network, eliminating a day of delivery, opening those 

mailboxes to competitors right off the bat, before we even enter 

into that market. Whatever that workforce looks like afer we have 

accomplished that and see what our place in the retail market is, 

of course that is what we are going to do. Because we have, of 

126 

course, an interest in the solvency of the Postal Service and the 

growth of the Postal Service. 

Mr. CUMMINGS. Just this last question. I guess what I am trying 

to get to is, do you believe in the concept of right-sizing, and rightsizing as I have said many times, with compassion? 

Mr. ROLANDO. Let me tell you how compassionate it is. We have 

lost 193,000 jobs in the Postal Service in the last few years. My 

union is probably 40,000 of those jobs. That was done jointly, 

NALC and the Postal Service, put aside the manuals. We were 

going through the recession, and we jointly adjusted and eliminated thousands and thousands and thousands of routes and jobs 

in order to right-size. So we know first-hand what right-sizing is 

all about. 

Mr. CUMMINGS. Are you saying that enough right-sizing has now 

been done? This is my last question, Mr. Chairman. 

Are you saying that you believe that we have now had rightsizing? And you will never hear me say that the unions phenomenally cooperative. I think the Postmaster would say the same 

thing. 

Mr. DONAHOE. I agree 

Mr. CUMMINGS. You all have been phenomenal. But I am just 

trying to get to where you are, so I can understand it. You are saying that perhaps the right-sizing now is done? Enough has been 

done? 

Mr. ROLANDO. No. I didn’t say that. 

Mr. CUMMINGS. What are you saying? 

Mr. ROLANDO. I am saying let’s look and see what we are going 

to do with the retail market and see what kind of workforce we 

need to grow the business. 

Mr. CUMMINGS. Okay, thank you. Thank you, Mr. Chairman. 

Chairman ISSA. Thank you. I think you helped make it very 

clear. 

The gentleman from Missouri I believe is next in line, next in 

time and has a little extra time. 

[Laughter.] 

Mr. CLAY. Thank you so much, Mr. Chair. And thank you for 

conducting this hearing. 

Let me start with the Postmaster. In an April 11th, 2013 

Bloomberg article, Postmaster General Donahoe, you were quoted 

as saying ‘‘Without being able to cut back to five delivery days from 

six, the Postal Service will take its board’s advice and ask its employee unions to renegotiate multi-year contracts.’’ 

Mr. Donahoe, have you asked the postal unions to renegotiate existing contracts? 

Mr. DONAHOE. I sent the union presidents and the management 

association presidents a letter yesterday. I asked them to please 

consider that. What I would like to do is sit down before we do anything as a group and have a session where we kick around some 

ideas. There may be some opportunities in there we should look at. 

Mr. CLAY. So that will be, renegotiating existing contracts. Now, 

I hope that the management of the Postal Service realizes that we 

are kicking numbers around, but these are real people, real lives, 

who have planned their futures and those jobs mean something to 

127 

them. I am going to get Mr. Rolando into the discussion too. Have 

you thought about that? 

Mr. DONAHOE. Yes. I come from western Pennsylvania, where 

our steel industry dissolved right in front of everybody’s eyes. We 

lost 100,000 jobs in four years there. I have cousins to this day that 

are my age, 57 years old, who have never been able to get a reasonable-paying, full-time job again. I do not want that to happen to the 

Postal Service. As a group, I will commend the unions for being 

very good as a management associations to be very flexible. We 

have made some big, big changes. But there are some things we 

still need to do to get us to a point where we can get the costs 

under the revenue line, pay the debt down and provide a very good, 

secure environment for people going forward. 

I am proud of the fact that the 200,000 jobs that we have reduced in the last six years, we have never laid anybody off. That 

goes back to my western Pennsylvania roots, where I saw families 

get crushed because people didn’t have that consideration. 

Mr. CLAY. Two years ago, on April 11th, 2011, the Postal Service 

announced that a tentative agreement had been reached with the 

American Postal Workers Union that would save the Postal Service 

an estimated $3.8 billion over the life of the contract. Mr. Donahoe, 

if the Postal Service is slated to save an estimated $3.8 billion 

under this agreement, how much more do you reasonably believe 

could be saved by renegotiating that agreement, and what types of 

provisions would have to be renegotiated to achieve additional savings? 

Mr. DONAHOE. I think that the contract that was signed with the 

APWU is a breakthrough contract. I think that Mr. Guffy stepped 

up in a very courageous way and did for his members, both present 

and future, the right thing in terms of employment. 

What I would propose, again, and as I have said, I don’t want 

to talk about any ideas that we have publicly because I think it is 

disrespectful until we have a discussion with the union presidents 

and the associations. We may find coming out of there that we 

can’t agree on anything. But there may be something there that we 

should at least talk about going into the future. 

That said, this request from the board, direction from the board 

to me on the renegotiation is again a concern from the board that 

if we don’t do something, we will run out of cash. We have heard 

this discussion today. Passing comprehensive postal legislation can 

resolve this. Our business plan gets us back to profitability without 

having to do anything until we get with the unions again in 2015, 

when the regularly scheduled talks begin again. 

Mr. CLAY. Additionally, both the National Association of Letter 

Carriers and National Postal Mail Handlers Union recently concluded their arbitration processes with the Postal Service and 

agreements with both unions are now in place until 2016. 

Mr. DONAHOE. Yes. 

Mr. CLAY. Did either of these agreements provide significant savings? 

Mr. DONAHOE. Yes, they did. With the Carriers’ agreement, I 

think we reached a breakthrough on flexibility for what we call city 

carrier associates. I think that gives us the ability to deliver packages on the weekends in a very affordable manner. I think that 

128 

was a breakthrough. I also think that if you take a look at what 

we have been able to come up with with the Carriers going forward 

in terms of affordable career employees for the future, that sets a 

good tone. 

Now, saying that, I will also say, and I know it is a hot spot with 

people, I think it is critical that we as an organization consider defined contribution retirement systems for our people going into the 

future. I know, and we have done a lot of work on this, it scares 

people sometimes. But with the uncertainty in the Postal Service 

in the future, I think that we could assemble a very good benefits 

package for retirement that is not only good for a person in the 

shorter run, 20 years, but is transportable. 

Mr. CLAY. And you are probably going down the correct path, because that is the model that most American businesses have taken. 

Mr. Rolando, you have sat through the testimony today in this 

hearing. We know that the business model has to change in order 

for us, for the postal system to survive. Has there been any contemplation of replacing the FEHBP with the Affordable Care Act? 

Under the law, which is about to be implemented in 2014, the Affordable Care Act says that if an employer does not provide health 

insurance, then they will be penalized, and then perhaps if an employee doesn’t have it, or an American doesn’t have it then they 

will be penalized. Has anybody done a balance sheet on that? 

Mr. ROLANDO. Let me start out with your first comment. With 

regard to the business model, we do believe there needs to be a 

change in the business model. We just one with some vision for the 

future, for growth, not down-sizing. 

With regard to the health care and the whole business about the 

agreement, when I saw that from the board of governors, it had an 

insulting component to it that I won’t get into. But it had another 

component that it was unnecessary. A major part of the arbitration 

award that we got with the Postal Service was a memorandum of 

understanding about health care that allows us to pursue. That is 

where all the potential, as the Postmaster General has alluded to, 

that is where all the potential is for further savings with regard 

to our collective bargaining agreement, is what we can negotiate in 

terms of how we handle health care. 

We have a task force that came as a result of that memorandum 

of understanding. That is why it is unnecessary, we need to just 

get busy on that task force. 

With regard to the Affordable Care Act, our arbitration award 

provides for all new employees, our non-career employees, currently 

when they are hired, they have no health insurance and no retirement. Every new employee is non-career. At such a time as the Affordable Care Act comes into play, part of that arbitration award 

indicates how those individuals will be insured pursuant to the Affordable Care Act and the required contribution by the Postal Service by virtue of that law. 

Mr. CLAY. Let me toss this out for both of you. That is the sticking point for this Congress, that is the prepayment of the health 

benefit. Apparently we are stuck on this side of the table. Because 

one side won’t give. And so that is the hurdle, the major hurdle. 

I would love to hear from both of you. What do we do? Let’s start 

with the Postmaster. 

129 

Mr. DONAHOE. As we have said before, I think that the one thing 

that the NALC, the APWU and the Postal Service are in agreement on is exploring, as Fred just mentioned, with the memorandum of understanding, the Postal Service taking over the full 

administration of its own health care plan, including for the retirees. Again, there are different models out there. We are flexible, 

Fred has mentioned in his testimony that they would like to see 

it done through the FEHBP. As long as the outcome is what the 

outcome needs to be, and that is elimination of the prefunding, providing a very good health care plan at a much more affordable competed price, not just out there with the 217 plans now, and retiree 

coverage, I think it would be a gigantic breakthrough, not only for 

the Postal Service but the rest of the Federal Government. The rest 

of the Federal Government faces the same problem we do. 

Mr. CLAY. Mr. Chairman, can I have an additional minute? 

Chairman ISSA. I certainly think that ten minutes was not nearly 

enough. 

[Laughter.] 

Chairman ISSA. I certainly think Mr. Rolando does want to comment on his view on the health care, FEHBP and so on. So I will 

allow time there, of course, as is necessary for the gentleman from 

Missouri. 

Mr. CLAY. Thank you so much. 

Mr. ROLANDO. You asked what the Congress should do, because 

you are stuck. We have one major area of dispute with the Postal 

Service, I think. We think dealing with the five-day, we would lose 

$2 billion, they think that maybe they would gain $2 billion. We 

see it as down-sizing, we want a vision for growth, 

Beyond that, it is beyond me why the Congress can’t consider, we have $45 billion in that fund. Nobody else has to do it. We can pay 

as we go. There are all kinds of options to earn interest on that 

money and to continue to put money in that fund as we become 

profitable. 

If you look at the pensions, even under the anti-business OPM 

rules that we have for our pension funds, we are 99 percent funded 

in civil service. The average agency, I believe, is 40 percent funded. 

We are $3 billion overfunded in FERS. If you use the independent 

companies assumptions of how you are supposed to do that, the fair 

allocation between the old postal department and the U.S. Postal 

Service, we have surpluses of $50 billion to $75 billion in civil service. If you use the current OPM assumptions and apply just postal 

assumptions, you will see that we have a $12 billion surplus in 

FERS, and we are about 99 percent in civil service. This is a 

wealthy broke company in terms of pensions and health care and 

so forth. 

So if we could go forward and fix the pre-funding, address the 

pensions, give us some pricing freedom, allow us to do what we 

need to do with health care, maybe open up some products and 

services, I think that we have a vision for the future that will make 

the Postal Service flourish for years to come. And I don’t see where 

it is a partisan issue. This is America’s postal service. 

Chairman ISSA. I thank you. Would the gentleman yield some of 

his time to me? 

Mr. CLAY. Whatever is left, Mr. Chairman. 

130 

[Laughter.] 

Chairman ISSA. Just one follow-up. Mr. Clay was asking a series 

of questions and you were very generous in talking about the 

health care component. It is an area that although you disagree 

slightly, you agree a great deal. As a rhetorical question, knowing 

that the rank and file would ultimately make the decision, if the 

Federal Government was prepared to hand you the $45 billion in 

prefunding, and allow you the liberty of making the many changes 

that you together would negotiate in your contracts, are you prepared to leave the Federal Government off the hook for any eventual shortage? In other words, take responsibility to make sure 

that future payments match future obligations, both for retirees 

and current employees. 

Is that something that labor would consider doing? Mr. Clay 

rightfully said we should all agree on this, it is a sticking point. 

One of the sticking points is that what if 20 years from now we 

get asked to give $50 billion because there isn’t enough there? Obviously the $45 billion would earn more money in a conventional 

investment rather than Treasury bills. Obviously the changes the 

Postmaster has asked to do with Medicare taking primary position 

and then what appears to be a mutual agreement that you could 

bid out more efficiently than you do on behalf of your various 

groups of letter carriers, is that something that you would be prepared to do? 

Mr. ROLANDO. That is one of the many items that we need to 

talk about in the task force that involves a whole lot more than you 

and me and the Postmaster General as far as the actuarial effect. 

That is why we put the task force together. 

Chairman ISSA. I can only say that those bold moves, like the 

gentleman from Missouri is suggesting, we would love to be able 

to say we have a request and a concurrence, so that we could consider putting those into legislation as a win-win. I have been unfair 

to the gentleman from Wisconsin. 

Mr. CLAY. But we are getting close to putting out a bill. 

Chairman ISSA. I think we are close. The ranking member and 

his team and our team worked pretty well in the last Congress to 

get close. The reason we are not putting one out right now is that 

we would like to get even closer to what we need. 

Mr. CLAY. With the two sides here. 

Chairman ISSA. Not just with these two sides, but quite frankly, 

with the Senate, who started off with no pathway to savings. But 

they did have some great referrals. I think we came in on a bipartisan basis with some savings, and I think you see some of it here 

today. We do look forward to that. 

Mr. Pocan, I am so sorry that you have been relegated to the 

most important position, one that gives you the anchor position on 

the first panel. 

[Laughter.] 

Mr. POCAN. Thank you. Thank you, Mr. Chair, and than you, 

gentlemen, for being here. 

I do have some questions for Mr. Donahoe in a second about 

some of the questions I have as you are looking at some of the savings. But Mr. Rolando, I am going to paraphrase something, and 

tell me if I am fair in this. Just briefly, what you are essentially 

131 

saying is, you are concerned that we keep the core of the services 

that people have expected all my lifetime, but the important part 

is, if we need to find ways to keep those core services, additional 

revenue or other ways, we should do that, rather than what some 

people might call some of the proposals have been more austerity 

proposals. You want to keep the mission and the core mission of 

the Postal Service to be what it has been, but how we best supplement that, you are open to having those conversations. 

Mr. ROLANDO. That is correct. We want to maintain the universal service for all Americans, regardless of where they live, how 

much money they make, what was intended. 

Mr. POCAN. Thank you. Mr. Donahoe, I have a couple of questions. One in the health care area. I know there have been conversations about how you are potentially changing things. So do 

you presently have any postal-specific FEHBP claims data on 

health premiums? 

Mr. DONAHOE. We have looked at that. I am going to have to get 

back to you on that, because our people have talked to the OPM 

on that. We will have more information coming up soon with the 

health care plan we are sponsoring for non-career people, 

Mr. POCAN. How about any postal employee demographic information specific for health care? 

Mr. DONAHOE. We can provide you that information. We have 

that. Generally, we are a little older group than most of the rest 

of the Federal Government. 

Mr. POCAN. If you could get us that information, Mr. Chairman, 

I would appreciate having that. 

A second question is something I am hearing back home on mail 

sorting. There has been a talk about a pilot program of moving 

mail sorting from Madison to Milwaukee. The concern we have in 

our area is, is that going to provide a delay in some of the service. 

One, is there a pilot program being proposed in my area, and two, 

how do you ensure that you don’t have a delay that I think people 

are anticipating if this would happen? 

Mr. DONAHOE. I mentioned in my testimony we have consolidated 300 facilities. We have another 120 under review right now, 

and some are actually being consolidated as we speak. 

I am not positive that Madison is in this year, 2013, or if it is 

going to be in 2014. I know we are looking to consolidate. What we 

are trying to on the 2014 is figure out how to make the consolidations and maintain a degree of overnight service. That is what we 

heard back from customers. That has been the big complaint. With 

the ones we are doing now, we were able to make those changes 

in maintaining overnight service. 

Mr. POCAN. If you do have any specific information in that area, 

I would like to see it. 

Mr. DONAHOE. How about if we have somebody come up and sit 

down with you and walk through everything? 

Mr. POCAN. I would appreciate that. It would be helpful. Because 

we do have some providers in our area, for example, a biotech firm 

that the average product they have is one-fifth of one drop of a 

product that breaks down DNA. They do all their overnight shipments with dry ice. I just want to make sure we have that service 

still for them. 

132 

Mr. DONAHOE. Yes. 

Mr. POCAN. The final area is around the Saturday delivery. The 

question is, I know that FedEx, their Smart Post program is the 

fastest growing sector of their market. It is based out of Wisconsin. 

How they are doing it, it is about 19 percent up, I think, from a 

year ago. Part of that is, we are doing the final mile. We are delivering that last mile of delivery of service. 

If we are not delivering to every single home, which gives us that 

advantage in doing that, how could that affect that service as well 

as our competitiveness with other firms, if we are not hitting every 

single home on Saturdays? 

Mr. DONAHOE. What we have looked at is employing the same 

kind of technology FedEx and UPS use, which is dynamic routing. 

When we sort the packages on Saturday for the carrier routes, the 

software packages would actually put them in efficient delivery 

order. So the people that are now lower cost employees would work 

on Saturday and they would deliver the packages in those areas. 

Mr. POCAN. And you have actually got some kind of financial 

model? 

Mr. DONAHOE. Yes, we have done all the financial modeling. 

Mr. POCAN. If we could just set that up, I would really appreciate 

it. Especially around the mail sorting. That is probably the issue 

back home I am getting the most often. 

Mr. DONAHOE. Well, sir, the health care, the Madison and go 

through the dynamic routing for you. 

Mr. POCAN. Thank you very much. 

Chairman ISSA. I thank the gentleman. 

Mr. Donahoe, I think if I didn’t ask you briefly a couple of questions on now multiple ricin attacks, that we believe have occurred, 

I would be remiss. I hope to the extent you are prepared, I hope 

you can answer. We understand, obviously as many as two Senate 

offices at this point, plus a potential letter to the President. Are 

there steps that you are taking to protect your employees and to 

at the same time see if there is any additional sources of this material at this time that you can make us aware of? 

Mr. DONAHOE. Sure. What we do, Mr. Chairman, as you know 

we have had these incidents before, going back to the anthrax attacks over 10 years ago. What we learned back then was the importance of having protocols in place where, anything happens, we 

react. Over the course of years we have had some situations where 

there have been ricin scares. Until this date, there has never been 

actually proved that have gone through the system. We have a 

process that we make sure that our employees know, we can actually track the mail back through the system to double check from 

an employee health standpoint where we are. 

Another thing we have done with our inspection service, we have 

the absolute best detection systems going. So our inspection service 

works in concert with the FBI not only to detect what we have, but 

they also work back to catch these criminals. 

Chairman ISSA. Thank you. We often talk about rain nor sleet 

nor dark of night. I think the fact that people would be so vicious 

as to put a deadly poison that can poison all along the way is another risk that we often don’t think of postal carriers as being involved in. 

133 

Today we did not cover the processing centers, and at a future 

time obviously they are a major factor. Quite frankly, Mr. Rolando, 

the one that I am most concerned about, I believe letter carriers 

can be worked out on an attrition basis, where processing centers 

are a little bit more specific so that you can have a disruption if 

you are doing the right thing on right-sizing that portion, 

I want to ask you just one closing question, Mr. Rolando. Do you 

believe that the post office should deliver on Saturday and Sunday 

if it can profitably do so? 

Mr. ROLANDO. Yes. 

Chairman ISSA. Now, the Postmaster has on different occasions, 

not just this latest one that prompted today’s hearing, has proposed 

the idea of finding ways to have premium services on Saturday and 

Sunday. The current proposal, which we are respectful on this side 

of the dais, too, that sometimes you just take the lawyers’ opinion 

and you live with it, but the current situation is one in which the 

Postmaster proposed a $5.60 of getting a Saturday flat envelope delivered. 

My question to you, and it is to you because you represent 

200,000 letter carriers, you represent the largest single portion of 

the workforce and the one that we relate to the most, do you believe that goal should be to find the right price, so that in fact we 

could have seven-day delivery, not six, but seven, but make sure 

that it is paid for, so that whether it is a bottle of medicine, pain 

patches or other things that one of our members referred to, that 

in fact there could be a scheme in which the Post Office could provide, to the greatest extent possible, to every point in America, 

every single day of the week, as long a they can do so profitably? 

In this day and age, would you support an attempt for the Postmaster to find the right price for that delivery? 

Mr. ROLANDO. I believe pricing should certainly cover our costs. 

It certainly doesn’t do that now. I think we have to be real careful 

with what that proposal entailed with not having letter mail delivery when you are delivering parcels. I believe that could, having 

the shared network of keeping costs down with the overhead, be a 

problem. 

Chairman ISSA. I appreciate that, although I believe letter, not 

called letter, but the flat pack, the express mail, was envisioned. 

I think, Mr. Donahoe, it was like $5.60 for a letter. 

Mr. DONAHOE. That is a priority flat rate letter, yes. 

Chairman ISSA. Maybe I will pose this to you to keep the dialogue on both sides. If you were given a mandate to find the ability 

to deliver all mail but have a premium Saturday stamp, what 

would that price look like at optimum volume for Saturday or Saturday and Sunday? Less than $5.60, more than 47 cents? Can you 

give us a target number? 

Mr. DONAHOE. Off the top of my head, it would be awfully hard. 

I think the point of the $5.60 for a priority envelope, we would 

treat that like a package. That is why we said that would be the 

way we go with it. I think what would happen would be, the mailers, whether a first class mailer or standard mailer, they are very 

price sensitive. 

As we have discussions of price goes up to keep Saturday or get 

rid of Saturday and keep prices down, the keep prices down winds 

134 

hands-down. So I wouldn’t even venture a guess to say that people 

would pay more other than your point of a priority envelope at 

$5.60. I don’t think we would see a ton of volume there, because 

most people said, hey, I would do without Saturday delivery. 

Chairman ISSA. I will close with just a comment on this. When 

I send a card to my mom or other people and I don’t know whether 

it is going to get there on Friday or not, and somebody says it is 

a dollar to make sure that if it doesn’t get there on Friday, it gets 

there on Saturday, I think every son in America would put that 

dollar stamp on. That is one of the reasons I mentioned it is, the 

what-if. Maybe it won’t get until Monday because Saturday delivery, when you send it on Friday, because you forgot, even though 

you think you are a good son, that is a dollar wasted. You send it 

on Wednesday and it gets there on Friday, and you put the stamp 

on because you want to be sure, that is a dollar wasted. But then 

if you are aggregating costs, it could in fact represent a very affordable price for the what-if. 

I mention that because in the private sector, we have variable 

pricing for variable services. I think one of the challenges that the 

letter carriers are facing, that the ranking member and I are facing 

is, we don’t want to arbitrarily tell you to stop doing six-day. What 

we want to tell you is, we want to work with you, we want to be 

your partner in maintaining quality living wages for your Federal 

employees doing the public service, do it within a budget without 

appropriation if at all possible. We hope without any appropriation. 

And maintain the service. 

I have serious doubts about the innovation leading to vast new 

products. But having said that, in our bill we did have a fund to 

expand innovation. And we will in the next bill. 

So we called you here today because we thought the American 

people deserved to hear about this confusion between five-day anticipated and six-day, which we will continue to have at least until 

October. I have a long list of things my staff has given to beat you 

up, to be honest, Patrick. And I considered using every bit of it. 

But to be constructive, I know you have a tough job. I have been 

a CEO, I know what it is like when you have rising revenues and 

you just throw money at it, everything looks great. 

Sadly, I also was sitting on the board as we went through some 

tough times. And you have been through some tough times for your 

entire time, both in the number two position and number one. 

Mr. Rolando, I don’t know what it is like to represent hundreds 

of thousands of people. I do know what it is like to be a rank and 

file union member and to look to your union and say, why am I 

giving back? Why are things not always better? 

So my hope is that this is the beginning of a cycle where by the 

time October comes this year, we will have at least language that 

can pass out of the House that can maintain the respect for people 

who already work or are already retired from letter carrying and 

other services for the Post Office, but meet the requirement of getting a pathway to break even. If we can do that, I think we set the 

stage for America believing that there are adults on this side of the 

dais, which according to current polls, they don’t believe. That is 

one of the goals I have. 

135 

So I will throw away all the other questions. I have a couple that 

I would ask if we give you questions to be answered after the fact, 

would you agree to answer them? 

Mr. DONAHOE. Yes. 

Chairman ISSA. We will have staff give you, for some of the members that couldn’t. 

Does the ranking member have any other statement? 

Mr. CUMMINGS. Very, very quickly. Thank you very much, Mr. 

Chairman. 

I started off this hearing by reminding us that we must minimize 

our distractions to reach our goals. And the other thing that I reminded us of is that you can lose what you have by trying to hang 

on to what you used to be. That is a serious statement. 

And it sounds like, Mr. Postmaster General, you are trying to 

make the adjustments that you have to make. And Mr. Rolando, 

I understand, and I thank you for being patient with me and answering my question. Because I understand what you are saying. 

You are saying, okay, the Post Office is going to change and you 

want to make sure that the personnel is there for those changes. 

Still, it is going to be a kind of interesting dance. Because we 

have to figure out what that future looks like so that we can even 

figure out what we need and at the same time try to make sure 

that we maintain a healthy postal system whereby the rates are 

not skyrocketing, there is no uncertainty, unreasonable uncertainty. All of those things. 

So I just hope that all of us can sit down and come to an agreement. Because one thing is for sure. We can do this. 

Mr. DONAHOE. Yes. 

Mr. CUMMINGS. If we can’t do this, we might as well go home. 

I am serious. Or go play golf, even if you don’t play golf. Do something. But the American people expect us to get this done. I think 

all of us agree that we need to have some kind of comprehensive 

legislation. 

So I am looking forward to working with the Chairman as we try 

to resolve these matters in good faith. Again, I thank you all. 

Thank you, Mr. Chairman. 

Chairman ISSA. I thank you all. We stand adjourned. 

[Whereupon, at 1:30 p.m., the committee was adjourned.] 

(137) 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

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ONE HUNDRED TH!RTEENTH CONGRESS 

((ongrcss of tbc mtnttcb $tatcs 

1$ollsc of l\eprcsrntatiI.Jcll 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

2157 RA YOUHN HOUSE OFFICE BU!LDING 

WASHINGTON, DC 20515-6143 

Opening Statement 

Rep. Elijah E. Cummings, Ranking Member 

Committee on Oversight and Government Reform 

ELIJAH E CI.lMM1WiS, MMil "'NO 

RMIKINt, M!1101l1n' MEMBE'I 

Hearing on "Options to Bring Ibe Postal Service Bacl< from Insolvency" 

April 17, 2013 

Thank you. Mr. Chairman, for convening today's hearing, and thank you for agreeing to 

my request to invite Mr. Fred Rolando, the President of the National Association of Letter 

Carriers. Labor is the foundation on which our Postal Service is built, and we must honor the 

employees who have served this institution for decades by ensuring that labor representatives are 

central partners to our reform effort"), 

Delivering mail \0 more than 150 million addresses and operating 32,000 post offices 

nationwide, the Postal Service remains a vital link that binds our nation together. Last year, 

however, the Postal Service reported losses of approximately $16 billion, and it lost $1.3 billion 

in the most recent quarter. It continues to lose approximately $25 million a day, and it has 

bOlTowcd all of the $15 billion it is authorized to borrow from the Treasury. 

Obviously, such losses are unsustainable. However, much orlhis loss is attributable to 

the burden the Postal Service faces in pre-funding its retiree health eosts--a requirement not 

imposed on any other agency or business in this country. 

The Postal Service has taken numerous steps to reduce its costs, including offering buyouts to employees, reducing operating hours at thousands of post offices, and closing dozens of 

mail processing facilities. 

In addition, in January, the Postal Service's Board of Governors directed the Postal 

Serviee to eliminate the delivery of all Saturday mail except paekages. This change effectively 

would have ended six-day delivery. 

Every appropriations measure enacted sinee 1984 has included a rider requiring six-day 

mail delivery. It states that "6-day delivery, and rilral delivery of mail shall continue at not less 

than the 1983 level." The plainlangllage of this rider clearly prohibits the changes ordered by 

the Board of Governors. In March, Congress extended this rider in the appropriations measure to 

tund the government tur the remainder of tis cal year 2013. As a result, the Board rightly 
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reversed course and delayed implementation of live-day delivery until Congress passes 

legislation authorizing slich n change. 

As I have said repeatedly, Congrcss needs to pass comprehensive reform legislation that 

nddresscs not only deli vcry st'llldards, but the full range of reforms needed to re-engineer the 

Postal Service for the next century. This legislation must amend the schedule for retiree health 

payments, recalculate the Postal Service's FERS surplus lIsing postal-specitlc characteristics, and 

provide key tools to right-size the Postal Service workforce. 

As I proposed in my ltmovate to Deliver Act, we should also create a new Chief 

Innovation Ortieer position in the Postal Service. Too many people argue that the Postal Service 

should be self-sustaining, like a business, while at the same time arguing that it should be banned 

from competing against the private sector. I believe we must allow the Postal Service to expand 

into new business lines, and my bill would have done just that. 

Unfortullately. the most signilicant challenge facing the Postal Service today remains 

what it hus been for the last two years: Congress's failure to act. Although the Senate passed a 

comprehensive and bipartisan bill during the last Congress, the HOllse failed to consider any 

postal rcfol111 legislation whatsoever. 

Last thll, til" I IOllse und the Senate did come together to negotiate potential solutions in a 

serious and sustained manner. We did not resolve a bill, but as I staled wben Chairmun Issa and 

I testified before the Senate Homeland Security and Governmental Affairs Committee in 

February, I believe we can quickly finalize legislation that puts the Postal Service on the path to 

a sustainable financial future. 

This legislation is urgently needed, and we should begin work on it immediately. Thank 

you, Mr. Chairman, for holding this important hearing, and I look forward to working with you 

and our colleagues in the days to come. 
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KING & SPALDING 

PRIVILEGED AND CONFIDENTIAL 

ATTORNEY WORK PRODUCT 

TO: 

FROM: 

DATE: 

MEMORANDUM 

Mary Anne Gibbon\ Il 

Jeffrey S. Bucholtz JJY 

April 5,2013 

RE: Implementation of 5-day delivery proposal 

EXECUTIVE SUMMARY 

King & Spalding LLP 

1700 Pennsylvania Ave. NW 

Suite 200 

Washington, D.C 20006-4707 

Tel: + I 2027370500 

Fax: + I 202 626 3737 

www.ksiaw.com 

Di,eco Dial: + I 2026262907 

Fax: + I 202 626 3737 

jhuc.holtz@ks!aw,com 

You have asked our opinion on several matters related to the Postal Service's proposal to 

discontinue Saturday delivery of First-Class and Standard mail beginning in early August 2013. 

Specifically, this memorandum addresses the following questions: 

I. Whether the full-year continuing resolution for Fiscal Year 2013 carries forward 

the 6-day delivery proviso attached to the Postal Service's FY 2012 Budget 

appropriation. 

2. Whether the 6-day proviso may be satisfied through Saturday delivery of Express 

Mail, Priority Mail. and parcels, as suggested in floor statements by the Chainnan 

of the House Government Oversight Conunittee. 

3. Whether the Postal Service may avoid the 6-day proviso by refusing the 

appropriated funds to which it is attached. 

4. Whether the fiduciary duty owed by Governors of the Postal Service authorizes 

them to decline to comply with the 6-day proviso. 

5. What risks would be entailed by implementing the 5-day delivery proposal 

notwithstanding the appropriations rider. 

6. Whether the Postal Service could ask the President to invoke the Impoundment 

Control Act to obtain rescission of the reimbursement appropriation containing 

the 6-day rider. 

In brief, we conclude that the continuing resolution does carry forward the 6-day delivery 

proviso and that the proviso prohibits cancelling Saturday delivery of First-Class and Standard 

mail. Although GAO is mistaken that the proviso has any legal force apart from its attachment 
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to appropriated funds, the Postal Service very likely cannot refuse to accept the reimbursement 

appropriation, either under the Impoundment Control Act (if that Act applies) or under the 

constitutional separation of powers (if it does not), Contrary to suggestions made by certain 

Members of Congress, the Governors' fiduciary duty to the public does not permit them to 

violate the 6-day proviso in order to maintain fiscal solvency, and proceeding with such a plan 

would entail substantial risks, including removal for cause, action by the Comptroller General, or 

judicial review. It is possible, however, to ask the President to invoke the Impoundment Control 

Act to obtain speedy congressional consideration of a request to rescind the reimbursement 

appropriation to which the 6-day delivery proviso is attached. 

BACKGROUND 

Federal law requires the Postal Service to carry certain material for the blind, overseas 

voters, and certain foreign diplomats free of charge. 39 U.S.c. §§ 32l7, 3403-06. To 

compensate for this revenue forgone, Congress has authorized the Postal Service to receive an 

annual appropriation for reimbursement. /d. § 2401 (c). The Postal Service's annual request for 

reimbursement must also include an estimate of revenue that will be forgone in the fiscal year, 

along with a true-up amount to reconcile prior-year estimates with actual mail volume. [d. 

(authorizing an annual appropriation of "a sum determined by the Postal Service to be equal to 

the difference between the revenues the Postal Service would have received if [the statutes 

requiring that free mail carriage] had not been enacted and the estimated revenues to be received 

on mail carried under such sections"). Because Congress provided insufficient reimbursement 

appropriations in Fiscal Year (FY) 1991 through FY 1993, it has also authorized the Postal 

Service to receive an annual appropriation of $29 million to compensate for the deficiency. [d. 

§ 2401(d). 

Congress has traditionally conditioned the Postal Service's annual reimbursement 

appropriation on, among other things, the continuation of 6-day delivery of the mail. E.g., 

Consolidated Appropriations Act, 2012, Pub. L. No. 112-74, 125 Stat. 786 (FY 2012 Budget). 

Until FY 1999, revenue-forgone appropriations to the Postal Service were "regular" 

appropriations-i.e., appropriations for the same fiscal year governed by the budget. See, e.g., 

Postal Service Appropriations Act, 1988, Pub. L. No. 100-202. But in the FY 1999 budget, 

Congress began funding part or all of the Postal Service's revenue-forgone reimbursement using 

"advance appropriations." An advance appropriation is "[bJudget authority in an appropriation 

act that becomes available 1 or more fiscal years after the fiscal year for which the appropriation 

act was enacted." Government Accountability Office, A Glossary of TemlS Used ill the Federal 

Budget Process, GAO-05-734SP, at 8 (2005). When Congress enacts an advance appropriation, 

the appropriated amount "is not included in the budget totals of the year for which the 

appropriation act is enacted but rather in those for the fiscal year in which the amount will 

become available for obligation." [d. The Office of Management and Budget provides a similar 

ex planation: http://www. whitehouse.gov/s ites/defaultlfiles/omblbudgetlfy20 13/assets/aaa. pdf 

For example, in the FY 1999 budget, Congress appropriated $71.1 95,000 to the Postal 

Service for revenue forgone, but delayed payment of the entire amotmt until October 1, 1999-
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Page 3 

the first day of FY 2000. See Postal Service Appropriation Act, 1999, Pub. L. No. 105-277 

("none of the funds provided shall be available for obligation until October I, 1999"). Thus, the 

appropriated funds were counted against the federal budget in FY 2000 rather than FY 1999. In 

subsequent years, Congress sometimes relied on a mixture of regular and advance appropriations 

to fund the Postal Service's reimbursement. In the FY 20 I 0 budget, for example, Congress 

appropriated "$118,328,000, of which $89,328,000 shall not be available for obligation until 

October 1,2010." Consolidated Appropriations Act, 2010, Pub. L. No. 111-117, 123 Stat. 3034, 

3200. 

The most recent act specifically appropriating money to the Postal Service is the FY 2012 

Budget. Enacted December 23, 2011, that Budget contained no "regular" appropriation to the 

Postal Service; the entire $78,153,000 appropriated amount took the form of an advance 

appropriation, "not. .. available for obligation until October 1,2012," i.e., the first day of FY 

2013. 125 Stat. 786, 923. Like previous Postal Service appropriations, the FY 2012 Budget 

contained the proviso requiring the continuation of 6-day service. {d. 

The text of the 2012 appropriation reads in full (id.): 

For payment to the Postal Service Fund for revenue forgone on free and 

reduced rate mail, pursuant to subsections (c) and (d) of section 2401 of 

title 39, United States Code, $78,153,000, which shall not be available 

for obligation until October I, 2012: Provided, That mail for oversea, 

voting and mail for the blind shall continue to be free: Provided further, 

That 6-day delivery and rural delivery of mail shall continue at not less 

than the 1983 level: Provided further, That none of the funds made 

available to the Postal Service by this Act shall be used to implement any 

rule, regulation, or policy of charging any officer or employee of any 

State or local child support enforcement agency, or any individual 

participating in a State or local program of child support enforcement, a 

fee for information requested or provided concerning an address of a 

postal customer: Provided further, That none of the funds provided in 

this Act shall be used to consolidate or close small rural and other small 

post offices in fiscal year 2012. 

DISCUSSION 

A, The FY 2013 Continuing Resolution Carries Forward The 6-Day Service Proviso 

1. Congress has not passed a regular budget for FY 2013. Instead, on March 26, 2013, 

the President signed H.R. 933, a full-year continuing resolution for this fiscal year (the "FY 2013 

CR"). A continuing resolution "provides budget authority for federal agencies, specific 

activities, or both to continue in operation when Congress and the President have not completed 

action on the regular appropriation acts by the begilllling of the fiscal year." General 
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Page 4 

Accountability Office, Principles of Federal Appropriations Law, Vol. II, at 8-2 (3d ed. 2006) 

(Red Book) (quotation marks omitted). "Once passed by both houses of Congress and approved 

by the President, a continuing resolution becomes a public law and has the same force and effect 

as any other statute." /d. at 8-3; Oklahoma 1'. Weinberger, 360 F. Supp. 724, 726 (W.D. Okla. 

1973). 

The FY 2013 CR contains several provisions pertinent here. Section llOl(a) 

appropriates, for FY 2013, 

[s]uch amounts as may be necessary, at a rate for operations as provided 

in the applicable appropriations Acts for fiscal year 2012 and under the 

authority and conditions provided in such Acts, for continuing projects 

or activities (including the costs of direct loans and loan guarantees) that 

are not otherwise specifically provided for in this joint resolution, that 

were conducted in fiscal year 2012, and for which appropriations, funds, 

or other authority were made available in [certain FY 2012 budget acts]. 

Section 1102 provides that "[a}ppropriations made by section 1101 shall be available to 

the extent and in the manner that would be provided by the peltinent appropriations Act." 

Section 1105 says that "[e]xcept as otherwise expressly provided in this division, the 

requirements, authorities, conditions, limitations, and other provisions of the appropriations Acts 

referred to in section 1101 shall continue in effect through [the end of the Fiscal Year]." Finally, 

section 1111, which was not included in the previous partial-year CR, provides as follows: 

With respect to any discretionary account for which advance 

appropriations were provided for fiscal year 2013 or 2014 in an 

appropriations Act for fiscal year 2012, in addition to amounts otherwise 

made available by this division, advance appropriations are provided in 

the same amount for fiscal year 2014 or 2015, respectively, with a 

comparable period of availability. 

Section 1111 plainly carries forward the Postal Service's reimbursement appropriation 

from the FY 2012 Budget because it was an "advance appropriation ... provided for fiscal year 

2013 ... in an appropriations Act for fiscal year 2012." !d. As we explain below, it is also 

reasonably clear that § IIII will be construed to incorporate the conditions under which the 

original funds were appropriated. 

2. Congress's historical practice has been not to carry forward advance appropriations in 

partial-year CRs, but instead to wait until a regular budget or full-year CR is enacted. Partialyear CRs typically include the language of §§ 1101 and l102-thereby continuing regular 

appropriations from the prior year-but not that of § 1111, or § 1105. Compare Department of 

Defense and Full-Year Continuing Appropriation Act, 2011, Pub. L. No. 112-10, with 

Continuing Appropriations Act, 2011, Pub. L. 111-242. Full-year CRs generally contain all four 

provisions. See Department of Defense and Full-Year Continuing Appropriation Act, 20 II, Pub. 

L. No. 112-10; Revised Continuing Resolution, 2007, Pub. L. No. 110-5. The natural inference 
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from this history is that §§ 1101 and 1102 by themselves (or the identical provisions found in 

partial-year CRs) do not carry forward the advance appropriations described in § 1111. 

Otherwise, § 1111 would be rendered impennissibly superfluous. See Corley v. United States, 

556 U.S. 303, 314 (2009) ("fA] statute should be constmed so that effect is given to alf its 

provisions, so that no part will be inoperative or superfluous, void or insignificant." (quoting 

Hibbs v. Winn, 542 U.S. 88, 101 (2004)). 

It could be argued that because § 1111 (unlike §§ 1101, 1102, and 1105) does not contain 

any express provision that its carried-forward appropriations are made subject to their original 

conditions, the provisos attached to them have not been carried forward. Admittedly, it is odd 

that both §§ 1102 and 1105 refer only to appropriations made by § 1101; neither explicitly 

requires that appropriations made by § 1111 be subject to their original conditions and 

limitations. See FY 2013 CR § 1102 ("Appropriations made by section 1101 shall be available 

to the extent and in the manner .... ") (emphasis added); id. § 1105 ("conditions, limitations, and 

other provisions of the appropriations Acts referred to in section 1101 shalf continue in effect") 

(emphasis added). But nevertheless § 1105 literally covers our case: the 6-day proviso, like the 

rest of the Postal Service's appropriation in the 2012 Budget, is contained in the acts referred to 

by § 1101(a)(2), "[tJhe Financial Services and General Government Appropriations Act, 2012 

(division C of Public Law 112-74)." 

Even if that were not !me, or if §§ 1101, 1102, and 1105 were interpreted to deal only 

with regular appropriations, there is no realistic possibility that a court would accept that § 1111 

frees federal agencies from the conditions attached to advance appropriations. Section 1111 

tracks the language historically employed by Congress to carry forward advance appropriations. 

See Department of Defense and Full-Year Continuing Appropriation Act, 2011, Pub. L No. 112-

10, § 1118 ("With respect to any discretionary account for which advance appropriations were 

provided for fiscal year 2011 or 2012 in an appropriations Act for fiscal year 2010, in addition to 

amounts otherwise made available by this Act, advance appropriations are provided in the same 

amount for fiscal year 2012 or 2013, respectively, with a comparable period of availability."); 

Revised Continuing Resolution, 2007, Pub. L No. 110-5, § 109 ("With respect to any 

discretionary account for which advance appropriations were provided for fiscal year 2007 or 

2008 in an appropriations Act for fiscal year 2006, the levels established by section 101 shall 

include advance appropriations in the same amollllt for fiscal year 2008 or 2009, respectively, 

with a comparable period of availability."). These prior enactments confum that § 1111 is a 

boilerplate provision intended to adopt Congress's ordinary procedures for continuing 

resolutions. And there is no reason for Congress to make a general practice of dispensing with 

conditions on spending when the spending happens to take the foml of an advance appropriation 

subject to § 1111, rather than a regular appropriation subject to § 1101. Absent any reason to 

believe that Congress actually intended this boilerplate language to lift the conditions attached to 

advance appropriations, such an interpretation would likely be rejected as one of the "absurdities 

of literalism that show that Congress could not have been writing in a literalistic frame of mind." 

Corley, 129 S. Ct. at 1568. 
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B. Discontinuing First-Class And Standard Mail Delivery On Saturdays Would Violate 

the 6-Day Delivery Proviso 

Because we conclude that the FY 2013 CR carries forward the 6-day delivery proviso, 

the next question is whether the Postal Service would violate that proviso by discontinuing FirstClass and Standard mail delivery on Saturdays, but maintaining 6-day delivery of Express Mail, 

Priority Mail, and parcels. We think the answer unambiguously is yes. 

1. "Statutory construction must begin with the language employed by Congress and the 

assumption that the ordinary meaning of that language accurately expresses the legislative 

purpose." Park 'N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 194 (1985). The text of 

the 6-day service proviso requires that "6-day delivery and rural delivery of mail shall continue 

at not less than the 1983 level." Consolidated Appropriations Act, 2012, Pub. L. No. 112-74, 

125 Stat. 786, 923. Even if the statute did not explicitly refer to 1983 delivery levels, the words 

"6-day ... delivery of mail" would probably be best read to refer to the thing most commonly 

meant by "mail," i.e., First-Class and Standard mail. 

That interpretation is supported by the full phrase "6-day delivery and rural delivery of 

mail" (emphasiS added). The phrase "delivery of mail" should be given the same meaning in the 

statute when modified by both 6-day and rural. But it is very unlikely that Congress meant to 

permit the Postal Service to discontinue all rural delivery of First-Class and Standard mail so 

long as parcels could still be delivered to rural addresses. Because that result would follow from 

the proposed interpretation, it is very likely to be incorrect. 

But the additional phrase "at not less than the 1983 level" removes all doubt. That phrase 

ensures that the Postal Service must not only deliver some mail on Saturdays, but must provide 

the same "level" of Saturday delivery it provided in 1983. In our view, there is no colorable 

argument that "the 1983 level" could refer to the delivery only of Express Mail, Priority Mail, 

and parcels. In 1983, as we understand it, First-Class Mail and Standard Mail were delivered to 

most places on Saturdays and comprised the vast majority of all postal volume. As a result, 

discontinuing Saturday delivery of those types of mail cannot be reconciled with any plausible 

view of what it means to continue "the 1983 level" of "6-day delivery ... of maiL" 

The history of the 6-day rider also suggests that its very purpose was to preempt the 

Postmaster General's warning that 6-day delivery of all mail might be discontinued. As we 

understand the background, the rider originated in response to a congressional threat to cut Postal 

Service funds as part of a 1980 anti-inflation initiative. When the Postmaster General warned 

that these cuts would likely result in the cancellation of a delivery day, Congress enacted the 6-

day delivery proviso. Moreover, the most recent example available to Congress of Saturdaydelivery suspension-a brief period in 1957-reportedly involved "no deliveries on Saturdays, 

except special deliveries." Jay Walz, "Post Office Ends Saturday Service Tilllt Gets Funds," 

New York Times, Apr. 12, 1957, at I. To the extent Congress had this episode in mind, it is 

unlikely the 6-day proviso was meant to permit. rather than to prohibit, a repetition of that 

solution. 
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2. The most promising counterargument, though we do not think it ultimately is 

colorable, is based on a floor statement during debate on the FY 2013 CR by Rep. Darrell Issa, 

the Chairman of the House Government Oversight Committee, which has responsibility for the 

Postal Service's authorizing legislation. Chainnan Issa opined in that capacity that maintaining 

Saturday delivery only of Express Mail, Priority Mail and parcels would be consistent with the 6-

day proviso.' For several reasons, however, this snippet of legislative history is not likely to be 

persuasive. 

First, legislative history is not to be consulted unless the text of a statute is ambiguous. 

Milner v. Dep't of tile Navy, 131 S. Ct. 1259, 1266 (2011) ("Those of us who make use of 

legislative history believe that clear evidence of congressional intent may illuminate ambiguous 

text. We will not take the opposite tack of allowing ambiguous legislative history to muddy 

clear statutory language." (emphasis added»; United Siaies v. Gonzales, 520 U.S. 1,6(1997). In 

our view, the text of the 6-day rider is not ambiguous on this point. The Postal Service must 

continue Saturday delivery of "mail" at "the 1983 level." While that phrase is susceptible to 

some ambiguity at the margins-for example, whether it would be pennissible to discontinue 

Saturday delivery to a few locations, or of less common classes of service-it cannot be read to 

pennit cancellation of the two largest classes of service. Legislative history cannot alter the plain 

text of the rider. 

Second, even if legislative history could be consulted, Chairnlan Issa's statement is not 

powerful evidence of congressional intent. Courts now "exercise extreme caution" before 

relying on "a statement made in floor debate" to interpret a statutory text. Natural Resources 

Defense Council v. EPA, 706 F.3d 428, 437 & n.9 (D.C. Cir. 2013); Texas Mun. Power Agency 

v. EPA, 89 F.3d 858, 875 (D.C. Cir. 1996). And even when legislative history was more 

frequently consulted, the Supreme Court made clear that "the remarks of a single legislator, even 

me sponsor, are not controlling in analyzing legislative history." Chrysler Corp. v. Brown, 441 

U.S. 281, 311 (1979). Chairman Issa, moreover, is not even the sponsor of the FY 2013 CR or 

the chainnan of the Appropriations Committee: He is instead the chainnan of the committee 

with substantive authority over the Postal Service's authorizing legislation, giving him a special 

interest in the CR's effect on the Postal Service, but no special insight into the intention of the 

CR's drafters. And although it is tme that no Member of Congress disputed Chairman Issa's 

interpretation on the floor, the Supreme Court has rejected such silence as a proper basis for 

interpreting a statute. Bamhart v. Sigmon Coal Co., Inc., 534 U.S. 438, 457 n.l5 (2002) ("[TJhe 

dissent's additional reliance on the absence of a response to the Senators' explanation simply 

makes no sense. . . . [WJere we to adopt this fornl of statutory interpretation, we would be 

placing an obligation on Members of Congress not only to monitor their colleague[ s' J floor 

statements but to read every word of the Congressional Record including written explanations 

inserted into the record. This we will not do."). 

I http://youtu.belUbnBODtN3s4 
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Third, Chainnan Issa's statement does not purport to interpret language in the bill under 

consideration before the 1 13th Congress, i.e., the FY 2013 CR. The CR does not itself contain 

the 6-day service proviso, but rather a blanket provision carrying forward all advance 

appropriations from certain previous budgets. Instead, it is the 2012 Budget, enacted by the 

11 '2th Congress, that contains the language to be interpreted. "And whatever interpretive force 

one attaches to legislative history, the Court nonnally gives little weight to statements, such as 

those of the individual legislators, made after the bill in question has become law." Barber v. 

Thomas, 130 S. Ct. 2499,2507 (2010); accord Doe v. Chao, 540 U.S. 614, 626--27 (2004) 

(Justices who consult legislative history are "wary about expecting to find reliable interpretive 

help outside the record of the statute being construed," and thus "subsequent legislative history 

will rarely override a reasonable interpretation of a statute that can be gleaned from its language 

and legislative history prior to its enactment" (quotation marks omitted». 

For these reasons, we do not think Chainnan Issa's statement will affect the plain 

meaning of the 6-day delivery rider included in the FY 2012 Budget. Nor do we think any 

reasonable legal argument exists that the Postal Service would remain in compliance with that 

rider if it discontinued Saturday delivery of First-Class and Standard mail. 

C. The Postal Service Very Likely Cannot Avoid the 6-Day Rider By Declining 

Appropriated Funds 

We have also considered whether the Postal Service could avoid the strictures imposed 

by the 6-day delivery proviso by refusing to accept the reimbursement funds appropriated by the 

FY 2013 CR. For the reasons that follow, we think the answer is no. Although we think GAO is 

wrong that the 6-day proviso has any force apart from its attachment to appropriated funds, we 

conclude that either the Congressional Budget and Impoundment Control Act of 1974 or (if that 

Act does not apply) the constitutional separation of powers would very likely forbid the Postal 

Service from withholding budget authority because of a disagreement with Congress over a 

policy matter. 

l. By letter of March 21. 2013, GAO offered its opinion that the legal force of the 6-day 

service proviso is not "tied to the receipt of annua\ty appropriated funds for revenue foregone," 

but rather is "a legislative directive establishing an operational standard for USPS." GAO Letter 

at 4 (quotation marks omitted). With respect, we think this conclusion is unsupportable. 

It is undisputed that, absent amendment, the discretion conferred on the Postal Service by 

its pennanent authorizing legislation would pennit it to establish a 5-day delivery schedule.2 

2 The authorizing statute requires the Postal Service to "provide prompt, reliable, and efficient services to 

patrons in all areas," 39 USc. § 101(a), "give the highest consideration to the requirement for the most 

expeditious ... delivery of important letter mail," id. § IOI(e), "receive, transmit, and deliver throughout 

the United States, its territories and possessions ... written and printed matter, parcels, and like materials," 

id. § 403(a), "maintain an efficient system of collection, sorting, and delivery of the mail nationwide," id. 

§ 403(b)( I), and "provide for the ... delivery ... of mail," id. § 404(a)( I). 
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Although Congress could repeal that authority in an appropriations bill. United States v. Will, 

499 U.S. 200. 222 (1980). there is a "very strong presumption" in the law that appropriations acts 

do not modify the substantive law in this way. Building & COllSt. Trades Dep't, AFL-CIO v. 

Martin. 961 F.2d 269.273 (D.C. CiT. 1992) (citing Tennessee Valley Authority v. Hill. 437 U.S. 

153.190 (1978». That presumption is an application of the '''cardinal rule ... that repeals by 

implication are not favored.·" except that the rule "applies with even greater force when the 

claimed repeal rests solely on an Appropriations Act." Hill, 437 U.S. at 189-90 (quoting Morton 

v. Mancari. 417 U.S. 535. 549 (1974)). The reason is that "[w]hen voting on appropriations 

measures. legislators are entitled to operate under the assumption that the funds will be devoted 

to purposes which are lawful and not for any purpose forbidden"-not that the appropriations 

measure itself is making those purposes lawful by repealing whatever other statutes might 

regulate the subject. Hill. 473 U.S. at 190.3 

GAO. however, erroneously reverses this presumption. The only reason it gives for 

construing the 6-day rider as more than an appropriations condition is that "[n]o language in the 

[6-day proviso] indicates that its applicability is predicated upon and restricted to amounts 

appropriated in the 2012 Appropriations Act or in any other fact." GAO Letter at 4. But the 

absence of language confimling the ordinary presumption against implied repeals proves 

nothing; to count as substantive legislation. the 6-day proviso must contain language rebutting 

that presumption. and GAO points to none. GAO's comment is also wrong. There is indeed 

statutory language tying the 6-day rider to the appropriation: The words "[pJrovided further" 

serve no grammatical function other than to condition the receipt of the appropriated sum on 

compliance with the condition. 

In sum. we conclude that the 6-day proviso does not require the Postal Service to 

maintain Saturday delivery unless it accepts the appropriated reimbursement funds. 

2. But the Postal Service very likely cannot avoid accepting the appropriated 

reimbursement funds. At the outset. declining the funds would violate the Congressional Budget 

and Impoundment Control Act of 1974, Pub. L. 93-344. 88 Stat. 297.2 U.S.C. §§ 601-688 

("ICA"). assuming for the moment that that statute applies. 

3 Another reason the rule makes sense in the appropriations context is that the Appropriations Committees 

"ha[ve1 no jurisdiction over the subject" of underlying authorizing legislation that would be purportedly 

repealed by appropriations bills. and therefore would normally have held no hearings or investigative 

proceedings in an effort to establish sound substantive policy. See Hill. 473 U.S. at 191. For that reason. 

the "rules of both the Senate and the House of Representatives prohibit 'legislating' in appropriation acts. 

However. this merely subjects the provision to a point of order and does not affect the validity of the 

legislation if the point of order is not raised. or is raised and not sustained. Thus, once a given provision 

has been enacted into law, the question of whether it is 'general legislation' or merely a restriction on the 

use of an appropriation, that is, whether it might have been subject to a point of order. is academic." Red 

Book. Vol. I. at 2·34. 
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The ICA describes two kinds of impoundment actions that can be proposed by the 

Executive: rescissions and deferrals. A rescission is a total cancellation of an appropriation, and 

it can be accomplished only by legislation. See 2 U.S.C § 683(b). A "deferral of budget 

authority," by contrast, means "(A) withholding or delaying the obligation or expenditure of 

budget authority (whether by establishing reserves or otherwise) provided for projects or 

activities; or (B) any other type of Executive action or inaction which effectively precludes the 

obligation or expenditure of budget authority, including authority to obligate by contract in 

advance of appropriations as specifically authorized by law." /d. § 682( I). Unlike a proposed 

rescission,4 a deferral request does not require legislative action for approval, see id. § 684, but 

labeling a rescission as a deferral will not prevent adverse congressional action. GAO will treat 

a deferral proposal as a de facto rescission if its timing is such that "funds could be expected with 

reasonable certainty to lapse before they could be obligated, or would have to be obligated 

imprudently to avoid that consequence." Red Book, Vol. I, at 1-33 to 1-34; see also 2 U.S.C § 

686(b) (if the Comptroller General believes the President has incorrectly classified a deferral or 

rescission request, he must "make a report to both Houses of Congress setting forth his 

reasons"). 

The ICA imposes specific restrictions on deferrals of budget authority. Deferrals may not 

be proposed beyond the current fiscal year, id. § 684(a), and are permissible only for certain 

purposes. In a subsection titled "Consistency with legislative policy," the law provides that: 

Deferrals shall be permissible only-

(1) to provide for contingencies; 

(2) to achieve savings made possible by or through changes in 

requirements or greater efficiency of operations; or 

(3) as specifically provided by law. 

No officer or employee of the United States may defer any budget 

authority for any other purpose. 

2 U.S.C. § 684(b). 

These provisions, if applicable, would certainly preclude the Postal Service from refusing 

reimbursement funds absent a successful request for rescission of the appropriation. Refusing 

the funds would be at least a deferral within the meaning of the ICA, since it would involve 

"withholding" or "preclud[ing]" the "expenditure of budget authority." 2 U.S.C § 682(l)(A) 

and (B). And because that deferral would be for the purpose of avoiding compliance with the 6-

4 in cases of rescission proposals. the special message or repon triggers a 45-day window within which 

Congress must approve the rescission by legislation. 2 U.s.c. § 683(b). Otherwise, the funds "shall be 

made available for obligation." /d. 
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Page 11 

day service proviso, rather than for one of the permissible purposes enumerated by Congress, it 

would violate the Act's restrictions, We have not identified any argument to the contrary. 

Violating the lCA entails a risk of legal action. The Act provides that "[w]henever. .. the 

head of any department or agency of the United States, or any officer or employee of the United 

States proposes to defer any budget authority provided for a specific purpose or project, the 

President shall transmit to the House of Representatives and the Senate a special message" 

defending the deferral. ld. § 684(a). If the President fails to do so, the Comptroller General must 

send a report on the deferral, which has the same legal effect as a special message. ld. § 686(a). 

The Comptroller General also has power to bring an enforcement action in district court to 

prevent an unlawful impoundment. See id. § 687. 5 

3. As we have indicated, there is a substantial question whether the ICA applies to the 

Postal Service. A provision of the Postal Reorganization Act of 1970 provides: 

Except as provided by subsection (b) of this section, and except as 

otherwise provided in this title or insofar as such laws remain in force as 

rules or regulations of the Postal Service, no Federal law dealing with 

public or Federal contracts, property, works, officers, employees, 

budgets, or funds, including the provisions of chapters 5 and 7 of title 5, 

shall apply to the exercise of the powers of the Postal Service. 

39 U.S.c. § 41O(a) (emphasis added). Subsection (b) of § 410 then enumerates specific 

provisions of federal law that do apply to the Postal Service, notwithstanding subsection (a). 

E.g. id. § 410(b)(7) ("section 19 of the Occupational Safety and Health Act of 1970"); id. 

§ 41O(b)(10) ("the Inspector General Act of 1978"). 

A literal reading of this provision may exempt the Postal Service from the ICA. "Federal 

law[s] dealing with ... budgets, or funds" do not apply to the Postal Service, § 41O(a), and it is 

difficult to see how the Congressional Budget and Impoundment Control Act is not a "law 

dealing with ... budgets, or funds." 

Two basic canons of statutory construction support that reading. First, "it is a 

commonplace of statutory construction that the specific governs the general." Morales v. Trans 

World Airlines, Inc., 504 U.S. 374, 384 (1992). "The general/specific canon is perhaps most 

frequently applied to statutes in which a general permission or prohibition is contradicted by a 

5 "If, under [his chapter, budget authority is required to be made available for obliga[ion and such budget 

authority is not made available for obligation, the Comp[roller Geneml is hereby expressly empowered, 

through attorneys of his own selection, to bring a civil action in the United States District Court for the 

District of Columbia to require such budget authority to be made available for obligation, and such court 

is hereby expressly empowered to enter in such civil action, against any department. agency, officer, or 

employee of the United States, any decree, jUdgment, or order which may be necessary or appropriate to 

make such budget authority available for obligation." Ill. 
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specific prohibition or permission. To eliminate the contradiction, the specific provision is 

construed as an exception to the general one." RadLAX Gateway Hotel, LLC v. Amalgamated 

Bank, 132 S. Ct. 2065, 2071 (2012). Because § 41O(a) deals with the Postal Service in specific 

terms, while the ICA is a general law dealing with the federal budget that does not mention the 

Postal Service, the generallspecific canon suggests that the Postal Service's exemption from 

budget laws trumps the ICA's seemingly comprehensive coverage. 

Second, there is the canon against implied repeals. Mancari, 417 U.S. at 549. Because 

the ICA postdates the enactment of § 41O(a), it would normally be read not to impliedly repeal 

the Postal Service's pre-existing exemption. That presumption is probably strengthened in this 

case by Congress's decision to enumerate, in § 410(b), specific statutes that do apply to the 

Postal Service notwithstanding § 410(a). It would be odd for Congress to expand that 

specifically enumerated list through the disfavored mechanism of implied repeal. The Second 

Circuit has invoked the implied-repeal doctrine to reject an attempt to subject the Postal Service 

to the Paperwork Reduction Act. Kuzma v. USPS, 798 F.2d 29, 32 (1986) ("No specific 

reference to the USPS is made in the [Paperwork Reduction Actj, which was enacted ten years 

after the Postal Reorganization Act, and we adhere to the rule that repeals by implication are not 

favored. In contrast, the Postal Rate Commission is referred to specifically as an agency subject 

to the requirements of the [Paperwork Reduction Act]. See 44 U.S.c. § 3502(10). It is clear, 

therefore, that Congress could have explicitly subjected the USPS to the terms of the PRA had it 

wished to do so."). 

But we do not think it clear that the Postal Service is exempt from the ICA. There is 

authority interpreting § 41O(a) to cover only those federal laws related to the "efficient day-today management" of the Postal Service's business. City of Rochester v. United States Postal 

Service, 541 F.2d 967 (2d Cir. 1976) (Postal Service subject to National Environmental Policy 

Act because § 41O(a) "is 'managerial' in orientation" while NEPA is "policy-oriented"); Chelsea 

Neighborhood Association v. USPS, 516 F.2d 378, 383 (2d Cir. 1975) (despite § 41O(a), Postal 

Service is subject to NEPA, a law "designed to cover almost every form of significant federal 

activity"). While these older decisions reflect a purposive method of interpreting federal 

statutes, they do provide a hook for a reviewing court to reach what it will surely think is the 

sensible outcome; it is difficult to imagine why Congress would want the Postal Service to be 

exempt from procedures governing impoundment of appropriated funds, since receipt of such 

appropriations (and the accompanying need to abide by their conditions) is not a respect in which 

the Postal Service is like an ordinary business needing to operate with greater freedom. 

4. Nevertheless, even though we think it is arguable that the Postal Service is not subject 

to the ICA, prevailing on that argument will not aid our cause unless, in the absence of the ICA, 

the Postal Service would have the right to refuse funds appropriated for obligation by Congress. 

The great weight of authority on that score--i.:ases decided during President Nixon's attempt to 

use impoundment to combat inflation-suggests the Postal Service would not have that right. 

See State Highway Comm'n v. Volpe, 479 F.2d 1099. 1114 (8th Cir. 1973) ("We find nothing 

within these provisions of the Act which explicitly or impliedly allows the Secretary to withhold 

approval of construction projects for reasons remote and unrelated to the Act .... To reason 
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that there is implicit authority within the Act to defer approval for reasons totally collateral and 

remote to the Act itself requires a strained construction which we refuse to make. It is 

impossible to find from these specific grants of authority discretion in the Secretary to withhold 

approval on projects Congress has specifically directed because of a system of priorities the 

Executive chooses to impose on all expenditures."). 

It would be one thing if Congress purported to authorize the Postal Service to exercise 

discretion to refuse appropriated funds; but in the absence of such explicit authorization, the 6-

day delivery rider will not likely be construed to permit unilateral impoundment. Cj Train v. 

City of New York, 420 U.S. 35,47 (1975) (President's decision leading to "withholding of 

authorized funds carulOt be squared with the statute"). Even the President's power to impound 

funds appropriated by Congress is constitutionally doubtful. See Guadamuz v. Ash, 368 F. Supp. 

1233, 1244 (D.D.C. 1973) ("Money has been appropriated by the Congress to achieve the 

purposes of both programs and the Executive has no residual constitutional power to refuse to 

spend these appropriations."); Olleida County v. Berle, 49 N.Y.2d 515, 522 n.6 (1980) ("Federal 

courts have rebuffed claims that the Federal Constitution invests the president with inherent 

power to impound lawful appropriations.") (citing cases). Compared to the President, the 

Governors of the Postal Service stand in a weaker position, as their office was created by 

Congress and they have no independent constitutional power. Because federal statutes are 

construed to avoid raising serious constitutional questions, see Ashwallder v. TVA, 297 U.S. 288, 

341-356 (1936) (Brandeis, J., concurring), it is doubtful that a court would conclude that the 

Postal Service has authority to refuse appropriated funds. 

D. The Governors of the Postal Service May Not Invoke Broad Fiduciary Duties As 

Grounds To Violate The 6-Day Delivery Proviso 

On March 21, 2013, Chairn1an Issa and Senator Tom Coburn, the ranking member of the 

Senate Committee on Homeland Security and Government Affairs, sent letters to the Postal 

Service's Board of Governors urging them to move forward with plans to implement 5-day 

delivery. The letters first asserted that the 6-day rider does not prevent implementation of the 

Postal Service's plan because urals proposed, the Postal Service is not eliminating a day of 

service, but is merely altering what products are delivered on what day to maintain a sustainable 

level of service." Letter at 1-2. As explained in section B, supra, we unfortunately do not 

believe that there is a reasonable argument that the 5-day delivery plan proposed by the Postal 

Service comports with the 6-day rider. After asserting that the Postal Service's plan would 

satisfy the 6-day rider, the letter appeared to suggest that the Governors of the Postal Service 

have a broader fiduciary duty to implement the 5-day delivery plan regardless of whether that 

pi an comports with the 6-da y rider: "What's more, we bel ieve that the Board of Governors has a 

fiduciary responsibility to utilize its legal authority to implement modified 6-day mail delivery as 

recently proposed. The deficits incurred by the Postal Service and the low level of liquidity 

under which it is operating leaves it in a perilous position; one that demands implementation of 

all corrective actions possible." Letter at 2. 

YOll have asked us to consider whether the Governors' fiduciary responsibilities to the 

public entitle or require them to proceed with the proposal to move to 5-day delivery of First-
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Class and Standard mail notwithstanding the appropriations proviso. In our view, any 

consideration of the prospect of ignoring a duly enacted federal statute must be undertaken with 

the greatest possible caution. In general, "an agency is not free simply to disregard statutory 

responsibilities." Lincoln v. Vigil, 508 U.S. 182, 193 (1993). 

Whether the Executive Branch has any legal power to violate positive law, or whether 

such action (even when pragmatically justified as necessary) is essentially an extra-legal 

prerogative, is a matter of sustained and unresolved debate. Compare Letter of Thomas 

Jefferson to lohn C. Breckenridge (Aug. 12. 1803) (acknowledging that Executive action in 

completing the Louisiana Purchase was "an act beyond the Constitution" and arguing that 

Congress "in casting behind them metaphysical subtleties. and risking themselves like faithful 

servants. must ratify & pay for it. and throw themselves on their country for doing for them 

tmauthorized what we know they would have done for themselves had they been in a situation to 

do it."), with President Abraham Lincoln, Message to Congress in Special Session (July 4, 1861) 

(defending legality of President's unilateral suspension of habeas corpus on the ground that 

"[tJhe whole of the laws which were required to be faithfully executed were being resisted and 

failing of execution in nearly one-third of the States .... [Alre all the laws but one to go 

unexecuted and the Governrnent itself go to pieces lest that one be violated? Even in such a case 

would not the official oath be broken if the Governrnent should be overthrown, when it was 

believed that disregarding the single law would tend to preserve it?"). The political branches 

have generally avoided bringing that debate to a head by reserving invocation of the prerogative 

power for the President alone, and only in cases of extreme necessity. We do not think this even 

arguably presents such a case. 

A closer question would be presented if two federal laws genuinely established two valid 

and irreconcilable obligations, so that compliance with both would be actually impossible. Such 

a circumstance would be rare because apparent conflicts between statutes are normally resolved 

by reference to interpretive default rules, such as the presumption against implied repeals and the 

general/specific canon discussed earlier. RadLAX, 132 S. Ct. at 2071; Mancari, 417 U.S. 549. 

Here, while the Governors do have fiduciary obligations to the public, the appropriations proviso 

is a very specific limitation on how the Postal Service may exercise its judgment. For that 

reason, even if the Postal Service were unable to satisfy all its financial obligations, it is doubtful 

that it could choose to save money by violating a specific congressional limitation rather than 

through the exercise of its more general powers, including the power to raise rates. 

Nor do we think that the fact that the 6-day requirement is contained in an appropriations 

rider, rather than in permanent legislation, affects the analysis. Appropriations laws, once 

enacted by Congress and signed by the President, are binding like any other statutes. See City of 

Chicago v. U.S. Dep't of Treasury, Bureau of Alcohol, Tobacco and Firearms, 423 F.3d 777, 

782 (7th Cir. 2005) ("'[A coun] cannot ignore clear expressions of Congressional intent, 

regardless of whether the end product is an appropriations rider or a statute that has proceeded 

through the more typical avenues of deliberation."). Although internal rules of the House and 

Senate govern which committees have jurisdiction over different kinds of measures and prohibit 

"legislating" in appropriations acts, those rules are enforceable only through a Member's 
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decision to raise a point of order. A violation of Congress's internal rules "does not affect the 

validity of the legislation if the point of order is not raised, or is raised and not sustained." Red 

Book, Vol. I, at 2-34; see also Will, 499 U.S. at 222 (Congress can alter the substantive law in 

appropriations acts if its intention to do so is clear); 17Je Last Best Beef. LLC v. Dudas, 506 F.3d 

333,338 (4th Cif. 2007) ("While the canon of statutory interpretation disfavoring implied repeals 

in appropriations bills is strong, it is still just a canon of interpretation. It is not an absolute 

rule."). The 6-day rider has been enacted into law and as such it is binding; the internal 

legislative process that led to its enactment is academic. 

A final point is that as an independent agency without the powers and protections of the 

presidency, the Postal Service should tread carefully in the highly controversial area of potential 

open disobedience of a fedcral statute-for however sound its arguments (whether legal or 

practical) for disobedience, those arguments will ultimately be judged by the political branches. 

Without support from Congress or the President, efforts to avoid compliance with enacted law 

are not likely to succeed. 

That distinguishes this case from the Postal Service's decision, in 2011, to temporarily 

suspend statutorily required payments to the Federal Employees Retirement System (FERS). On 

that occasion, as we understand it, the Postal Service had over-contributed to FERS and was 

facing a budget shortfall that could have impaired its ability to make good its payroll obligations. 

Even if such action were unlawful, the lack of significant opposition by the political branches 

suggested that it could be safely managed. As discussed in the next section, however, we think 

substantial risks would attend a decision not to comply with the 6-day rider here. 

E. Risks of Proceeding With the 5·day Delivery Proposal 

Deciding to proceed with 5-day delivery despite the appropriations rider would entail a 

number of risks. First, violating a federal law would likely supply cause for the President to 

remove the Governors. Although the Supreme Court has never precisely defined what would 

constitute cause for removal, it has said that the good-cause standard enables the President to 

ensure that an independent officer "is competently perfonning his or her statutory responsibilities 

in a manner that comports with" applicable legislation. Morrison v. Olson, 487 U.S. 654. 692-

93 (1988). Second. if the Comptroller General believes the ICA applies to the Postal Service. he 

could bring a civil action against the Governors to restrain an unlawful deferral of budget 

authority. 2 U.S.c. § 687. 

Third, a decision of the Postal Service to discontinue Saturday delivery might be 

subjected to judicial review. Although 39 U.S.c. § 41O(a) exempts the Postal Service from 

ordinary judicial review under the Administrative Procedure Act. the D.C. Circuit has held that 

the Postal Service is subject to traditional "nonstatutory" judicial review for ullra vires actions in 

excess of its statutory authority. Aid Ass'nfor Llllherans v. USPS, 321 F.3d 1166. 1173 (2003); 

see American School of Magnetic Healing v. McAnmtlty. 187 U.S. 94 (1902) (Postal Service 

case); Chamber of Commerce v. Reich, 74 F.3d 1322. 1327-31 (D.C. Cir. 1996). That doctrine 

reflects a "narrow exception" to the bar on judicial review. "closely paralleling the historic 
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origins of judicial review for agency actions in excess of jurisdiction." Lutherans. 321 F.3d at 

1173 (quoting Griffith v. FLRA. 842 F.2d 487. 492 (D.C. Cir. 1988». 

Because the contours of this nonstatutory review doctrine are vague. we cannot be sure 

whether a court would permit a plaintiff to obtain judicial review of a violation of the 6-day 

proviso. On the one hand. we do think the statute unambiguously prohibits the discontinuation 

of First-Class and Standard mail delivery on Saturdays; the clearer the statutory violation. the 

more likely a court is to invoke review of ultra vires actions. On the other hand. the fact that the 

6-day proviso is an appropriations rider. rather than permanent legislation. may present different 

issues. Where only an appropriations proviso is concerned. a violation may be less likely to 

strike a court as the kind of grave departure from an agency's jurisdiction that amounts to ultra 

vires action. Further. it is not clear that the appropriations proviso confers any legal rights on 

specific members of the public. cf Reich. 74 F.3d at 1328. 1330 (emphasizing importance of 

plaintiffs holding a legal right under the applicable statute); McAnnulty. 187 U.S. at 108 (same). 

much less confers on them a private cause of action on which to sue. 

But while there are reasonable arguments against the availability of nonstatutory judicial 

review. as a practical matter it may make no difference. At best. the question is close-the kind 

of issue about which reasonable judges might disagree. But because plaintiffs could bring suits 

challenging 5-day delivery throughout the country. the Postal Service would have to run the table 

and win every case in every court. That seems extraordinarily unlikely. especially because the 

violation would be so clear on the merits; the absence of any defense on the merits would make 

courts less likely to be fastidious about limiting nonstatutory judicial review and insisting on an 

express grant by Congress of a private right of action. 

We do not believe. however. that the Governors would be subject to personal liability in a 

private suit. Because the Postal Service is covered by the Westfall Act. 28 U.S.c. § 2679; see 39 

U.S.c. § 409(c) ("The provisions of chapter 171 and all other provisions of title 28 relating to 

tort claims shall apply to tort claims arising out of activities of the Postal Service."). a Federal 

Tort Claims Act action against the United States will generally be the exclusive remedy for tort 

claims arising out of their acts and omissions in the scope of their employment. 28 U.S.c. 

§ 2679(b)(1). Under the Westfall Act. once the Attorney General certifies that the defendant is a 

federal officer acting in the scope of his office or employment. the United States is substituted as 

the party defendant. and the officer is dismissed from the suit; if the Attorney General fails to so 

certify. the defendant can petition the court to make that finding directly. {d. § 2769(c). (d)(1)-

(3). Because any official action by the Governors adopting 5-day delivery would be taken within 

the scope of their employment. they should be dismissed from any tort suit resulting from that 

action. 

Although there is an exception to the Westfall Act for constitutional torts, see 28 U.S.C. 

§ 2679(b)(2)(A); see generally Bivens v. Six Ullknown Fed. Narcotics Agellfs. 403 U.S. 388. 389 

(1971). it is difficult to see how that exception could apply here. Refusing appropriated funds to 

escape a proviso may well be unlawful. but it does not violate the constitutional rights of a 

private person-at least under any extant constitutional doctrine. And because the Bivells 

remedy is an implied constitutional cause of action. the Supreme Court has been "reluctant to 
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extend Bivens liability to any new context or new category of defendants." Ashcroft v. Iqbal, 

556 U.S. 662, 675 (2009) (quotation marks omitted). Thus, even if there were some private 

constitutional right to block impoundments by federal agencies or to insist on compliance with 

appropriations riders, we think it is highly unlikely that the courts would permit a private 

plaintiff to obtain damages from the Governors in their individual capacity under Bivens. 

F. The Postal Service Could Ask The President to Invoke the ICA And Rescind Its 

Reimbursement Appropriation 

Finally, you asked whether the President could invoke the ICA on behalf of the Postal 

Service in order to obtain a rescission of the reimbursement appropriation. This question is 

essentially political, calling for pragmatic judgments about the expenditure of political capital 

with the President and allies in Congress. But as a legal matter, if the President agrees, we think 

it is likely the simplest solution to the present dilemma. 

When the President determines that budget authority "should be rescinded for fiscal 

policy or other reasons," he "shaH transmit to both Houses of Congress a special message 

specifying" the reasons for the rescission. 2 V.S.c. § 683(a). Congress then takes up a 

rescission bill using statutorily prescribed, streamlined procedures with limited debate. Id. 

§ 688. If the bill passes, the appropriation is cancelled. 

We see no impediment to the President's exercise of this authority. Although there is 

some doubt about whether the ICA applies to "the exercise of the powers of the Postal Service" 

in light of 39 V.S.c. § 410(a), the President's own determination that a rescission is prudent and 

his transmittal of a special message to Congress is not an exercise of the Postal Service's powers; 

it is an exercise of the President's powers under the ICA. 

The only wrinkle to this approach is that GAO's recent opinion letter suggests that the 6-

day proviso is not linked to the underlying appropriation, but rather is independent substantive 

legislation. If that is true, rescinding the reimbursement appropriation would do no good. 

Nevertheless, we are not very troubled by that argument. In our view, GAO's argument that the 

6-day rider is unconnected to the appropriation is weak, and it would be wholly refuted by 

congressional action rescinding the reimbursement appropriation for the very purpose of 

eliminating the 6-day rider. 
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<~." 

&!~'- GAO .:: AccountablHty ~ IntegrIty" Retlabllity Xf',,",'§M'1W))l%t 

United States Government Accountability Office 

Washington, DC 20548 

B-324481 

March 21, 2013 

The Honorable Gerald E. Connolly 

Ranking Member 

Subcommittee on Government Operations 

Committee on Oversight and Government Reform 

House of Representatives 

Subject: U. S. Postal Service-Applicability of Appropriations Act Provision Under 

Continuing Resolution 

Dear Mr. Connolly: 

This responds to your February 22,2013, request for our legal opinion concerning 

whether the Continuing Appropriations Resolution, 2013, continues the applicability 

of a provision in the Financial Services and General Government Appropriations Act, 

2012, that required the U.S. Postal Service (USPS) to continue 6-day delivery and 

rural delivery of mail at not less than the 1983 level. As explained below, we 

conclude that USPS continues to be bound by the provision in the Financial Services 

and General Government Appropriations Act, 2012. 

In accordance with our regular practice, we contacted USPS to obtain its legal 

position on this matter. Letter from Assistant General Counsel for Appropriations 

Law, GAO, to General Counsel, USPS, Feb. 26, 2013; GAO, Procedures and 

Practices for Legal Decisions and Opinions, GAO-06-1064SP (Washington, D.C.: 

Sept. 2006), available at www.gao.gov/legaillawresources/resources.htmi. USPS 

provided us a letter setting out its legal views. Letter from General Counsel, USPS, 

to Assistant General Counsel for Appropriations Law, GAO, Mar. 1,2013 (USPS 

Letter). 

BACKGROUND 

USPS is an independent establishment of the executive branch of the 

U.S. Government. 39 U.S.C. § 201. USPS receives a permanent and indefinite 

appropriation of all revenues that it earns. 39 U.S.C. § 2401. USPS deposits its 

revenues into the Postal Service Fund, which is a revolving fund in the 

U.S. Treasury. 39 U.S.C. § 2003. In an appropriations act for fiscal year 1987, 

Congress also appropriated amounts to the Postal Service Fund to compensate 
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USPS for revenue foregone on free and reduced rate mail that it is required by law 

to carry, "[pjrovided further, That 6-day delivery and rural delivery of mail shall 

continue at not less than the 1983 level.,,1 Postal Service Appropriations Act, 1987, 

Pub. L. No. 99-591, title 11,100 Stat. 3341 (Oct. 30,1986) (emphasis in original). 

Congress has enacted a similar provision concerning 6-day delivery of mail in every 

regular USPS appropriations act since fiscal year 1987. See, e.g., Transportation, 

Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, 

and Independent Agencies Appropriations Act, 2006, Pub. L. No.1 09-115, 119 Stat. 

2396, 2490 (Nov. 30, 2005). In the Financial Services and General Government 

Appropriations Act, 2012 (2012 Appropriations Act), Congress also appropriated 

amounts to the Postal Service Fund to compensate USPS for revenue foregone, 

with a provision identical to those enacted since fiscal year 1987 concerning 6-day 

delivery of mail. 2 Pub. L. No. 112-74, 125 Stat. 786, 884, 923 (Dec. 23, 2011). 

To continue government operations into fiscal year 2013, Congress enacted a 

continuing resolution that, generally, provided appropriations to agencies to continue 

operations at a specified rate. Continuing Appropriations Resolution, 2013, Pub. L. 

No. 112-175, 126 Stat. 1313 (Sept. 28, 2012) (Continuing Resolution). The 

language of the proviso itself, however, does not appear in the Continuing 

Resolution. 

On February 6, 2013, USPS announced that beginning the week of August 5, 2013, 

it would reduce mail delivery to street addresses from 6 days a week to 5 days a 

week. 3 USPS, Postal Service Announces New Delivery Schedule, Feb. 6, 2013, 

available at about.usps.com/news/national-releases/2013/pr13 019.htm (last visited 

Mar. 15, 2013). As we explain further below, USPS notes that because of the 

peculiar nature of its funding (a payment for foregone revenue made in the next 

1 Congress enacted other provisions concerning mail delivery frequency at least as 

early as 1980. Omnibus Reconciliation Act of 1980, Pub. L. No. 96-499, § 412, 

94 Stat. 2599, 2607 (Dec. 5, 1980). 

2 The provision in the 2012 Appropriations Act states "[t]hat 6-day delivery and rural 

delivery of mail shall continue at not less than the 1983 level." Pub. L. No. 112-74, 

125 Stat. at 923. A provision in an appropriations act is not permanent legislation 

unless the language or nature of the provision makes it clear that Congress intended 

the provision to be permanent. 65 Compo Gen. 588 (1986). One way Congress 

indicates permanence is to include words of futurity, such as "henceforth," in a 

provision. Id. This provision contains no words of futurity. In addition, Congress 

has enacted this provision every year since fiscal year 1987. 

3 According to the announcement, packages will continue to be delivered 6 days a 

week, as would mail addressed to post office boxes. In this opinion, we consider 

only whether USPS continues to be bound by the provision in the 2012 

Appropriations Act. We do not consider whether the planned service changes USPS 

has announced would comport with the provision. 

Page 2 B-324481 
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Insert offset folio 85 here 82436.085

fiscal year), the Continuing Resolution did not appropriate funds to USPS. USPS 

Letter, at 4. The 6-day delivery provision, USPS asserts, is a condition imposed only 

on amounts appropriated in 2012. Id., at 3. USPS argues that the provision does 

not apply during the pendency of the Continuing Resolution for the simple reason 

that the Continuing Resolution appropriates no funds to USPS.4 Id., at 4. 

DISCUSSION 

At issue here is whether the provision from the fiscal year 2012 appropriations act 

continues to apply during the fiscal year 2013 continuing resolution. 

It is commonly accepted that the purpose of a continuing resolution is to maintain the 

status quo with regard to government funding and operations. See, e.g., GAO, 

A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP 

(Washington, D.C.: Sept. 2005), at 35-36. Over the years, our decisions have 

concluded that agencies operating under a continuing resolution are to preserve the 

status quo as established by the appropriations acts identified in the continuing 

resolution until Congress completes action on appropriations acts for the remainder 

of the fiscal year. We have stated that "continuing resolutions are intended by 

Congress to be temporary stop-gap measures enacted to keep existing federal 

programs functioning after the expiration of previous budget authority." 58 Compo 

Gen. 530 (1979); see also 8-300673, July 3, 2003; 66 Compo Gen. 484 (1987); 

8-209583, Jan. 18, 1983. We have also said that a "continuing resolution generally 

maintains the status quo until Congress can pass a formal appropriations act." 

8-317022, Sept. 25, 2008. 

There are a number of standard provisions5 enacted in most continuing resolutions 

that, when taken together, establish an expectation that agencies will continue to 

carry out the status quo during a continuing resolution, unless otherwise specifically 

stated. For example, one standard provision, which appears as section 101 of the 

Continuing Resolution, states that agencies must act "under the authorities and 

conditions provided' in the fiscal year 2012 appropriations acts. Pub. L. 

No. 112-175, § 101 (emphasis added). Agencies also may continue projects or 

activities only if they were "conducted in fiscal year 2012." Id. In addition, section 

101 refers to appropriations acts from fiscal year 2012 in their entirety, and the 

amount appropriated under the Continuing Resolution is determined by reference to 

the corresponding fiscal year 2012 appropriation. Id. 

4 USPS states that "Congress will, of course, have the opportunity to enact further 

appropriations legislation prior to the Postal Service's proposed implementation date 

in August. For the Postal Service to move forward with its plan, Congress will have 

to refrain from re-enacting a 6-day rider in such legislation .... " USPS Letter, at 6. 

5 For an explanation of standard provisions in continuing resolutions, see GAO, 

Continuing Resolutions: Uncertainty Limited Management Options and Increased 

Workload in Selected Agencies, GAO-09-879 (Washington, D.C.: Sept. 2009). 

Page 3 8-324481 
160 


Insert offset folio 86 here 82436.086

Three other standard provisions are important here. Section 103 incorporates 

restrictions from the prior year's appropriations acts. Id., § 103. Under section 104, 

amounts appropriated under the Continuing Resolution are not available to initiate or 

resume projects or activities for which appropriations, funds, or authority were not 

available during the prior fiscal year. Id., § 104. Under section 111, appropriated 

entitlements and other mandatory payments whose budget authority was provided in 

prior year appropriations acts are to continue at a rate to maintain program levels 

under current law. Id., § 111. 

The Supreme Court has indicated that the meaning of a statute is to be determined 

not just "by reference to the language itself," but also by reference to "the specific 

context in which that language is used and the broader context of the statute as a 

whole." Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997). In our view, as we 

have stated before in our case law, continuing resolutions are temporary measures 

that require agencies to continue operating under the status quo established by the 

previous appropriations acts until Congress completes action on appropriations acts 

for the remainder of the fiscal year. 

It is in this context that we must interpret the Continuing Resolution as it applies to 

USPS. The 6-day delivery provision has been enacted into law every year since 

1987, and was enacted once again in the 2012 Appropriations Act. When we read 

section 101 with other provisions in the context of its broader purpose, it is clear that 

it extends all the authorities and conditions of the identified appropriations, including 

the 2012 Appropriations Act, for the duration of the Continuing Resolution. The 

6-day delivery provision is one of the "authorities and conditions provided" in the 

2012 Appropriations Act. It would be anomalous, and inconsistent with the nature 

and purpose of a continuing resolution, to conclude that Congress intended in this 

Continuing Resolution, without specific legislative language, to eliminate this 

directive, especially since Congress had imposed it on USPS in the previous fiscal 

year and every year since 1987. 

USPS asserts that it need not comply with the provision during the period of the 

Continuing Resolution because the Continuing Resolution did not appropriate any 

amounts for the Postal Service Fund. 6 USPS Letter, at 3. We disagree. This 

conclusion rests upon a faulty USPS premise, which is that the provision is "explicitly 

tied to the receipt of annually appropriated funds for revenue foregone." Id. No 

language in the provision indicates that its applicability is predicated upon and 

restricted to amounts appropriated in the 2012 Appropriations Act or in any other act. 

Instead, the provision is a legislative directive establishing an operational standard 

for USPS. An appropriations act is a law like any other law, and Congress is free to 

6 USPS has stated that it will abide by the 6-day delivery provision if a full-year 

continuing resolution were to include language providing an appropriation for the 

Postal Service Fund. USPS Letter, at 6; see, e.g., Department of Defense and FullYear Continuing Appropriation Act, 2011, Pub. L. No. 112-10, div. B, § 1118, 

125 Stat. 38,107 (Apr. 15,2011). 

Page 4 8-324481 
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Insert offset folio 87 here 82436.087

enact operational directives and prohibitions in appropriations acts, as well as 

appropriations themselves. See Atlantic Fish Spotters Association v. Evans, 

321 F.3d 220, 224 (1st Cir. 2003). USPS's interpretation of the Continuing 

Resolution and of the 2012 Appropriations Act parses the statutes in a fashion that 

frustrates both the nature and the purpose of the Continuing Resolution. 

CONCLUSION 

The Continuing Appropriations Resolution, 2013, continues the applicability of a 

provision in the Financial Services and General Government Appropriations Act, 

2012, that required the U.S. Postal Service to continue 6-day delivery and rural 

delivery of mail at not less than the 1983 level. Absent specific legislative language, 

a continuing resolution maintains the status quo regarding government funding and 

operations. Although the provision at issue herein is an operational directive, not an 

appropriation, we see no language in the fiscal year 2013 Continuing Resolution to 

indicate that Congress did not expect it to continue to apply during the Continuing 

Resolution. 

If you have any questions, please contact Edda Emmanuelli Perez, Managing 

Associate General Counsel, at (202) 512-2853, or Julia C. Matta, Assistant General 

Counsel for Appropriations Law, at (202) 512-4023. 

Sincerely yours, 

~/~ 

Susan A. Poling 

General Counsel 

Page 5 B-324481 
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BOARD OF GOVERNORS 

iiiirIf!II UNITED STIlTES 

~ POST ilL SERVICE 

April 18, 2013 

The Honorable Darrellissa 

Chairman 

Committee on Oversight 

and Government Reform 

House of Representatives 

Washington, DC 20515-6143 

The Honorable Elijah Cummings 

Ranking Member 

Committee on Oversight 

and Government Reform 

House of Representatives 

Washington, DC 20515-6143 

Dear Chairman Issa and Congressman Cummings: 

Thank you for the opportunity to testify before the House Oversight and Government Reform 

Committee to discuss the options to restore the United States Postal Service to financial solvency. 

I want to correct a statement I made during my testimony. I stated that Publishers Clearing House 

(PCH) was an example of a mailer who was not covering the cost of its mailings. To clarify, PCH 

covers its cost of mail usage, and provides substantial, profitable revenue to the Postal Service. 

I would ask that this correction be made a part of the hearing record. 

Sincerely, 

Mickey D. Barnett 

Chairman 

475 L'ENFANl PlAZA sw 

WASH:NGTON, DC 20260-1000 

VWiW.USPS.COM 
163 


Insert offset folio 89 here 82436.089

- 2 -

cc Mr. Andrew Goldberg. President and Chief Executive Officer, Publishers Clearing House 

Mr. Patrick Donahoe, Postmaster General, Chief Executive Officer. US Postal Service 
164 


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Aprill?,2013 

Options to Bring the Postal Service Back from Insolvency 

Committee on Oversight and Govenm1ent Reform 

Congressman Cardenas 

Wednesday, April 17,2013 

• Thank you Chainnan Issa and Ranking Member Cummings for calling this important 

hearing today to discuss how we can solve thc !,'I'cat problems facing the United 

States Postal Scrvicc. 

• The Postal Service is Amcrica: it reaches every corncr and ensures that every citizen 

can remain connected and communicate as our country changcs throughout time. It 

ensures that people, like some my constituents, who have been Jeft behind by the 

digital divide can still send and receive letters from their families or loved ones. 

• It allows for millions of seniors to receive the medications critical to their health in a 

timely fashion and delivered right to their doorstcp. It also allows millions of small 

businesses to send and reeeive packages and carryon with their commercial activity 

day in and day out. 

• The Postal Scrvice handlcs 40 percent of all the world's mail volumc. That is truly 

impressive and I can't imaginc the negative impact that any reduction in operations 

would have on the delivery ofthis correspondence. 

• At the same time, the post office faces immense challenges, both within and from 

outside market forces. This committee has often heard the cost savings that be gained 

by switching from streetside mailboxes to clustered boxes. 

• However, the committee has also heard about the massive pension contribution cost 

faced by the Postal Service. Half this dais refuses to acknowledge the simple fact that 

the Postal Service is the only agency under the control of government that is forced to 

pre-fund every single employee's pension. We all recognize that the pension fund, 

now in question, is grossly overpaid and almost fiscally irresponsible. 

• The Postal Service also faces challenges from private dclivery service, which cannot 

possibly accomplish the universal delivery mandate the post office proudly achieves. 

It is no surprise since they are far more agile and capable when it comes to 

monetizing their service options, and creating new revenue streams. 

• We must do our best as a committee to address both the internal ehallengcs faced by 

the United States Postal Service, and to create a greater ability to compete in the 

public square for value-added delivery customers. 

• As a legislator for many years, I am well aware of this issue and one that I believe is 

imperative to resolve. As it stands, the current situation is absolutely unsustainable 

and if we do not find solutions and allow the Postal Scrvice to realign its business 
165 


Insert offset folio 91 here 82436.091

April 17, 2013 

modcl we will witness the breakdown of this institution that has been part of Amelica 

for ovcr 200 years! 

• It is in our best personal and commercial interest to have thesc discussions, 

implcment solutions, and I look forward to leaming morc about our options and 

hearing what the witncsses havc to say today. 
166 


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GAO U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

441 G St. N.W. 

Washington, DC 20548 

May 14, 2013 

The Honorable Darrell Issa 

Chairman 

Committee on Oversight and Government Reform 

United States House of Representatives 

Responses to Questions for the Record: Committee on Oversight and Government 

Reform, April 17, 2013, Hearing on "Options to Bring the Postal Service Back from 

Insolvency. " 

Dear Mr. Chairman: 

This letter responds to your April 30, 2013, request that we address questions submitted 

for the record related to the April 17, 2013 hearing entitled "Options to Bring the Postal 

Service Back from Insolvency. " Our answers to these questions are enclosed and are 

based on our previous work, updates to that work, and our knowledge of the areas 

addressed. 

If you have any questions or would like to discuss our responses, please contact me or 

Lorelei St. James at (202) 512-2834 or S~amesl@gao.gov. 

Sincerely yours, 

Gene L. Dodaro 

Comptroller General 

of the United States 

Enclosure 

cc: The Honorable Elijah E. Cummings, Ranking Minority Member 
167 


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Questions for 

The Honorable Gene Dodaro 

Comptroller General of the United States 

Chairman Darrell Issa 

Committee on Oversight and Government Reform 

Hearing: "Options to Bring the Postal Service Back from Insolvency" 

1. With regard to the prefunding requirement for retiree health care benefits, 

please clarify how USPS's prefunding schedule could be restructured in light of 

expected obligations to current employees, retirees, and beneficiaries, whether 

such prefunding is a best or common practice and what is known about other 

entities that prefund this benefit, whether this benefit is becoming more or less 

common in the private sector, and whether the requirement includes prefunding 

for people who have not yet been born? 

We have organized our response by the following components of the question: 

(a) How the U.S. Postal Service's (USPS's) prefunding schedule could be restructured 

in light of expected obligations to current employees, retirees, and beneficiaries. 

In our report on alternative approaches to fund retiree health benefits, we analyzed 

various proposals to restructure the prefunding schedule, including the implications of 

different approaches. 1 At the most basic level, we noted that less prefunding now 

means greater costs, and a greater unfunded liability, later. With regard to USPS's 

current required prefunding schedule, we commented on three specific aspects of this 

1 GAO, u.s. Postal Service: Status, Financial Outlook, and Alternative Approaches to Fund Retiree Health Benefits, 

GAO-13-112 (Washington, D,C,: Dec. 4,2012), 

Page2 
168 


Insert offset folio 94 here 82436.094

schedule. First, we explained that the current prefunding schedule consists of two 

distinct sets of prefunding rules over different time periods: for fiscal years 2007-2016, 

a schedule of "fixed" prefunding payments-meaning that the prefunding amounts are 

set by statute and do not vary with the actuarial cost of the benefits; and for fiscal years 

from 2017 on, actuarially determined prefunding amounts. We found that the fixed 

prefunding requirements for 2007-2016 were significantly in excess of what actuarially 

determined amounts would be. We support proposals to replace the fixed payments 

with actuarially determined amounts. Second, we pointed out that under current law, the 

actuarial assumptions used in determining the size of unfunded liability and USPS's 

required prefunding amounts (from fiscal year 2017 on) are based on accounting rules 

that were designed to accomplish financial reporting objectives rather than funding 

objectives. We support proposals to change the assumptions to make them consistent 

with those used for determining USPS's funding obligations for Civil Service Retirement 

System (CSRS) and Federal Employees Retirement System (FERS) pensions. Third, 

we analyzed the implications of proposals to lower the funding target from 100 percent 

of the liability (as under current law) to 80 percent of the liability. We raised concerns 

about such an approach, which would enable a permanent, significant unfunded liability. 

We do not support a lowering of the funding target from 100 percent 

(b) Whether such prefunding is a best or common practice and what is known about 

other entities that prefund this benefit 

In our report on alternative approaches to fund retiree health benefits, we reported 

information on other entities that prefund this benefit 2 We found that, although 

prefunding is generally not required, a number of private sector, state and local 

government, and federal entities have elected to prefund some percentage of their 

retiree health benefits. For example, for the private sector, the USPS Inspector General 

reported in 2012 that 38 percent of Fortune 1000 companies that offer retiree health 

2 GAO-13-112. 

Page 3 
169 


Insert offset folio 95 here 82436.095

care benefits prefund them, at a median funding level of 37 percent. 3 In the state and 

local government sector, we found in 2009 that 18 states and 13 of the 39 largest local 

governments had done some prefunding. 4 In the federal sector, we found that while 

most federal civilian agencies do not prefund these benefits, a few small, civilian, 

federal agencies do so. In addition, we reported that the Department of Defense (DOD) 

prefunds its retiree health benefits for Medicare-eligible retirees and beneficiaries, with a 

100 percent target funded percentage. The fund was started in 2002 in reaction to 

rapidly rising health care costs, and had assets of $166 billion as of September 30, 

2010, which represented an actuarially-determined funding level of 38 percent up to that 

point. We also reported that DOD, while prefunding retiree health benefits for Medicareeligible retirees, does not prefund its retiree health benefits for pre-Medicare-eligible 

retirees-but that DOD's independent Board of Actuaries has recommended that it 

consider prefunding these costs as well, in order to reflect the full costs of these future 

benefits and promote a greater understanding of the program's value. 

In our report on alternative approaches to fund retiree health benefits, 5 we noted several 

key potential reasons to prefund, which include: (1) protecting the future viability of an 

enterprise by not saddling it with bills after employees have already retired; (2) providing 

greater benefit security to employees, retired employees, and their beneficiaries; (3) 

providing security to any third party that might become responsible for an unfunded 

liability in the event of an enterprise's inability to pay; and (4) achieving an equitable 

allocation of cost over time by paying for retirement benefits as they are earned, over 

employees' working years. 

(c) Whether this benefit is becoming more or less common in the private sector. 

3 U.S. Postal Service Office of Inspector General, "Pension and Retiree Health Care Funding Levels: Management 

Advisory Report," FT-MA-12-002 (June 18, 2012). 

4 GAO, State and Local Government Retiree Health Benefits: Liabilities Are Largely Unfunded, but Some 

Governments Are Taking Action. GAO-l0-61 (Washington. D.C.: Nov. 2009). 

5 GAO-13-112. 

Page 4 
170 


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The proportion of employers with more than 200 employees that offer retiree health 

benefits is declining, according to an annual national survey. In 2012, about 25 percent 

of these employers that offer health insurance to employees also offered retiree health 

insurance, according to a survey by the Kaiser Family Foundation and the Health 

Research & Educational Trust. By comparison, in 2007 this same survey reported that 

32 percent of these employers offered retiree health insurance, and in 2002, 35 percent 

offered retiree health insurance. It should be noted, however, that this survey reports on 

behavior of both private-sector and state and local public-sector employers. Among only 

private-sector employers, the percentage of large employers that offered retiree health 

benefits in 2012 ranged from 9 percent in the retail sector to 40 percent in both the 

finance sector and the transportation! communications! utilities sector. 

(d) Whether the USPS prefunding requirement includes prefunding for people who have 

not yet been born. 

As we noted in our report on alternative approaches to fund retiree health benefits, the 

USPS prefunding requirement does not include prefunding for anyone who has not yet 

been born.6 The prefunding is only for current workers and retirees and their 

beneficiaries, and does not include anyone not yet hired or not yet born. 

In our report,? we also dispel the misimpression that the USPS prefunding requirement 

requires USPS to prefund 75 years of retiree health benefits over a ten year period. 

The references to "75 years of benefit payments" represent a shorthand description of 

the benefits being prefunded. The prefunding is actually for (1) all projected future 

benefits for current retirees and their beneficiaries, plus (2) a portion of projected future 

benefits for current workers and their beneficiaries, such portion accruing over the 

workers' careers at USPS. This prefunding target at any point in time would include 

some benefits projected to be paid beyond 75 years-because, for example, some 

6 GAO-13-112. 

7 GAO-13-112. 

Page 5 
171 


Insert offset folio 97 here 82436.097

current workers can be expected to live beyond 75 years-but it would also exclude 

some payments projected to be paid within the next 75 years-because it only includes 

a portion of the benefits that will ultimately be paid to current workers. 

As we reported, the prefunding for these projected benefit payments is not limited to ten 

years, but rather is spread out over more than 50 years. In addition, we noted that the 

payments are significantly "frontioaded," with the payments in the first ten years of the 

schedule (fiscal years 2007-2016) being Significantly in excess of what actuarially 

determined amounts would be, as noted in our answer to part (a) of this question. 

2. Your testimony touches on how delivery standards have "evolved" over time 

and how they still vary to some degree in various areas around the country. Can 

you elaborate on that? 

USPS is required by law to provide prompt, reliable, and efficient services, as nearly as 

practicable. The Postal Regulatory Commission (PRC) has reported that delivery 

frequency is a key element of universal postal service. Key aspects of the Postal 

Service's universal service obligation are broadly outlined in multiple statutes and 

encompass multiple dimensions including delivery frequency. Other key dimensions 

include geographic scope, range of products, access to services and facilities, 

affordable and uniform pricing, service quality, and security of the mail. 8 The frequency 

of USPS mail delivery has evolved over time to account for changes in communications, 

technology, transportation, and postal finances. For example, prior to 1950, city carriers 

generally delivered letters twice a day to homes and up to four times a day to urban 

businesses. The second residential delivery was discontinued in 1950 in most cities. 

Multiple deliveries to businesses were phased out over the next few decades as 

changing transportation patterns made most mail available for first-trip delivery. 

Currently, while most customers receive 6-day delivery, some customers receive 5-day 

8 GAO, us. Postal SelVicee Strategies and Options to Facilitate Progress toward Financial Viability, GAO-10-455 

(Washington, D.C .. April. 12.2010). 

Page 6 
172 


Insert offset folio 98 here 82436.098

or even 3-day-a-week delivery, including businesses that are not open 6 days a week; 

resort or seasonal areas not open year-round; and areas not easily accessible, some of 

which require the use of boats, airplanes, or trucks. For example, mail is transported by 

snowmobiles for delivery in some areas of Alaska and by boats for delivery on islands in 

Maine and other states. 9 

Of current relevance to the delivery frequency discussion is the increase in electronic 

modes of communication. The Postal Regulatory Commission has stated that the Postal 

Service needs a flexible approach to mold its network to address multiple factors, 

including shifts in population; growth and development of cities; improvement in modes 

of transportation; and changes in modes of communication. 'O We also support 

increased flexibility for the Postal Service to adjust its delivery service to meet changing 

demands and improve its financial condition. This is particularly important in light of 

increasingly new modes of electronic communication. 

9 GAO, US. Postal Service: USPS Needs to Clearly Communicate How Postal Services May Be Affected by Its 

Retail Optimization Plans, GAO-04-803 (Washington, D.C .. July 2004). 

10 Postal Regulatory Commission, Report on Universal Postal Service and the Postal Monopoly (Washington, D.C., 

Dec. 19. 2008). 

Page? 
173 


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GOVERNMENT RELATIONS 

~ UNITED STA.TES 

~ POSTIlL SERVICE 

May 15, 2013 

The Honorable Darrell E, Issa 

Chairman 

Committee on Oversight and 

Government Reform 

House of Representatives 

Washington, DC 20515-6143 

Dear Chairman Issa: 

Enclosed please find responses to the questions for the record in their entirety for the Committee on 

OverSight and Government Reform's April 17, 2013 hearing entitled, "Options to Bring the Postal Service 

Back from Insolvency," The responses are submitted on behalf of Postmaster General Patrick R, 

Donahoe, 

If you have any questions, please let me know, 

Sincerely, 

Sheila T Meyers 

Manager, Government Liaison 

Enclosures 

475 l'EN~f.N I" PLAIA SW 

WASHINGT!)N DC 20260·3500 
174 


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HOUSE OVERSIGHT AND GOVERNMENT REFORM COMMITTEE 

"Optiolls to Brillg the Postal Service Back/rom [nsolvellcy" 

Wednesday, April 17, 20t3 

Post-Hearillg Questiolls for the Record 

Submitted to the HOllorable Patrick R. DOllahoe 

From Chairman Darrell Issa (R-CA): 

I. In your testimony, one of the "key legislative goals" you list is to "require defined 

contribution system for future postal employees." OGR staff were first informed of this 

proposal on August 17. 20 11. In the 20 months since that date no new information has 

been provided to the Committee. In fact. there has been effectively no mention of the 

proposal until it appeared in one sentence ofa four page white paper on "Postal Service 

Governance" provided to the Committee on March 12.2013. Further, in the official 

"Postal Service Legislative Proposals" document on provided to the Committee April 8, 

2013. there was no mention of the proposal. 

a. Please elaborate on the proposal. How would it work? Who would be covered by 

it? 

We propose that career employees hired on or after Jannary 1,2015 be 

covered by a defined contribntion pension plan only (in addition to Social 

Security). Current employees would experience no change to their present 

retirement plans. 

Under existing law, new career hires are covered by FERS, which includes a 

defined benefit component in addition to Social Security and a defined 

contrihution component (the Thrift Savings Plan, or TSP). However, the use 

of defined benefit pensions is declining in the private sector, including among 

large employers. Adopting the Postal Service's proposal would therefore 

accord with prevailing private sector practice. The design we propose will 

protect the Postal Service financially and provide a benefit that gives 

sufficient retirement income. 

In 201 t, the Postal Service submitted to Congress a White Paper detailing 

this proposal. We have attached, with this response, an updated version of 

that paper. 

b. Has USPS drafted the necessary legislative language for this program? If so, 

please provide it. 

Yes. It is attached. 
175 


Insert offset folio 101 here 82436.101

c. Is legislative language necessary to implement this proposal? If so, why was 

legislative language not included with the rest of the Postal Service legislative 

proposals? 

Yes, as discussed below legislative change is necessary to implement this 

proposal. The Postal Service did not include language with the other 

proposals because it wanted to discuss the matter further with relevant 

stakeholders before presenting specific language to Congress. 

d. Have you discusscd this proposal with thc Postal unions, what was their reaction? 

We have shared the white paper with the unions and they took it under 

advisement. 

e. Do you believe you have the current legal authority to shift new employees who 

are not members of a collective bargaining unit from FERS into a new defined 

contribution plan? Ifnot. why not? 

No, we do not have the eurrent legal authority to shift new non-bargaining 

employees out of FERS. Section 1005(d) of title 39, United States Code, 

states that "[tJhe officers and employees of the Postal Service ... shall be 

covered by chapters 83 and 84 of title 5." (The cross-references are to CSRS 

and FERS, respectively.) Unlike health benefits, the Postal Service has no 

authority to substitute a different pension system for postal employees. 

Employee participation in the Federal Employees Health Benefits Program is 

conferred by section 1005(f), which expressly states that coverage under that 

Program (chapter 89 of titlc 5) continues "unless varied, added to, or 

substituted for, under this subsection." Thercforc, the Postal Service can 

"substitutc" a different health benefits program for non-bargaining 

employees so long as it adheres to its consultation requirements. However, no 

comparable "snbstitution" authority exists with respect to retirement 

benefits under section 1005(d). Accordingly, the plain language of section 

1005(d) provides that new Postal Service employees must be covered by 

FERS. See also American Postal Workers Union, AFL-CIO v. United States 

Postal Service, 707 F.2d 548,555-57 (D.C. Cir. 1983) (distinguishing between 

retirement benefits under section 1005(d) and benefits that can be changed 

by the Postal Service nnder section 1005(f). 

2. Your testimony also states USPS would like the ability to appeal final EEOC dccisions to 

the federal court. Can you elaborate on why you believe such a change is warranted? 

EEOC cnrrently possesses unreviewable authority in applying employment 

discrimination statutes to federal employers. While individual employees and 

applicants for employment may file de novo actions in the federal courts when they 

are dissatisfied with the EEOC's decisions, federal employers do not have that right. 

2 
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Insert offset folio 102 here 82436.102

This asymmetrical situation is unfair. The Postal Service proposes language that 

would give it the right to file a similar de novo action in the federal courts. 

The Postal Service's inability to challenge EEOC decisions in court has serious 

financial consequences. In particular, unbridled class action litigation that has been 

certified by the EEOC in contravention of class action standards used in Federal 

court poses a substantial threat to the Postal Service. For example, the Postal 

Service has litigated for many years a class action involving over 40,000 current and 

former employees in which EEOC's rulings clearly contradicted Supreme Court 

precedent regarding class actions. Other class actions have included even more 

putative class members, with potential liabilities running into the hundreds of 

millions of dollars. Given the significance of these cases, and the EEOC's heretofore 

unreviewable authority over them, legislative change is needed to give the Postal 

Service the ability to challenge EEOC decisions in court. 

3 
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HOUSE OVERSIGHT AND GOVERNMENT R}<~FORM COMMITTEE 

"Options to Bring the Postal Service Backfrom Insolvency" 

Wednesday, April 17, 2013 

Post-Hearing Questions for the Record 

Submitted to the Honorable Patrick R. Donahoe 

From Subcommittee Chairman Blake Farenthold (R-TX): 

I. Approximately how many reports does the USPS receive each year of election materials, 

sLIch as voter registration cards (YRe) and absentee ballots, going missing? 

The Postal Service has in place procedures that are followed whenever it receives 

reports of issues with all mail, including election materials. It should be noted that 

there is a distinction between varions types of election materials and the timing of 

mailing for these items. Ballots, for example, are typically mailed in conjunction 

with scheduled elections which generally occur every two years. For items snch as 

Voter Registration Cards (VRC), however, municipalities or counties often utilize a 

staggered schedule for the mailing of these items. They do not typically adhere to a 

two-year cycle and they are not mailed within any specific timeline, as is the case 

with ballots. 

Regardless of when items are mailed, including election materials and VRCs, the 

Postal Service takes scriously any rcport of missing or delaycd mail. Local postal 

officials work with customers to research and resolve all such reports. In addition, 

each election year, the Postal Service forms an Election Mail Task Force (EMTF) to 

ensure further that all issues concerning election and political mail are reported and 

resolved in a timely manner. During the 2012 election mail season, the Postal 

Service's EMTF received two reports of isolated incidents, regarding what were 

thought to be missing election mail items, but that were later confirmed as delivered 

following investigation of each incident. 

2. What actions docs the USPS take in response to cases of missing or stolen election 

materials? 

The procedures for responding to reports of missing or delayed election materials 

usually begin at the local level. Standard Operating Procedures (SOP) exist which 

direct each Plant Manager, Postmaster, or other local manager to investigate. 

When the Postal Service becomes aware of any such situation, the District Manager, 

who is the highest-ranking postal official in the local area, investigates and 

researches the reported incident. If warranted, the District Manager will further 

escalate the matter up the chain of command, which includes elevating the issue to 

the Vice President, Area Operations. If the circumstances warrant, the U.S. Postal 

Iuspection Service (USPIS) is notified. They investigate the claims and determine 

the scope and validity of each case. There is a distinction with regard to 

investigatory activity. The USPIS investigates any external criminal activity. They 

4 
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Insert offset folio 104 here 82436.104

also review and report on any security deficiencies discovered and assist the Postal 

Service in assuring that missing materials are not present in postal facilities. The 

Postal Service Office of the Inspector General (OIG) investigates internal activity, 

such as intentional employee misconduct, and any such case would be referred to 

that group. 

3. The USPS OIG reccntly completed an investigation into missing VRCs in Fort Bend 

County, Texas, at thc request of Rep. Pete Olson (TX-22). The investigators were unable 

to ascertain either the whereabouts of the VRCs or how they went missing. What is the 

next step in an investigation of this sort? Will the USPS continue to investigate or will 

the USPS give up and acknowledge that they cannot guarantee the security of election 

materials? 

The Postal Service is unable to comment on any aspect of the investigation 

conducted by the OIG, as we have received no information from the OIG regarding 

their investigation or the outcome. When the Postal Service became aware, in ,June 

of 2012, of the situation involving Fort Bend County mailings sent in March and 

April of2012, the District Manager immediately began an investigation ofthe 

matter. Local postal management ascertained that the mail in question was 

received, verified and documentcd through the Postal Service's Business Mail Entry 

Unit (BMEU), They conducted a review to verify that there were no VRCs from 

Fort Bend County present within the applicable mail processing facility or delivery 

units. All VRCs received at the applicable delivery offices were delivered. 

In July 2012, a representative from the Postal Service provided a synopsis ofthc 

investigatory efforts to a representative from the Fort Bend County elections office. 

Additionally, the District Manager met with local county election officials in August 

2012 to further discuss this mailing. Also discussed at this meeting was an upcoming 

additional mailing of VRCs by Fort Bend County that would be sent in September 

2012. It was mutually agreed that the Postal Service would closely monitor the 

September mailing and election officials appeared to be satisficd with the responses 

provided by the Postal Service. There were no issues reported with the September 

VRC mailing. To further assist in determining what might have occurred with this 

case, the Postal Service reviewed addresses provided by Fort Bend County elections 

officials and found no discernible pattern to indicate non-delivery on any particular 

route or ZIP Code. 

The security of all mail, including election materials, is of paramount importance to 

the Postal Service. Working with the USPIS, the Postal Service provides the highest 

possible level of secnrity for the mail, including election materials, from point of 

acceptance to final delivery. 

a) What policies did the USPS have in place at thc time of the Fort Bend County 

incident to ensure the integrity and security of election materials? Have there 

becn any changes in those policies since then? If so, why? 

5 
179 


Insert offset folio 105 here 82436.105

The mailing in question for Fort Bend County occurred in March and April 

2012. As noted previously, the Postal Service puts in place additional 

procedures in advance of each election cycle every two years. These 

heightened processes normally begin approximately four to six months prior 

to each Election Day date. At the time of this mailing, these additional 

procedures were not yet activated. It is important to note, however, that 

issues of mail security arc always at the forefront of the Postal Service's 

operational processes, each and every day of the year. 

Postal Service policies currently in place to preveut the theft or loss of mail 

include: ensuring the seeurity of mail proeessing and delivery facilities to 

protect against the intrusion of unauthorized individuals; ensuring the 

security and handling of mail transported for delivery by mail earriers and 

contractors; and rigorous personnel security policies requiring appropriate 

background investigations on employees and contractors. There have been 

no significant changes in Postal Service procedures since the incident 

involving the Fort Bend VRCs; however, the Postal Service is constantly 

striving to improve its processes and is focused on keeping the mail safe and 

secure. The Postal Service has been named the Most Trusted Government 

Agency for seven years and the fourth Most Trusted Business in the nation 

by the Ponemon Institute. 

4. In light of the inability of the O!G to get to the bottom of the missing VRCs in Fort Bend 

County, Texas, what policies does the USPS plan to institute in order to ensure that this 

never happens again? 

As previously stated, the Postal Service is unable to comment on the OIG 

investigation. We will continue to afford mail security to election materials by 

enhancing visibility within the mailing system. We currently utilize tools such as 

tagging, logging, and tracking of election mail. In addition, there are tools available 

that election officials can use to track individual mail pieces, such as the Full Service 

Intelligent Mail barcode (1Mb). This system provides for scanning and tracking 

capability that offers optimal security and visibility. The Postal Service will 

continue to work closely with election officials and election organizations to further 

improve existing processes and ensure the security of election materials. 

6 
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HOUSE OV.:I{SIGHT AND GOVERNMENT REFORM COMMITTEE 

"Oplim/S I" Brillg III" POSlul Sen'ice Buck/rom im'fll"ellq" 

Wednesday, AWil1 7, 2013 

P"_fl.H"urill/: QIII'IlilJlIs/or Ihe Ret'Of l1 

Submit/I'd 1<1 1" 1' II111111fUb11' Plllrick R, IJlIfIIII~ 

From Representatin' Tamo!\' Duckworth (1)·1 Ll: 

I. I'ostmaster General Donahoe. during the hearing Chairman llamCU llIentioned thm in 

your previous discussions with busillcsscs who dcliver prescription dl\lgs, prcsentmions 

werc givell on \\3)'$ to ensure li mcly dclivery or medicillc 10 cuSlomcrs withom 

illcre3sillg the eOSIS 10 businesses. Could you please elaborate on th is point and share 

with us additional informatioll Ihat USI'S' nlallagemcnl or 1he Doard ofGovcmors may 

have about any expected cost shiftin g to postal CUSlOmcrs. I am paniculad y concerned 

about this. because in an April 10. 2013. Subcommiucc hearing CVS Car.:mark testified 

that il was possible thm moving 10 5 day deli-'cry could affect their margins and lead to 

cost shifting 10 their cuslOmers. 

The Poslal Scn'icc has no cu rren' pl$ns .o implemen. a f« or surcha rgl' for 

Salurday l13ckage delive ry. In sddiliOll, .he l'uSlal Scn';cl' is ma king enry cffor'lII 

ellsure the transilion to [i'-e-day delinT)' wilh Sa turday packagl' delincC)' is as 

sea mless fo r Qur cu mH~ _~ possi!>le. 

7 
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Insert offset folio 107 here 82436.107

5/4/2013 

A USPS RETIREMENT PROGRAM FOR NEW EMPLOYEES 

I. INTRODUCTION 

Given the continuing deterioration in our financial situation, additional steps must now be taken to 

enable the Postal Service to reduce costs at an accelerated pace, in addition to the legislative changes 

we have already identified and the steps already taken or planned on matters within our control. As we 

discuss in more detail below, it is imperative that we reduce our retirement costs which, along with our 

health care costs, comprise one-third of our total labor costs. 

As part of our plan to address rising benefit costs, The Postal Service is proposing changes to the 

retirement plan for newly hired employees. At this time we do not propose to change the current 

benefits for any current employees and annuitants enrolled in the Civil Service Retirement System 

(CSRS), the Federal Employees Retirement System (FERS) and the Thrift Savings Plan (TSP). Our 

objective is to provide a different approach to retirement; one that is more consistent with the private 

sector comparability standard under the Postal Reorganization Act. We believe the approach described 

in this paper will better serve the interests of both the Postal Service and our employees. 

II. THE POSTAL SERVICE PROPOSED PLAN OF ACTION -EXECUTIVE SUMMARY 

The Postal Service does not control retirement benefits for its employees. While the law requires that 

compensation and benefits for postal employees are comparable to that in the private sector, the Postal 

Service is treated like any other entity of the federal government for purposes of retirement benefits. 

The federal government set up, administers and controls the Civil Service Retirement System (CSRS), 

Federal Employees Retirement System (FERS) and Thrift Savings Plan (TSP) retirement programs, and 

our employees participate in those programs like any other federal employee. The Postal Service does 

not believe that our current benefit programs meet the private sector comparability standard, and this 

view is supported by a report recently prepared by the Congressional Budget Office.' And as we show, 

the current system is far more generous than retirement benefits provided by employers in the private 

sector. By moving to a new Postal Service retirement system for new employees, the Postal Service will 

more fully reflect private sector trends, and incorporate private sector "best practices". 

In the following paragraphs, we will address two issues: 

1. Why the Postal Service should have its own Retirement Program; 

2. How the Postal Service would approach the design of a Retirement Program for new employees 

Following this Executive Summary, we also provide information regarding the following: 

Retirement savings trends in the private sector; 

The current funding requirements for both FERS and the TSP program; 

A proposed plan design for a defined contribution plan for new hires; 

Investment options and past investment performance under the TSP program 

, Please see the following link: l:l.t1Jl:llwww.cbo.gov/sites/default/files/cbofiles/attachments/O1·30-FgdPay.pdf 

DRAFT 

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1. Why the Postal Service Should Have its Own Retirement Program 

The Postal Service believes that it should have its own program for four principal reasons. First, under 

the Postal Reorganization Act, the Postal Service is obligated to provide wages and benefits comparable 

to those provided in the private sector. The FERS system is not comparable to retirement benefits 

provided in the private sector; it is more costly. The private sector is adjusting constantly to market 

conditions through changes in plan design, portability, investment strategy, eligibility, provider services, 

employee engagement, cost management, and a host of other factors that reflect "best practices" in 

compensation and benefit policies. The Postal Service cannot meet the private sector standard if it is 

locked into the federal retirement system. 

Second, benefit costs constitute roughly 40% of total labor costs. As has been well reported, 

approximately 80% of Postal Service total costs are labor costs. We cannot resolve our fiscal issues 

without addressing our labor costs. 

Third, the Postal Service believes it is in the interest of the federal government, our retirees and active 

employees, our stakeholders and the postal community as a whole to segregate over time the Postal 

Service retirement obligation from that of the federal government. Since 1971, there have been 

ongoing disputes between the Office of Personnel Management (OPM) and the Postal Service 

concerning fair accounting of the Postal Service funding obligation and that of the rest of the federal 

government. On more than one occasion, Congress has been asked to step in to resolve the controversy 

through legislation. Indeed, even as this paper is being distributed, there is a dispute as to whether the 

Postal Service has underfunded CSRS, and the extent to which it has overfunded FERS. Furthermore, 

current law does not address the FERS overfunding. Postal Service careers are different from federal 

employee careers, yet the Postal Service FERS funding is based on combined Postal and non-Postal 

experience. We believe such tensions will continue as long as the Postal Service's retirement programs 

remain intertwined with those for the rest of the federal government. This is especially true because, by 

any accounting, the Postal Service has funded substantially more of its pension obligations than the 

federal government. 

Finally, our mix of employees and their needs and ours are changing. A more portable and flexible 

retirement program, built along sound design principles, will have greater appeal to our emerging 

workforce. The design we propose will be within our means, and stili provide sufficient benefits at 

retirement so that our career employees can reasonably maintain their pre-retirement standard of living 

throughout their retirement years. 

2. How the Postal Service Would Approach a New Retirement Program 

While the Postal Service would need the flexibility to design a retirement program that is appropriate to 

the varying needs of its participants, fairness and practical considerations would guide how the Postal 

Service would approach the design of an appropriate retirement program for new hires. For new hires, 

our objective is to conform our retirement benefits program to private sector practice, consistent with 

the comparability standard. In the private sector, defined benefit plans are in decline. There are a 

growing number of Americans for whom retirement savings is being prOVided through an employer 

sponsored defined contribution plan. 

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183 


Insert offset folio 109 here 82436.109

Our view is that the best course for the provision of retirement benefits to new hires would be through 

a defined contribution plan with benefits provided through the Thrift Savings Plan (TSP) or a separate 

savings program with similar features. We describe the proposed plan design and the major advantages 

we see below. The TSP program is well designed and well managed, and the infrastructure is already in 

place to serve the needs of USPS and participants. This approach would allow the USPS to incorporate 

private sector best practices concerning employer contributions, portability, distribution options, 

eligibility and investment options, including those features already embedded in the TSP program. 

III. PROPOSED DEFINED CONTRIBUTION PLAN DESIGN FOR NEW USPS EMPLOYEES 

While the growth of defined contribution plans has largely reflected financial considerations for plan 

sponsors, including efforts to constrain costs and manage the volatility in plan costs that is characteristic 

of defined benefit pension plan funding, it is important to note that certain advantages are also 

perceived by participants in defined contribution plans, compared with defined benefit plans. Such 

advantages include: 

The benefits and the accumulating value in the participant's retirement plan accounts are reflected 

in periodic statements. In today's world, participants can access information about the plan, the 

performance of their investment choices and their account balances daily. The benefit is thus more 

tangible and visible than benefits provided under a defined benefit plan, especially for younger plan 

participants; 

The benefit is readily portable, since on termination of the participant's employment the balances 

accrued, subject to the provisions of the particular plan, can be: 

Maintained in the former employer's plan; or 

Rolled over to a rollover individual Retirement Account; or 

Rolled over to a successor employer's plan; 

Benefit distribution options are virtually unlimited at retirement or termination of employment. 

Participants have the option to receive their benefit: 

in a single lump sum, paid in cash or rolled over to an IRA; or 

Annuitized either through the plan or through an annuity purchase outside the plan, with 

annuity terms (single life, joint life, deferred annuity, etc.) chosen by the participant; or 

Some combination of the prior two options, i.e. receive part of the distribution in a lump sum 

and annuitize the residual amount; and 

The decision to annuitize can be made at retirement, or later as the participant's needs and 

investment considerations dictate 

Participants can tailor their investment choices to meet their particular needs, induding taking into 

account such factors as: 

DRAFT 

Their personal risk tolerance; 

The time horizon remaining until they will need to use the funds accumulated for income after 

retirement; 

Other retirement income assets; and 

Other factors which will influence their investment choices. 

Page 3 of20 
184 


Insert offset folio 110 here 82436.110

Participants have greater control over their savings over their working career, can modify their 

savings rate to adjust to changing circumstances, and can access a portion of their account to meet 

immediate needs such as financing a home purchase. 

The proposed plan has been designed around the following principles: 

Currently, participants in FERS and TSP participate significantly in saving for their own retirement. 

The contribution for FERS, which is a condition of employment and is mandatory, is 3.1% of pay for 

employees entering the plan now. In addition, participants who take full advantage of the matching 

contributions under the TSP program contribute 5% of pay. The TSP program has high rates of 

participation among USPS employees, with employees in the various crafts and other subsets of 

employees participating in the plan contributing on average between 4% and 4.5% of pay. The 

proposed plan design continues to require a mandatory employee contribution, and will provide for 

additional voluntary contributions. 

The TSP has an automatic contribution of 1% of pay. The proposed plan design will also include an 

automatic contribution, set initially at the same 1 % of pay provided under TSP. 

The plan will provide a matching contribution against the mandatory employee contribution. 

The plan will also encourage additional employee savings through contributions that will match a 

participant's voluntary contributions of up to 5% of pay. 

The overriding objective is to provide a benefit, including both USPS and participant contributions, that 

will be sufficient to provide adequate income at retirement for any career employee who retires at or 

near Social Security normal retirement age. 

In Figure 1 below, we show the proposed plan design with each of its elements of employee and USPS 

contributions, and the vesting provision that will apply to each level of contribution: 

FIGURE 1 - USPS DEFINED CONTRIBUTION PLAN DESIGN 

Employee USPS Contributions Percentage of Pay Vesting 

Contributions Employee USPS 

Automatic 1% 1% After 5 Years of 

Service 

Mandatory 3% 50% match 3% 1.5% 100% 

Immediate 

Voluntary up to 5% 50% match 5% 2.5% 100% 

Immediate 

Additional voluntary No match + 100% 

contributions up to Immediate 

IRS Limits 

8%+ 5% 

~if,., i·lis~ . i)('lilo"d (oniributk", eLm [,)r Npw Hir0s'~'i<i'V Fr·.,tlM" 

DRAFT 

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185 


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The contributions in the proposed plan are the total contributions, and thus include the current 

participant and USPS contributions (automatic and matching) under the TSP, 

Employees will also be able to make additional voluntary contributions which will not be matched, up to 

the IRS limits on contributions in defined contribution plans, 

We provide information about comparable levels of employer contributions toward defined 

contribution plans in the private sector in Appendix C 

IV. INVESTMENT RETURN CONSIDERATIONS FOR PARTICIPANTS 

An additional consideration is particularly worth noting with respect to the proposal to replace the FERS 

plan with a defined contribution only approach for USPS new hires, That is associated with the 

investment returns that might be expected for the individual participant versus the returns that are 

earned over time given the constraints that are currently in place for those assets that are maintained in 

the FERS fund, We discuss those constraints in more detail in Section VII below, 

While the literature available on the subject has generally shown that the investment returns earned on 

average by defined contribution plan participants is less than that earned by pension plan sponsors, we 

believe that is not likely to be the case with respect to comparing expected investment earnings on 

assets held for the FERS program with returns that might be expected for participants in the new plan, 

given the current and likely future constraints on how those assets in FERS must be invested, 

For the purpose of the comparison of potential benefit outcomes and costs if the current FERS plus TSP 

plan is replaced by the proposed defined contribution plan, it is not unreasonable to assume that plan 

participants will on average do as well on their own, or better, than the investment returns earned on 

assets held for the FERS system, If that assumption is correct, that will contribute further to the 

potential for savings to USPS which may be obtained while still producing benefit outcomes for 

participants that will provide sufficient income combined with Social Security for our career employees, 2 

In Figure 2 below, we show the expected income available at retirement from the current FERS + TSP 

plans and Social Security. We then compare that expected income with the income that would be 

produced under the proposed defined contribution plan design for new hires, under the following 

assumptions: 

Age at hire-Age 30 

Age at retirement-Age 62 

Average earnings--$50,000 annually 

Form of annuity-life annuity, with Cost of Living Adjustment (COLA) after retirement consistent 

with the COLA provided under FERS 

• Real rate of investment return assumed: 4% 

2 Please see the following link: http://www.towerswatson.com!united-states!newsletters!insider(3955 

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186 


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$60,000 

$50,000 

$40,000 

$30,000 

$20,000 

$10,000 

$0 

Current vs Proposed Retirement 

Benefits 

funded FERS 

!Ii! Employee DC 

USPS Funded DC 

Funded FEHS 

Current FERS New DC Plan 

USPS employees investing in either lifestyle funds or their own mix of the funds can be expected to earn 

a return over a career that exceeds inflation by between 3% and 5%. Figure 2 shows the income at 

retirement assuming a 4% real return (i.e. a 4 percent return above inflation), well within the range of 

investment return expectations over a career. 

An employee retiring under the assumptions in this illustration under FERS plus TSP, assuming a 

continuing employee contribution of the 5% which qualifies for matching contributions, will retire at 

107% of take home I pay. That is more than is necessary to maintain the employee's standard of living 

after retirement. An employee who retires under the proposed defined contribution plan, who also 

contributes the 5% voluntary contributions qualifying for matching contributions and who earns the 4% 

real return in the illustration, will retire at 79% of take home pay. This employee would have cost of 

living protection under Social Security. And, as we point out in the assumptions above, the annual 

income at retirement from the accumulated value of the employee's savings is based on an annuity with 

cost of living protection at 2% annually, comparable to the inflation protection in the current FERS plan. 

That is sufficient to achieve the objective we stated earlier-to provide a benefit, including both USPS 

and participant contributions, that will be sufficient to provide reasonable income at retirement for any 

career employee who retires at or near Social Security normal retirement age. 

V. INVESTMENT OPTIONS UNDER A DEFINED CONTRIBUTION PLAN FOR NEW HIRES 

USPS would propose to use the existing Thrift Savings Plan structure to provide benefits under the new 

arrangements proposed for new employees. That program is soundly designed, well-managed and has 

both very low administrative fees and sufficient diversification to meet the needs of participants 

throughout their career with USPS. 

Participants in the Thrift Savings Plan have access to several investment options, including government 

securities, a fixed income portfolio, small cap and large cap stock funds, and an international stock fund, 

In addition, the TSP has target retirement funds ("Lifestyle funds") which invest in these other funds and 

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187 


Insert offset folio 113 here 82436.113

reallocate the assets in line with a target retirement year. Appendix B summarizes the objectives and 

investments of these funds. 

These funds have very low expense ratios, as some of the investment fees are offset by the forfeitures 

of agency automatic (1%) contributions on behalf of FERS employees who leave federal service before 

they are vested, other forfeitures, and loan fees. Because these amounts are not sufficient to cover all of 

the TSP's expenses, TSP participants share in the small remainder of the costs. 

12% 

10% 

8% 

6% 

4% 

2% 

0% 

lO-year Average Annual Investment 

Earnings--TSP Investment Options 

As shown in Figure 3, all funds exceeded the inflation rate over the last 10-years, with Funds C, I, and S 

exceeding inflation by on average 4.7% to 8.4% over the last 10 years. The Lifestyle funds have not been 

in existence for 10 years, as they started in August 2005. 

VI. RETIREMENT PLAN TRENDS IN THE PRIVATE SECTOR 

A driving objective in this proposal is to move toward greater comparability with the private sector. It is 

increasingly clear that defined contribution plans are the retirement savings plan of choice for U.S. 

private sector employers. And that is true not just in the broader U.S. economy, but among the very 

largest u.s. employers. In the broader economy, this divergence in the prevalence of defined 

contribution versus defined benefit plans is long standing and continuing. In 1985, 30.5% of American 

workers in the private sector were covered by a defined benefit plan, including both single employer 

and multi-employer plans. By 2009, the last year for which the data book published by the Pension 

Benefit Guaranty Corporation (PBGC) reported on the percentage of u.S. private sector workers covered 

by a defined benefit plan, that percentage had dropped by half, to 15.0%, or fewer than one in six 

American workers in the private sector. 

Moreover, these data effectively understate the continuing decline in defined benefit plan coverage for 

private sector workers. Many employers who continue to maintain such plans have converted to less 

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188 


Insert offset folio 114 here 82436.114

expensive plans such as hybrid or so-called cash balance plans, and many more have frozen benefits, 

which is simply an intermediate step on the way to eventual plan termination. 

Over this same period of continuing decline in the prevalence of defined benefit pension plans, defined 

contribution plans have continued to grow. That relative growth and decline of these two major types 

of retirement plans in the u.s. economy as a whole is illustrated further in Figure 4 below. 

:!' 

t 

.s 

80 

40 

Number of Active Participants in 

Retirement Plans 

Defined Benefit and Defined Contribution Plans among large U.S. Private Sector Employers 

It is important to point out that essentially the same pattern is evident among the very largest u.S. 

employers. 

As Figure 5 below shows, using data from the Towers Watson 2012 survey3 over the past 11 years 

among the Fortune 100 companies, the percentage of those companies who provide a defined 

contribution plan as the only retirement savings vehicle for employees has grown steadily, while the 

percentage maintaining a defined benefit plan has steadily decreased. 

3 Towers Watson Insider - October 2012 

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Page 8 of20 
189 


Insert offset folio 115 here 82436.115

Fortune 100 Companies 

lIITraditionat llllHybrid" DC Only 

In Figure 6 below, we show the continuing actions being undertaken by pension plan sponsors in the 

U5, to terminate their pension plans or to take other steps to reduce costs and the volatility of costs 

associated with maintaining a defined benefit pension plan, Those additional modifications include such 

actions as: 

Introducing a so-called "soft freeze" providing for no new entrants to the plan among new hires; 

Introducing a "hard freeze" which also involves discontinuing further accruals of benefits for present 

plan participants in addition to excluding new hires; 

Converting the plan to a "hybrid plan" also known as a cash balance pension plan, While such plans 

are technically a defined benefit plan their provisions mirror in some respects the operation of 

defined contribution plans, and also serve to reduce plan costs and volatility compared with more 

traditional "final pay" pension plans; or 

Introducing other measures to reduce benefits and costs, such as converting from a final pay 

formula for determining benefits to a so-called "career average" benefit formula, 

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Page 9 of 20 
190 


Insert offset folio 116 here 82436.116

0% 

2010 Vanguard Survey of DB Sponsors 

"Which of the foil owing changes do you expect to make in the next few 

yearsT' 

20% 40% 60% 80% 100% 

!Ii Soft freeze 

Hard freeze 

!II Convertto hybrid 

Reduce level of benefits 

!II Termination 

None of the above 

As these data make clear, our proposal to provide a defined contribution plan as the retirement vehicle 

for new employees will serve the purpose of moving toward greater comparability with past and 

emerging private sector practice, and will continue to provide sufficient savings at retirement for our 

career employees to maintain their preretirement standard of living after they retire. And that is 

accomplished with no increase in employee contributions, mandatory and voluntary, compared with 

those contributions under the current FERS plus TSP structure. 

VII. CURRENT STRUCTURE AND FUNDING OF RETIREMENT BENEFITS FOR NEWLY HIRED USPS 

EMPLOYEES 

In 1983, legislation provided that new USPS and federal employees would be eligible to participate in 

Social Security for the first time beginning in 1984. At the same time the Civil Service Retirement System 

was replaced with the Federal Employees Retirement System for new hires and the Thrift Savings Plan 

was introduced. No other changes had been made for 30 years until the increase in the contributions 

required for new FERS participants that took effect January 1, 2013. 

The current cost for funding retirement benefits for newly hired employees who participate fully in the 

TSP is 14.6% of pay'. As we discuss in more detail below, there is a substantial risk that these costs will 

rise in the immediate future by 1.3% when the new FERS Normal Cost rate is implemented and will likely 

increase again in the near future. 

USPS Current Retirement Structure 

Newly hired USPS career employees are enrolled in FERS and are eligible to participate in the TSP 

program. Employee contributions are a condition of participation in FERS whereas the employee 

4 FERS Normal Cost rate of 12.7% less Revised Annuity Employee contributions of 3.1%, plus 5% Thrift Savings Plan 

Contribution, assuming emptoyee contributes 5%, 

DRAFT 

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contributions to TSP are voluntary. We set out the key benefit provisions of the FERS plan in Appendix 

A. We describe the contribution provisions of TSP immediately below. 

USPS Funding Cost for the Thrift Plan 

The Thrift Plan provides for an automatic 1% of pay funded by USPS, plus matching employer 

contributions. The first 3% of employee contributions are matched 100% and the next 2% are matched 

50%. Figure 7 shows the employer contributions based on the level of employee contributions. USPS 

funding for the Thrift Plan is therefore to some degree dependent on employee contribution levels and 

currently ranges between 4% and 4.5% of pay for the various crafts and other subsets of USPS 

participants in the plan. 

Employee 

Contribution 

Zero 

1% 

2% 

3% 

4% 

USPS Funding Cost for FERS Employees 

Figure 7 

Thrift Plan Funding 

USPS 

Contribution 

1% 

2% 

3% 

Total 

1% 

3% 

5% 

7% 

8.5% 

The USPS funding cost for FERS is determined based on three factors: 

1) The Total Normal Cost, as determined by aPM, using system-wide actuarial assumptions, less 

2) Employee contributions, plus 

3) An additional amortization payment, if aPM determines that the plan has an unfunded liability (Le. 

plan liabilities exceed the plan assets). 

The USPS FERS plan has been in surplus since 1985 and therefore the USPS cost is currently determined 

based on just the first two factors. The employee contribution rate for employees hired after December 

31,2012 is 3.1%. 

Figure 8 shows the history of the FERS Total Normal Cost and new hire USPS cost. The Total Normal 

Cost rate for FY13 is 12.7%, however the latest aPM valuation report shows the FERS Total Normal Cost 

is 14.0% when calculated using the new actuarial assumptions recently adopted by aPM. The revised 

rate of 14.0% has not been published in the Federal Register and thus is not yet in effect, so USPS 

currently pays the rate of 11.9% for employees hired prior to December 31, 2012 and 9.6% for 

employees hired after December 31,2012. 

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Historical Assumptions and Normal Costs 

Assumption Effective Interest Salary Demographic Total New Hire Change Date Rate Inflation Growth Assumptions Normal USPS Cost Date Cost 

10/1/1983 FY 83 6.50% 5.00% 5.50% Updated 16.1% 15.3% 

10/1/1987 FY 88 7.00% 5.00% 5.00% 13.8% 13.0% 

4/1/1989 FY90 7.00% 5.00% 5.00% Updated 13.7% 12.9% 

12/31/1992 FY94 7.00% 4.50% 4.50% 12.2% 11.4% 

2/11/1997 FY99 7.00% 4.00% 4.25% Updated 11.5% 10.7% r------

3/16/2001 6.75% 3.75% 4.25% Updated 11.5% 10.7% 

5/8/2003 FY 04 6.25% 3.25% 4.00% 12.0% 11.2% 

6/8/2006 6.25% 3.50% 4.25% 12.0% 11.2% 

7/25/2008 FY 09 6.25% 3.50% 4.25% Updated 12.3% 11.5% 

6/11/2010 FY 11 5.75% 3.00% 3.75% 12.7% 11.9% ._--

Law change CY 13 12.7% 9.6% •• C __ 

7/13/2012 TBD 5.25% 3.00% 3.25% Updated 14.0% 10.9% 

r-rrer .c.lI f_r .. ·rrrfl'.' 

Projected FERS Funding Cost for New Hires 

For USPS new career employees hired after December 31, 2012, the FERS funding cost is 9.6% of pay 

(the current 12.7% less the "Revised Annuity Employee" of 3.1%). This will increase to 10.9% from the 

effective date after the revised Normal Cost rate of 14.0% is published in the Federal Register. 

FERS Interest Rate 

8.00% 

7.00% 

6.00% 

5.00% 

4.00% 

3.00% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2011 

"'~""~'''Valuatlon Rate 7.00% 7.00"10 6.75% 675% 6.25% 6.25% 6.25% 6.25% 6,25% 6.2:'% 6.25% 5.75% 5.75% 

'~""''''FundE.arning$Rate 7,79% 729"1<> 7.15% 6.95% 6.70% 6.34% 6.01% 584% 551% 5.42% 5.42% 5,18"10 4.77% 4.56% 

Figure 9 shows the recent experience of the USPS FERS fund earnings and valuation rate. Given the 

FERS investment structure, and the historically low investment yields on U.s. Treasury securities, it is 

reasonable to expect that the earnings rate will decline to less than 4% and remain below 4% for the 

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193 


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next decade. This will likely lead to the valuation interest rate being further reduced, resulting in an 

increase in the Total Normal Cost, and therefore additional increases in the USPS funding cost. 

An analysis of the current FERS securities shows that the earnings rate is expected to decline to under 

3.5% by 2018, as shown in Figure 10. 

This analysis shows the high risk that the Normal Cost will increase by between 1.5% and 3.0% in the 

next few years if the discount rate is reduced by 0.50% or 1.00%. Furthermore, as the USPS FERS assets 

will be earning less than the valuation interest rate, the plan's surplus will shrink by about $1 billion each 

year. Should the FERS plan have an unfunded liability, the USPS cost would further increase with a 

required amortization payment. 

VIII. SUMMARY AND CONCLUSIONS 

Adopting a new defined contribution plan for new employees along the lines proposed will continue to 

provide adequate income at retirement for those employees who choose to make their career with the 

United States Postal Service. It can accomplish that result while also: 

Providing a portable benefit for those employees who choose to leave USPS to pursue other career 

opportunities available to them; 

Providing diversification opportunities and well-managed investment vehicles for participants' 

retirement savings, through the current Thrift Savings Plan or a new plan which would largely 

replicate that plan's structure and approach to communicating and managing retirement plan 

savings for participants; 

Bringing the retirement savings plan into better alignment with private sector practice, while 

maintaining more generous contributions (and ultimately more generous benefits) than are 

provided on average in comparable private sector plans; 

Providing USPS with lower costs, and less volatility in costs, than under the current combination plan 

structure; 

Providing greater consistency with USPS' ability to manage our costs going forward; and 

Recognizing through the lower costs that will be produced the fiscal constraints and fiscal reality 

that we face. 

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APPENDIX A - SUMMARY OF FERS RETIREMENT BENEFIT PROVISIONS 

RetIrement BenefIts 

RETIREMENT BENEFIT Guaranteed annuity based on service and salary. 

ALTERNATIVE Lump-sum payment generally available only to non-disability retirees with 

ANNUITY life- threatening or critical condition and only with spousal consent. 

COVERAGE All employees who were first employed in a covered position after 

December 31, 1983, or who were hired after December 31, 1986, with 

less than 5 years of creditable civilian service, or who transferred to FERS 

during an open season. 

EMPLOYEE Cost of FERS basic benefit plus Social security taxes generally equal 7%. 

CONTRIBUTIONS Special employee groups contribute an additional 0.5%. FERS-RAE 

employees generally hired after December 31, 2012, contribute an 

additional 2.3% of pay. 

REFUND OPTION Withdrawal of contributions plus interest is allowed when leaving 

Federal employment (employee must have more than one year of 

covered service to accrue interest). Effective for 2010 forward, 

contributions may be deposited after reemployment with the Federal 

government for annuity credit. 

AMOUNT OF ANNUITY A retiree's annuity is based on an average of the retiree's highest three 

consecutive years of basic pay in the Federal career (high-three average 

salary = HT) and is calculated by the following formulas: 

Generally: ( 1.0% x HT x # years of service) 

Age 62+ with 20+ years of service: (1.1% x HT x # years of service) 

SPECIAL RETIREMENT At the MRA with 30+ years of service OR at age 60 with 20+ years of 

SUPPLEMENT service, payable (subject to an earnings test) until Social Security benefits 

are payable at age 62 (approximates the portion of a full- career Social 

Security benefit earned while under FERS); only payable when employee 

receives an immediate annuity_ 

COLAs COLAs are paid annually to retirees over age 62, to disability benefit 

recipients (after one year of payments), to survivor benefit recipients, and 

to certain other special groups. COLA is based on the Consumer Price 

Index (CPI) as follows: 

CPI COLA 

o to 2% CPI 

2 to 3% 2% 

3%or more CPI minus 1% 

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Rettrement Benefits 

REGULAR RETIREMENT UNREDUCED BENEFITS: MRA (see below), 30+ years of service 60 years 

(benefits payable old, 20+ years of service 62 years old, 5+ years of service 

immediately upon 

retirement) MINIMUM RETIREMENT AGE (MRA) 

Birth Year MRA 

Before 1948 55 

1948 55 and 2 months 

1949 55 and 4 months 

1950 55 and 6 months 

1951 55 and 8 months 

1952 55 and 10 months 

1953-1964 56 

1965 56 and 2 months 

1966 56 and 4 months 

1967 56 and 6 months 

1968 56 and 8 months 

1969 56 and 10 months 

1970 and after 57 

REDUCED BENEFITS: 

MRA, 10+ years of service; reduction will be 5% per year for each year 

payment begins below age 62 

DEFERRED RETIREMENT UNREDUCED BENEFITS: 

(delayed benefit 62+ years old, 5+ years of civilian service 60+ years old, 20+ years of 

payments) service MRA, 30+ years of service 

REDUCED BENEFITS: 

MRA, 10+ years of serVice; reduction will be 5% per year for each year 

payment begins before age 62 

INVOLUNTARY EARLY UNREDUCED BENEFITS: 

RETIREMENT Any age, 25+ years of service 50+ years old, 20+ years of service 

REDUCED BENEFITS 

Not applicable; however, special retirement supplement does not begin 

until MRA. 

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Disability Benefits 

QUALIFICATIONS 

AMOUNT 

OF 

BENEFITS 

Survivor Benefits 

QUALIFICATIONS 

AMOUNT 

OF 

BENEFITS 

SPOUSE OF AN 

EMPLOYEE 

WHO DIES 

DRAFT 

An employee must have 18+ months of creditable civilian service and must 

apply for or show ineligibility for Social Security benefits. An employee must 

be unable to do his/her job and must not refuse a suitable vacancy within the 

agency in the same commuting area at the same grade or pay level as the 

current position. Disability benefits will end if the employee recovers from the 

disabling condition or earns more than 80% of the current salary of the 

position from which retired. Disabled employees may be required at times to 

prove continued disability. 

Benefits differ depending on how many years an employee is disabled. During the 

first year of disability, FERS pays 60% of an employee's high-three average salary 

minus 100% of any Social Security benefits received. No COLAs are paid during 

this year. 

During the second year and any additional years of disability until an employee 

reaches age 62, the employee will receive 40% of his/her high-three average 

salary minus 60% of any Social security benefits received. COLAs are paid for 

these years. 

FERS disability benefits are recomputed at age 62 to equal the individual's nondisability benefit, including credit for the period the individual was receiving 

disability benefits, with the average salary increased by all FERS COLAs that 

were effective during the periods of disability. Whenever the individual's 

earned benefit based on years of service and average salary provide a higher 

benefit than that payable under the disability provisions, the person is entitled 

to the earned rate. 

Eligible survivors of an employee may receive benefits if the employee had at 

least 18 months of creditable civilian service. Eligible survivors may include 

current and former spouses and children who meet certain age and/or length of 

marriage requirements, 

Survivor benefits are based on the relationship of the survivor and the 

employee's length of Federal service and are calculated by the following 

formulas: 

With 18 months to 10 years of service, lump-sum payment only; in 2012 the 

amount is 30,792.98* plus the LARGER of (1) 50% of the employee's annual salary 

at death OR (2) 50% of the employee's HT 

With 10+ years of service, lump sum payment as above plus annuity equal to 

50% of the employee's accrued basic benefit 

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Survivor Benefits 

SPOUSE OF AN 50% (or 25% if jointly elected by employee and spouse) of the retiree's annuity 

ANNUITANT amount plus a special retirement supplement if the spouse is younger than age 

WHO DIES 60 and not yet eligible for Social Security benefits 

SPOUSE OF AN With less than 10 years of service, refund of contributions. 

EMPLOYEE WHO 

DIES AFTER With 10+ years of service without a refund of contributions, 50% of the 

LEAVING FEDERAL employee's accrued basic benefit beginning when the employee would have 

SERVICE BUT reached age 62. 

BEFORE ANNUITY 

PAYMENTS BEGIN 

CHILD(REN) Varies according to the number of children and whether there is a surviving 

parent who was married to the employee, reduced by Social Security benefits the 

child(ren) are entitled to receive. 

ANNUITY A retiree's annuity will be reduced 10% (or 5%) of the entire annual benefit in 

REDUCTION order to provide for a survivor benefit unless waived by both the retiree and 

TO COVER the spouse. 

SURVIVOR 

BENEFITS Note: The 50% (or 25% if jointly elected by employee and spouse) spouse's 

benefit is based on the amount of the annuity before this reduction is taken. 

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APPENDIX B - THRIFT SAVINGS PLAN OPTIONS 

Fund Objective Investments 

G Produce a rate of return that is higher Fund invests exclusively in a nonmarketable 

than inflation while avoiding exposure short-term U.S. Treasury security that is specially 

to credit (default) risk and market price issued to the TSP. The earnings consist entirely 

fluctuations. of interest income on the security. 

F Match the performance of the Barclays Invests in U.S. Government, mortgage-backed, 

Capital U.s. Aggregate Bond Index, a corporate, and foreign government (issued in 

broad index representing the U.S. bond the U.S.) sectors of the U.S. bond market. The 

market. earnings consist of interest income on the 

securities and gains (or losses) in the value of the 

securities. 

C Match the performance of the Standard Invests in a stock index fund that fully replicates 

and Poor's 500 (S&P 500) Index, a broad the Standard and Poor's 500 (S&P 500) Index. 

market index made up of stocks of 500 The earnings consist primarily of dividend 

large to medium-sized U.S. companies income and gains (or losses) in the price of 

stocks. 

S Match the performance of the Dow Invests in a stock index fund that tracks the Dow 

Jones U.S. Completion Total Stock Jones u.s. Completion Total Stock Market Index. 

Market Index, a broad market index The earnings consist of dividend income and 

made up of stocks of U.S. companies not gains (or losses) in the price of stocks. 

included in the S&P 500 Index. 

I Match the performance of the Morgan Invests in a stock index fund that fully replicates 

Stanley Capital International EAFE the Morgan Stanley Capital International EAFE 

(Europe, Australasia, Far East) Index. (Europe, Australasia, Far East) Index. The 

earnings consist of gains (or losses) in the price 

of stocks, dividend income, and change in the 

relative value of currencies. 

l- Year The L Funds, or "Lifecycle" funds, use Invests in an appropriate mix of the G, F, C, S, 

professionally determined investment and I Funds for a particular time horizon, or 

mixes that are tailored to meet target retirement date. The investment mix of 

investment objectives based on various each L Fund becomes more conservative as its 

time horizons. The objective is to strike target date approaches 

an optimal balance between the 

expected risk and return associated with 

each fund. 

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APPENDIX C - DEFINED CONTRIBUTION PLANS IN THE PRIVATE SECTOR 

In Figure 11 below, we show the data from the latest survey published by the Profit Sharing Council of 

America (PSCA) depicting the average contributiDns fDr defined contribution plans provided by 

employers in the private sector, and compare those employer contributions with employer 

contributions under the proposed USPS plan fDr new employees 

6.00% 

4,00:70 

2.00% 

0.00% 

Defined Contribution Plans -

Average Employer 

Contribution as % of Total 

Payroll 

All Private Sector Plans Proposed USPS Contribution 

PSCA reported the following percentages for the variDus types of defined contribution plans maintained 

by employers responding to the Survey: 

401(k) Plans-2.5% of payroll 

Profit Sharing Plans-8.5% 

Combination Plans (401(k) plans with an additional profit sharing component)-4.4% 

All Private Sector Plans-4.1% 

The proposed USPS plan will provide for a maximum USPS contribution of 5% of pay for participants 

who make voluntary contributions of the full 5% of pay qualifying for a matching USPS contribution. 

That contribution is higher than the contribution level of 4.1% reported for all private sector employers 

responding to the latest PSCA survey. 

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4(12(2013 

USPS LEGISLATIVE PROPOSAL-HEALTH BENEFITS-APRIL, 2013 

This white paper has been updated from the previous version and takes into account the following 

changes: 

The position is now as of 2014, the earliest possible start date for the USPS Health Plan (prior 

measurement was as of 2013); 

The measurement uses census data as of October 2012 (prior measurement used older data); 

The measurement uses OPM's latest assumptions, including a lower assumed rate of return on the 

fund (5.25% compared with 5.75% in the prior measurement), and updated per capita claims costs 

and updated health care cost trend rates; 

lastly, the Postal Service Retiree Health Benefits Fund assets have been updated to the actual 

9(30(12 values and projected to 2014 using an anticipated earnings rate of 3.5%. 

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4/12/2013 

EXECUTIVE SUMMARY 

This white paper provides an updated explanation of USPS' proposal to control and significantly reduce 

health care costs for the Postal Service and our employees, annuitants and their families; while 

providing health care benefits comparable to or better than provided through Federal Employees Health 

Benefits (FEHB) plans. Key elements: 

USPS is a 238+ year old institution, and is the cornerstone of an industry that employs over seven 

million Americans and represents 5% of the country's GNP. 

In spite of unprecedented cost and staffing reductions, USPS is facing the equivalent of bankruptcy. 

80% of USPS total costs are labor costs. Fully one-third of our labor costs are benefit costs. 

USPS has determined that, to survive, it must reduce and control these costs. 

USPS has proposed legislation that would have the following key elements: 

USPS would administer its own Health Benefits Program and would be the Plan Sponsor. 

Unions and the management associations would be represented in plan governance. 

Benefits and the allocation of contributions would be subject to the bargaining/consultation 

process. 

The new program would cover all current and future employees and annuitants. 

Resolving the retiree health benefits liability and funding issue is the central objective of the proposal. 

A key point cannot be overemphasized-without addressing the liability issue in a responsible way, 

there is no possible way for the Postal Service to sustain the current approach to providing health 

benefits to retirees. 

Adopting the approach used universally in the private sector and in state and local government plans to 

integrate retiree health benefits with Medicare and conforming other elements of our health benefits 

program to the comparability standard set forth in the Postal Reorganization Act will accomplish this 

objective. 

Moreover, through this approach USPS will continue to provide benefits comparable in value to current 

benefits provided through the Federal Employees Health Benefits Program (FEHB). In addition, most 

employees and annuitants will benefit from a lower premium structure, and the resulting lower 

contributions for plan participants. 

The resolution of the health care funding and liability issue and the reduced costs these changes will 

produce for active employees, annuitants and USPS will provide approximately one-third of the savings 

the Postal Service must realize to avert insolvency. This is the one major element of our business plan 

that can be achieved without eliminating a single job or closing a single post office or facility. 

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The savings from effectively eliminating the unfunded liability for retiree health benefits and eliminating 

the need for further scheduled payments under PAEA would reduce USPS obligations by approximately 

$50 billion between now and 2018, if a restructured plan were in place beginning in 2014. And current 

and future annuitants would be protected more fully regardless of what the future holds, since our 

retiree health benefits liability would be essentially fully funded, and remain funded on an actuarially 

sound basis indefinitely into the future. 

Exhibit 2 from the body of this paper summarizes the powerful effect these changes will have on the 

liability for retiree health care benefits for USPS. 

2011 

and Funding, 2014 

We discuss in more detail in the body of this paper the foundation for these changes, and their financial 

impact on USPS and our employees, annuitants and their families. We stand ready to answer any 

questions the Congress may have and to provide additional information to help in your deliberations. 

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USPS LEGISLATIVE PROPOSAL-HEALTH BENEFITS-MARCH, 2013 

I. INTRODUCTION 

The United States Postal Service is the cornerstone of an industry that employs over seven million 

Americans, Mail service providers, fulfillment companies, shipping firms, printers, transportation 

companies, and small business owners combined use the mail to generate over $800 billion in sales and 

revenue for the nation's economy, This represents five percent of the total Gross Domestic Product 

(GOP) in the United States, 

Congress is well aware that the Postal Service is on the brink of insolvency, Major changes in legislation 

will be required to restore the balance between the Postal Service's operating expenses and revenues, 

Revenues have declined rapidly since 2007 and will continue to decline in the face of digital alternatives, 

especially the rapid growth in electronic commerce, 

In this paper we update and discuss in depth the proposal we initially presented to the Congress in 2011 

for a comprehensive solution to one of our biggest costs-the expense and liability for health benefits 

for our active workforce, our annuitants and their families, 

II. THE USPS PLAN OF ACTION FOR ADMINISTERING ITS OWN HEALTH CARE PLAN 

Right now, despite the fact that the law requires the Postal Service to provide employee compensation 

and benefits comparable to the private sector, the Postal Service does not control health care benefit 

programs for its employees or its retirees, other than bargaining for the apportionment of premium 

contributions between active employees and the Postal Service, In almost all other respects the Postal 

Service is treated like any other entity of the federal government, in that employees participate in the 

Federal Employees Health Benefits Program (FEHB), 

The principal exception to that identical treatment is in the area of health benefit costs for annuitants, 

where the Postal Service has been treated differently from all other federal entities and private sector 

companies, both before and after the passage of the Postal Accountability and Enhancement Act (PAEA) 

in December, 2006. We discuss the subject of retiree health benefits and liability, and this disparate 

treatment, in more detail later in this paper, 

The Postal Service believes that it should have its own program for two principal reasons. First, benefit 

costs constitute roughly one-third of total labor costs, Approximately 80% of USPS total costs are labor 

costs. The Postal Service cannot address its current economic challenges without gaining control of its 

legacy costs, defining their breadth and scope, and setting up a reasonable program to fund them, Our 

proposal accomplishes those objectives, 

Second, under the Postal Reorganization Act, the Postal Service is obligated to provide wages and 

benefits comparable to those provided in the private sector. The private sector is adjusting constantly 

to changing market conditions with changes in plan design, care management, eligibility, cost 
205 


Insert offset folio 131 here 82436.131

management (including the availability of network discounts), and a host of other factors that reflect 

"best practices" in compensation and benefit policies. The Postal Service cannot fully meet the private 

sector standard as part of the current FEHB system. 

III. GOVERNANCE AND OVERSIGHT 

The Postal Service understands the importance of oversight, audit, transparency, fiduciary responsibility 

and disclosure. Moreover, we share a common interest with our employees and their families, as well 

as our other stakeholders, in assuring that the new Health Benefits Program is successful. To that end, 

commercial arrangements for administration (including especially claims administration), and related 

services must be competitive, at the outset and over time. The plan's benefits must also be provided 

and administered in alignment with best practices in the health care field. We also recognize that the 

oversight function now exercised over FEHB by OPM, with its staff of actuaries and experts, would no 

longer be available to us. 

For these reasons, it is important to establish a solid structure for governance and oversight of the plan. 

Below are those key elements and the path we have recommended to the Congress to get a Health 

Benefits Program in place. 

The Postal Service would be the plan sponsor. The Governors would establish benefit levels and initial 

contribution levels. 

The governance and administration of plan assets would be placed in a Health Benefits Plan 

Management Committee. The members of the Committee would be fiduciaries with respect to the 

plan. 

Standard principles of fiduciary responsibility, including rules about diversification and conflicts of 

interest, will apply to plan administration, reporting, disclosure and investment decisions. The 

Committee will provide an annual report to Congress on the performance of the plan. 

The Committee will have members selected by the Postal Service, the unions and management 

associations, and the Treasury Department. It will have the authority to engage independent experts as 

required. 

There are also models in the private sector as to how to structure a governance and oversight model for 

a Company Health and Welfare Plan. The Fortune 500 companies provide ample precedent and the 

Postal Service would be pleased to adopt a best practices approach. 

IV. THE ROLE OF THE UNIONS 

As noted, the proposed legislation would give the unions and management associations the right to 

participate in governance through representation on the Health Benefits Plan Management Committee. 

The Postal Service envisions future contribution levels and benefits for bargaining unit employees will be 

2 
206 


Insert offset folio 132 here 82436.132

a subject for collective bargaining in accordance with the rights and limitations contained in the National 

Labor Relations Act, and supports that outcome. 

V. USPS PROPOSAL FOR RESTRUCTURING HEALTH BENEFITS FOR EMPLOYEES AND RETIREES 

A resolution of the retiree health benefits funding issue is the central objective of USPS' health benefits 

proposal to the Congress. The subject of retiree health benefits is both exceedingly complex and of 

critical importance to the future of the United States Postal Service. We discuss that subject in some 

depth in this paper, including the implications of the Postal Accountability and Enhancement Act and 

S. 1789 passed by the Senate in April 2012. Quite simply, the fiscal issues facing the Postal Service 

cannot be resolved unless the Congress addresses the liability issue for retiree health benefits in a 

responsible way. Our proposal provides a path to doing so. 

Retiree Health Expense Under Pay As You Go (the Status Quo) 

Until 1987 the Postal Service was treated like any other entity within the federal government with 

respect to retiree health benefits. For federal employers participating in FEHB, including off budget 

agencies such as the Federal Reserve Board, the FDIC, and the Office of the Comptroller of the Currency, 

the employers are required to remit to the Treasury through OPM both the employee and employer 

share of the health benefit premiums for all active employees. But when an employee retires, for all 

federal employers other than the Postal Service, OPM takes the annuitant's premium contributions 

through deductions from the annuitant's pension check, and the balance of the premiums is absorbed 

by the Federal Treasury at no cost to the agency from which the annuitant retires. 

And that is the way it worked for the Postal Service until 1987. But in 1987, as part of an Omnibus 

Budget Reconciliation Act, the Congress for the first time imposed a levy on the Postal Service for a 

share of the annuitant premiums. That initial payment was $10.3 million, a nominal payment even 

allowing for the passage of time. However, over the years the formula that evolved for determining the 

Postal Service's share of annuitant health care premiums created the most rapidly growing expense for 

the Postal Service. It is important to explain why. 

The Postal Service's growing costs for retiree health care on the current pay as you go basis (ignoring for 

the moment PAEA) reflect three independent factors: 

First, the growth of health care premiums within FEHB-over the 5 years ending in 2012, those 

premiums have increased at an average pace of 5.7%, significantly above the rate of increase in postal 

rates and inflation generally and similar to the trend in employer health care premiums in the private 

sector. 

Second, the "apportionment factor" -this is the formula by which OPM determines what share of the 

retiree premiums the Postal Service must pay, and what share is absorbed by the Treasury for 

pre-reorganization (pre-1971) service. The apportionment factor is the percentage derived by dividing 

all post-reorganization years of service for all USPS retired participants by all the years of service for all 

3 
207 


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USPS retired participants. Since those retired participants with pre-reorganization service are much 

older than those with none, and since virtually all new entrants into the retiree population have no 

pre-reorganization service, new entrants and mortality among those with pre-reorganization service 

combine to make the apportionment factor grow at a rapid pace, adding a 3% annual compound 

increase in costs over and above the increase in premiums from 2002 through 2012. 

Finally, the retiree population covered under FEHB continues to grow and that growth also adds to this 

expense-another full percentage pOint in recent years. 

In Exhibit 1 below, we illustrate how rapidly USPS' cash expense on the current pay as you go basis for 

retiree health care has grown in the recent past, and how rapidly it is projected to grow in the near 

future. The blue bars show the actual expense for the eleven fiscal years through FY2012; the red bars 

show the projected expense through 2018. 

Healthcare Benefits 

$millions 

In FY2002, USPS' expense for retiree health care coverage was just $987 million. But by FY2012 that 

expense had grown to $2.629 billion. That is a pace of growth over that period of 10.29% a year. At that 

pace these expenses double every seven years. 

Exhibit 1 also shows that while this growth is expected to abate somewhat in the immediate future, the 

pace of growth remains at unacceptable levels. Over the six year period from FY2012 through FY2018, 

the growth in this expense projected by OPM is more than 7.5% per year resulting in a projected 

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Insert offset folio 134 here 82436.134

expense in FY2018 of just under $4.1 billion, or 55% more than in FY2012. Given the factors which drive 

the growth in these costs, retiree health benefit costs will overtake USPS' expenditure for active 

employee health benefits in just a few years. No other cost is growing so rapidly for the Postal Service 

as these pay as you go costs for retiree health care. 

The Effect of the Postal Accountability and Enhancement Act 

Under current law the Postal Service is obligated to make a series of payments to fund the Postal Service 

Retiree Health Benefit Fund (PSRHB Fund), over and above continuing to pay our share of the FEHB 

premiums for retirees on a pay as you go basis. At present the Postal Service is in default with respect 

to the payments required under the statute for FY2011 and FY2012, and does not have the funds or the 

borrowing authority that would be required to make those payments. 

In addition to those cash payments which USPS has made, PAEA provided for the transfer of 

$17.1 billion from overpayments to the Civil Service Retirement Fund, for total cash remittances to the 

PSRBH Fund of $38 billion since the inception of the Fund. 

With interest, the assets in the Fund as of 2014 are projected to be $49.1 billion, compared with 

liabilities Of $100 billion. The unfunded liability at that point is the difference, or $50.9 billion. 

Under PAEA, the Postal Service has the burden both of the scheduled advance funding payments and 

continuing to pay the cash cost of our share of annuitant premiums on a pay as you go basis. The Act 

provides no access to the Fund for defraying retiree health care costs until after the last scheduled 

payment is due in 2016. 

S.1789 passed by the Senate in April 2012 provides for a change in the pace of funding for retiree health 

benefits compared with current law. However, since S.1789 failed to address the liability issue, the 

combination of the continuing dual payments-the advance funding payments PAEA requires and 

continuation of pay as you go for the USPS share of FEHB premiums-would continue to leave the Postal 

Service in a completely untenable situation. Without addressing the liability these costs will rapidly 

become unaffordable, regardless of the method and pace of funding these costs. 

The central problem is as we stated at the outset. The liability for retiree health benefits does not go 

away, in the absence of changes that would reduce the liability. Such changes for current annuitants are 

entirely in the hands of the Congress. The current pay as you go expense will continue to increase at an 

unaffordable pace, and eventually-and in relatively short order-costs will exceed those that would be 

incurred under the funding anticipated by PAEA or in any other arrangement involving prefunding, since 

no interest earnings would contribute toward those future payments. 

The Effect of the Proposal on Active Employees 

Active employees will also benefit if our proposal is enacted. The new plan will produce lower premium 

costs that will be shared with employees, and that will result in an average savings to participants of 

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approximately $700 annually. In addition, by moving to a four tier system for participant contributions 

(self only, self and spouse, self and child or children, and self and full family) common in the private 

sector, single parents and those with a spouse and no dependent children will see markedly lower 

contributions. The lower premiums that will result if our proposal is adopted will permit contributions 

for full family coverage to remain about the same as now. Benefits will remain comparable to or better 

in value to benefits provided under FEHB now, but in a much simpler and more easily understood plan 

structure. 

USPS legislative Proposal-The Effect on Retiree Health Care liability and Expense 

The USPS proposal to the Congress would directly affect the liability and ultimately the expense for 

retiree health benefits in a dramatic way. It would provide a comprehensive solution both to the 

funding schedule in place under PAEA and to the significant problem associated with the growth in pay 

as you go costs under the status quo. None of the elements of the proposal would affect current 

annuitants adversely-indeed, it would improve their situation. And future annuitants would also 

benefit, through lower premiums and thus lower participant contributions. 

The key elements of the USPS legislative proposal with respect to retiree health benefits are set forth in 

Exhibit 2 below, along with the fiscal impact that these changes would have for USPS. 

Based on OPM Valuation as Of September 30,2011 

Developed by Hay Group 

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and funding, 2014 

As Exhibit 2 shows, under current law and generally accepted accounting principles USPS has a projected 

liability for retiree health benefits in 2014 of just over $100 billion. Assets at that point will be 

$49.1 billion, leaving an unfunded liability of $50.9 billion. The required funding for 2014 under current 

law is projected to be $8.7 billion, including pay as you go cash costs and the scheduled payment under 

PAEA. 

We describe below the changes that the legislative proposal would make as summarized in Exhibit 2, 

and the effect on liability and costs, one by one. 

First, a measurement change would be required to move from the accounting liability to the funding 

liability. The funding assumptions are used since under the proposal the benefit payments will come 

from the Postal Service Retiree Health Benefit Fund and these assets are assumed to earn S.25% over 

the long-term (OPM's assumptions as set by the independent Board of Actuaries). The funding 

assumption would be used to determine the actuarially required funding amount needed to fully fund 

the benefits, which is the sum of the Normal Cost and the Amortization Payment. Both of these 

amounts are calculated using the funding assumptions set by OPM. 

This change will have the effect of bringing down the 2014 liability by $4.05 billion, to $96 billion. 

Exhibit 2, Element 1-Medicare Integration 

The second change is referred to in Exhibit 2 as Element 1. Element 1 assumes that all current 

annuitants eligible for Medicare will enroll in Parts A and B of Medicare with no penalty. That will be 

achieved in the same way it is essentially universally achieved in the private sector and in state and local 

government plans which provide retiree health benefits. This requires a brief explanation, including 

some pertinent history. 

Medicare was signed into law by President Lyndon Johnson on July 1, 1965. Federal annUitants, 

however, were not eligible for Medicare unless they qualified through quarters of Medicare coverage 

earned in other employment settings. That changed in 1983, when legislation provided that federal 

employees (including USPS employees) were made eligible for Medicare coverage for the first time. 

FEHB has been available to federal employees and annuitants since 1960. But even though federal 

employees have been eligible for Medicare through their federal employment for almost 30 years, and 

through other employment for almost 50 years, OPM has never changed the way that benefits under 

FEHB are coordinated with Medicare for annuitants who are Medicare eligible. 

This is especially important for annuitants since, by law, Medicare is the primary payer for an annuitant 

who is also eligible for benefits under an employer sponsored health care plan. The statutory construct 

was created by the Congress to encourage employers who provided benefits to retirees to continue to 

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do so. So long as a Medicare eligible participant is covered as an employee, the employer plan is 

primary; when the employee retires, Medicare becomes the primary payer, essentially to making the 

continuation of coverage affordable for employers. 

In FEHB, in contrast with universal practice in the private sector and in state and local government plans, 

there is no consequence to the federal annuitant in terms of their FEHB plan coverage if they fail to 

enroll in Medicare. Their benefits are paid at exactly the same level as they would have been paid prior 

to Medicare eligibility, under most of the FEHB plans. 

There is still an advantage to enrolling in Medicare, however, for the great majority of annuitants and 

for that reason many Medicare eligible federal annuitants, including USPS annuitants, do enroll. (The 

exception is for some of the HMOs where no additional benefits are provided for enrolling in Medicare 

coverage.) That advantage comes from the effective elimination of deductibles, copays and coinsurance 

under the FEHB plans, some of which explicitly waive such payments for Medicare enrollees. And some 

plans, including the Blue Cross/Blue Shield plans which cover the majority of FEHB participants, offer 

additional incentives such as lower copays for prescription drugs for participants who enroll in 

Medicare. 

Nonetheless, the rates of non-participation among annuitants are too high, with serious consequences 

for the cost of health benefits to USPS and to participants. Currently, 24% of USPS annuitants over age 

65 are not enrolled in Medicare Part B. And 10% of those annuitants are not enrolled in Part A, despite 

the fact that Part A is free. More troubling is the observation that nonparticipation rates in part Bare 

growing among the most recently retired annuitants. Based on OPM data, 30% of annuitants age 65-74 

are not enrolled in part B. And non-participation in Part A has remained about the same, at 9% of the 

annuitants age 65-74. 

A participant's election not to enroll in Part B of Medicare, which covers outpatient hospital and 

non-hospital medical expenses, is to a degree understandable because that coverage comes at a cost to 

the participant. Most participants pay $104.90 monthly (in 2013). Participants with annual incomes of 

more than $85,000 ($170,000 if married and filing jointly) pay more. And as we pointed out above, the 

additive benefit that the participant receives is limited to the deductibles, copays, and coinsurance that 

would be eliminated or reduced in the FEHB plan in which they participate. So an annuitant in good 

health could reasonably conclude that they are better off avoiding the Part B contributions. (We should 

point out that on average the decision not to participate in part B will be costly to the participant, since 

they are exposed to those deductibles, copays and coinsurance payments in years in which they 

generally have higher medical expenses.) 

The nonparticipation in Part A (which covers inpatient hospital expenses), however, is not easily 

explained, because Part A is free. But it is useful to note that for those employees retired under CSRS 

who are not eligible for Social Security signing up for Part A requires some action on their part. It is not 

automatic and that no doubt accounts for at least some of the nonparticipation in Part A. It is also 

relevant that for retirees who are eligible for Part B of Medicare, OPM will not deduct the Part B 

premiums from the annuitant's pension check without a written authorization from the Center for 

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Medicare and Medicaid Services. A written request from either the participant or Social Security is not 

sufficient, and these additional hurdles to enable such payments no doubt contribute to the 

nonparticipation rates in Part B. 

What is clearly not well understood by FEHB participants is that these levels of nonparticipation come at 

a significant cost, both to USPS and to all USPS employees and annuitants and to their federal 

counterparts. The net effect of the nonparticipation rates in Medicare is to shift costs that would 

normally be absorbed by Medicare to the FEHB plans. For Medicare, the $104.90 monthly that most 

participants pay represents about 12% of the combined value of both Parts A and B. Yet USPS 

annuitants, in common with their federal employee counterparts, pay 30% of the FEHB premiums on 

average. 

This cost shifting is a very poor bargain for the employees and annuitants, because both pay for this cost 

shifting in the blended rate structure that is used for premiums in FEHB (i.e., all rates for the FEHB plans 

are the same for active employees and for annuitants whether they are enrolled in Medicare of not). 

And this effect also saves money for the Federal Treasury, since the portion of the cost of the benefit 

borne by the participant is much greater in FEHB than in Medicare. 

The net effect is that FEHB premiums are higher than they would otherwise need to be by virtue of the 

FEHB plans absorbing these additional claims costs, driving up premiums for both active employees and 

annuitants. 

The way the legislative proposal would achieve universal participation in Medicare is simple, and 

consistent with practice in the private sector as well as in state and local government health benefit 

plans. 

The standard approach for employers who maintain retiree health benefit plans to ensure Medicare 

participation is to offset the benefits the employer plan will pay by the amount that would have been 

paid by Medicare, for annuitants who are eligible for Medicare but who are not enrolled. That 

effectively requires the participant to self-insure the benefit Medicare would pay if they fail to enroll, 

and removes any economic consequence of a participant's failure to enroll for the plan sponsor. In 

practice, all participants will generally enroll. 

The effect of moving to 100% enrollment in Medicare is shown in what is referred to as Element 1 of 

Exhibit 2. As the exhibit shows, this change would reduce the liability by $23.1 billion, to $72.9 billion. 

In addition, the cash costs to the Postal Service would come down by $473 million in the first year, by 

simply reversing the cost shifting now in place so that Medicare is always the primary payer for 

annuitants age 65 and older. 

It is important to point out that because of the completely different scale the cost to Medicare is 

inconsequential. In 2012 the total expenditures in Medicare were approximately $550 billion, or 

$10.6 billion per week. The annual savings of $473 million to USPS thus represents less than half a day 

of claims under Medicare. Moreover, the cost to the Medicare trust fund is substantially less than the 

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savings for USPS, because it is offset by new participant contributions for Part B (approximately 

$138 million annually). 

Finally, costs to participants would also be reduced through the lower premiums that would be created 

through the new USPS health plan contemplated by the proposal, with no reduction in benefit levels. 

Even if USPS did not sponsor its own health plan, annuitants who sign up for Medicare Part A and B 

could purchase lower cost FEHB plans and this would reduce premium costs for both the annuitant and 

the Postal Service. 

Exhibit 2, Element 2-Adoption of an EGWP Plan for Prescription Drug Benefits 

Element 2 in Exhibit 2 shows the effect of the Postal Service's proposal to adopt a so-called "Employer 

Group Waiver Plan" (EGWP) for prescription drug benefits, wrapping the employer plan around the drug 

benefits under Part D of Medicare. Under this plan, prescription drug benefits would remain as 

generous as now for all participants. And for some participants (those with catastrophic drug expenses) 

benefits would significantly increase. With the exception of participants with income above $85,000 (or 

$170,000 if married filing jointly) participants would pay the same contributions for prescription 

coverage as before, including their combined contributions for Part D and the USPS plan. 

This type of plan takes advantage of the purchasing power of the Part D program, including the closing 

of the "donut hole" for Part D participants and the discounts negotiated with the pharmaceutical 

manufacturers for brand name and prescription drugs in the negotiations leading up to passage of the 

Patient Protection and Affordable Care Act (PPACA) that are embedded in the Act. 

The effect on USPS' cash expense in the first year would be about the same as Element 1, a savings of 

about $559 million. But the effect on the retiree health care liability is greater, since future increases in 

the discounts and the closing of the donut hole generate more substantial savings in the future. The 

liability would be reduced by $25.7 billion, to $47.2 billion. 

In total, integrating the plan properly with Medicare and adopting the EGWP plan, in common with 

practice in the private sector, would reduce the liability by $48.8 billion. 

It is also important to reiterate here as well, that the additive cost to the Medicare program is 

substantially smaller than the savings that would be created for USPS and participants. The discounts 

and better purchasing power under Part D of Medicare will offset the cost to Medicare by approximately 

$170 million annually. 

Exhibit 2, USPS Plan-Four Tier Contributions for Dependents Coverage 

USPS' proposal contemplates moving from the current two tier contribution approach FEHB 

(contributions are based on haVing self only coverage or family coverage, regardless of the number of 

family members covered) to the four tier approach more typical in the private sector as well as state and 

local government plans. Employees would have the following choices available: 

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Self only 

Self and spouse 

Self and child or ch ildren 

• Self and full family 

Usually this type of change is a zero sum game, in that the lower contributions for self and spouse or self 

and child(ren) would have to be offset by higher contributions for self and full family coverage. 

However, since premiums are projected to be so much lower, principally due to the savings through 

proper coordination with Medicare, the cost for full family coverage will remain about the same for 

those who need full family coverage, and will come down significantly for single parents and households 

with no dependent children. We should note that family status is dynamic, so virtually all USPS 

employees and annuitants will benefit from this change at some point in their careers and in retirement. 

The net effect of this change, however, is to increase the liability, since employee and retiree 

contributions to their health care coverage will in the aggregate be reduced substantially through the 

combination of lower premiums and the move to four tier coverage. The liability will be increased in the 

first year by $3.4 billion, to $50.6 billion. 

Exhibit 2, USPS Plan-Purchasing Power in a USPS Health Benefits Plan 

The effect of combining the purchasing power for health benefits under a single USPS sponsored plan is 

significant. While the largest plans within FEHB certainly have equivalent purchasing power, that 

purchasing power is dissipated through the maintenance of more than 200 plans, many of which are 

very small, though in the aggregate they cover a significant share of the participant population. 

These savings from consolidation of the plans are projected to be approximately 8% of premiums, and 

will have the effect of redUCing the retiree health care liability by an additional $1.65 billion to 

$49 billion. The reduction of the retiree liability will apply to pre-Medicare retirees only, since network 

discounts do not apply where coverage is secondary to Medicare, and the EGWP savings are already 

reflected in Element 2 in these liability calculations. 

Exhibit 2, USPS Plan-The Adoption of Carve Out for Coordinating Claims Payments with Medicare 

The final element of the USPS Plan reflects the savings that will accrue by adopting a so-called "carve 

out" approach to coordinating the plan's benefits with Medicare for annuitants who retire on or after 

January 1, 2014. Carve out is the most common approach used in the private sector as well as in state 

and local government plans for coordinating benefits with Medicare. 

Under FEHB's current approach for most of the plans in the FEHB program-the so called Coordination 

of Benefits-the participant who is covered by both Medicare and an FEHB plan will typically receive 

payment for 100% of all medical expenses. The primary plan (in this case Medicare) will pay its liability 

first. The secondary plan (the FEHB plan) will then pay the balance of expenses for the claim up to its 

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limit of liability if no other plan were available. In practice, the participant will usually collect 100% of 

the charges, with no deductibles, copays or coinsurance. 

Under carve out, the primary plan (Medicare) pays first; the employer plan then pays the amount that 

would be required to place the participant in the same economic position as if only that plan were 

available to pay benefits. That maintains a level playing field for all participants (active employees, 

pre-Medicare annuitants, and Medicare eligible annuitants whether they participate or not) and 

maintains the same deductibles, copays and coinsurance as if the employer plan were the only plan 

available. That change will also serve an important purpose in terms of sound plan design by 

discouraging overutilization of health care services. (That effect was recognized in the administration's 

proposal in September, 2011, to impose a tax on generous Medicare Supplement plans which effectively 

eliminate all co payment requirements.) 

The adoption of carve out for future annuitants would reduce the liability by an additional $3.6 billion, 

to $45.4 billion. 

The Combined Effect of the Proposal on USPS Expense and liabilitv 

In aggregate, the USPS proposal if in effect at the beginning of 2014 would eliminate the unfunded 

liability, and result in a surplus of just under $3.7 billion. That compares with the unfunded liability 

projected as of 2014 compared with current law and continued participation in the FEHB plans of 

$50.9 billion. Effectively, retiree health benefits would be fully funded. The proposal further 

contemplates that USPS would continue to fund the normal cost for future retiree health benefits, and 

amortize any unfunded liability that might arise in the future, assuring that the fund would be actuarially 

sound and sufficient to cover these costs regardless of USPS' future. 

Now let's turn to USPS cash expenses. In the first year (2014) cash savings in total are projected to be 

approximately $2.1 billion for USPS. These savings principally reflect two factors: 

1. Claims expense would be reduced through the additional coverage provided under Medicare 

compared with the status quo, reversing the cost shifting currently in place; and 

2. The PSRHB Fund assets would be used to pay the claims and expenses for current and future 

annuitants. That would produce a funding expense in 2014 of $1.340 billion in total, compared with 

a combined expense of $8.7 billion (cash expense plus the scheduled payment required under PAEA) 

under current law in 2014. 

In addition, employees and annuitants will save approximately $660 million in reduced contributions, or 

about $700 annually per participant. 

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We summarize the cash savings to the Postal Service separately for active employees and annuitants in 

Exhibit 3 below: 

A, Retiree Pay as you go (status quo) $2,965 $3,208 $3,472 $3,763 $4,066 

B, Annual funding requirement $1,340 $1,400 $1,462 $1,527 $1,595 

C. Annual Difference (A, - g,) $1,625 $1,808 $2,010 $2,236 $2,471 $10,149 

0, Active pay as you go (status quo) $4,891 $4,810 $4,713 $4,596 

E, Actives USPS health plan* $4,428 $4,354 $4,267 $4,160 $4,039 

F, Annual Difference (0, E,) $463 $456 $446 $436 $423 $2,224 

G, Total Cash Savings Annually (c. + F,) $2,088 $2,263 $2,457 $2,671 $2,894 $12,373 

H, Total Cash Savings 2014-201811 Legislative $12,373 I 

'"The savings on actives are just from the competitive bidding/Improved purchasing, !n the rate setting process, the savings will be allQcated to 

actives and retirees in a blended rate structure consistent with FEHB practice now. 

In addition, since the plan would be fully funded no further deferred or scheduled payments to the 

Postal Service Retiree Health Benefits Fund would be necessary, The avoidance of those payments will 

relieve the Postal Service of another $37,9 billion in retiree health benefit prefunding expenses under 

the provisions of current law, We summarize those additional savings in Exhibit 4 below: 

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The Apportionment Factor 

For annuitants who had Postal careers that started under the Post Office Department, a portion of their 

retiree healthcare premiums is paid by the federal government. For example, if an employee started 

with the Post Office Department in July 1956 and retired in July 1986, half of their service would have 

been with the POD and half with the USPS, and therefore the federal government pays half the 

employer premium and USPS pays half. In addition, for annuitants who had military service, the federal 

government pays the portion of the healthcare premiums attributable to the military service. 

Currently, USPS is invoiced monthly by OPM and the invoice includes the calculated portion of each 

annuitant and survivor's premium that is attributable to the USPS. 

When the USPS Health Plan is implemented, USPS will be responsible for paying the claims for all 

annuitants, survivors, and employees and their dependents. A mechanism will therefore be needed to 

reimburse USPS for the portion of the annuitants' costs attributable to POD and military service. 

This legislative proposal contemplates that the apportionment factor will continue to apportion the 

responsibility for annuitant health care costs between USPS and the Federal Treasury, based on the 

current mechanism for determining the responsibility for payments representing pre-reorganization and 

military service among USPS current and future annuitants. 

Reserves Held under the FEHB Plans 

The legislative proposal also contemplates an apportionment of the reserves currently held under the 

FEHB plans. 

At present, experience rated FEHB plans maintain reserves to assure the plans' solvency over time. 

These reserves are made up of two pieces. The special reserve is maintained in a letter of credit account 

and contains reserves for incurred but not reported claims plus any plan surpluses that accrue when 

premiums collected exceed paid claims and administrative expenses. 

An additional contingency reserve is held by OPM and is funded each year with a 4% margin included in 

each plan's premium rate. OPM has established guidelines that experience rated FEHB plans should 

maintain a minimum of three months of claims plus expenses in the combination of the special and 

contingency reserves. The actual level of reserves varies from plan to plan, but is frequently in excess of 

the three month target requirement. From time to time, OPM reduces the rates that would otherwise 

be required for particular plans to recognize that reserves are in excess of the level needed. That has 

the effect of reducing the reserves held to the appropriate level. 

USPS, USPS employees and USPS annuitants have contributed to the accumulation of those reserves 

over the life of the program. As a matter of fundamental fairness, in the event Congress approves this 

legislative proposal those reserves currently held should be allocated on a plan specific basis 

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proportional to the premium contributions of USPS and participants compared with the remainder of 

the federal employee participants. The proportion of the reserves attributable to USPS and USPS 

participants should be paid over to the fund which will be established to manage the finances of the 

new health benefits program. 

That will equitably support the operations of the new plan going forward. It also avoids the inevitable 

result that, if this allocation is not made, the reserves held on the balance of federal participants will be 

increased by approximately one-third relative to premiums, compared with present reserve levels. That 

would effectively represent a subsidy from USPS and USPS FEHB participants to remaining participants 

in the FEHB program, serving to reduce future premium requirements, for the remaining participants at 

USPS expense. 

The Legislative Proposal-Summary 

This legislative proposal, by addressing the liability issue directly, primarily through proper coordination 

of the plan with Medicare, would produce a substantial portion of the savings that the Postal Service will 

need to return to financial stability. And these savings are achieved without eliminating a single job, or 

closing a single post office or postal facility. 

We are prepared to meet with the Congress and other stakeholders to discuss the proposal and to 

answer fully any questions. We respectfully urge the Congress to consider and enact this proposal given 

its importance to the Postal Service and to our employees and annuitants and their families. 

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DEFINED CONTRIBUTION PLAN FOR NEW EMPLOYEES 

Amend section 1005(d) oftitle 39 as follows: 

39 U.S.C. § 1005. Applicability of laws relating to Federal employees 

(d)(1) Except as provided in paragraph (2), GQfficers and employees of the Postal 

Service (other than the Governors) shall be covered by chapters 83 and 84 of Title 5. The 

Postal Service shall withhold from pay and shall pay into the Civil Service Retirement and 

Disability Fund the amounts specified in or determined under such chapter 83 and subchapter II 

of such chapter 84, respectively. The Postal Service shall pay into the Federal Retirement Thrift 

Savings Fund the amounts specified in or determined under subchapters III and VII of such 

chapter 84. 

(2)(A) Officers and employees-

(j) first appOinted to a position with the Postal Service on or after January 1, 2015; or 

(ii) subject to subparagraph (B), who separate from service with the Postal Service 

(including those who become annuitants under chapter 83 or 84 of title 5). and who are 

reappointed to a position with the Postal Service on or after January 1, 2015 

shall not be covered by chapter 83 or subchapter II, IV, V, or VI of chapter 84 of title 5 for the 

period of service occurring on or after January 1, 2015. Such officers and employees shall be 

eligible to participate in the Thrift Savings Plan under subchapters III and VII of chapter 84 of 

title 5 for that period of service, unless the Postal Service substitutes a different defined 

contribution plan in accordance with this chapter and chapter 12 of this title. 

(B)(i) Nothing in this subparagraph shall be construed to deny any rights or benefits to 

which an officer or employee is otherwise entitled under subchapter I of chapter 81. An officer 

or employee who returns to service after receiving benefits under subchapter I of chapter 81 of 

title 5 shall continue to be covered by paragraph (1), without regard to whether the officer or 

employee also had the status of a disability annuitant under chapter 83 or 84 of title 5. 

(ii) Nothing in this subparagraph shall be construed to deny an officer or employee 

rights or benefits to which the officer or employee is otherwise entitled under subchapter II of 

chapter 43 of title 38, An officer or employee who returns to service under subchapter II of 

chapter 43 of title 38 shall continue to be covered by paragraph (1). 

f2)(3) Subject to the provisions of paragraph (2)(B), +the provisions of subsections (i) 

and (rn)(2) of section 8344 and subsections (f) and 0)(2) of section 8468 of title 5 shall apply 

with respect to the Postal Service. For purposes of so applying such provisions--

(A) any reference in such provisions to the head of an Executive agency shall be 

considered a reference to the Postmaster General; and 

(B) any reference in such provisions to an employee shall be considered a reference to 

an officer or employee of the Postal Service. 

[Conforming amendment: delete last sentence of 39 USC 1005(f)] 

Amend chapter 84 of title 5 as follows: 
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5 U.S.C. § 8432. Contributions 

(a)(1) An employee or Member may contribute to the Thrift Savings Fund in any pay period, 

pursuant to an election under subsection (b), an amount not to exceed the maximum 

percentage of such employee's or Member's basic pay for such pay period allowable under 

paragraph (2). Contributions under this subsection pursuant to such an election shall, with 

respect to each pay period for which such election remains in effect, be made in accordance 

with a program of regular contributions provided in regulations prescribed by the Executive 

Director. 

(4) Notwithstanding any provision under this subsection, contributions by an officer or employee 

of the United States Postal Service eligible to contribute to the Thrift Savings Fund by virtue of 

section 1005(d)(2) of title 39 shall be determined by the Postal Service consistent with the 

provisions of chapters 10 and 12 oftille 39. 

(c)(1)(A) At the time prescribed by the Executive Director, but no later than 12 days after the 

end of the pay period that includes the first date on which an employee or Member may make 

contributions under subsection (a) (without regard to whether the employee or Member has 

elected to make such contributions during such pay period), and within such time as the 

Executive Director may prescribe with respect to succeeding pay periods (but no later than 12 

days after the end of each such pay period), the employing agency shall contribute to the Thrift 

Savings Fund for the benefit of such employee or Member the amount equal to 1 percent of the 

basic pay of such employee or Member for such pay period. 

(B) In the case of each employee or Member who is an employee or Member on January 1, 

1987, and continues as an employee or Member 'without a break in service through April 1 , 

1987, the employing agency shall contribute to the Thrift Savings Fund for the benefit of such 

employee or Member the amount equal to 1 percent of the total basic pay paid to such 

employee or Member for that period of service. 

(e) If an employee or Member--

(i) is an employee or Member on January 1, 1987; 

(ii) separates from Government employment before April 1, 1987; and 

(iii) before separation, completes the number of years of civilian service applicable to such 

employee or Member under subparagraph (A) or (8) of subsection (g)(2), 

the employing agency shall contribute to the Thrift Savings Fund for the benefit of such 

employee or Member the amount equal to 1 percent of the total basic pay paid to such 

employee or Member for service performed on or after January 1, 1987, and before the date of 

the separation. 

(2)(A) In addition to contributions made under paragraph (1), the employing agency of an 

employee or Member who contributes to the Thrift Savings Fund under subsection (a) for any 
221 


Insert offset folio 147 here 82436.147

pay period shall make a contribution to the Thrift Savings Fund for the benefit of such employee 

or Member. The employing agency's contribution'shall be made within such time as the 

Executive Director may prescribe, but no later than 12 days after the end of each such pay 

period. 

(8) The amount contributed under subparagraph (A) by an employing agency with respect to a 

contribution of an employee or Member during any pay period shall be the amount equal to the 

sum of--

(i) such portion of the total amount of the employee's or Member's contribution as does not 

exceed 3 percent of such employee's or Member's basic pay for such period; and 

(ii) one-half of such portion of the amount of the employee's or Member's contribution as 

exceeds 3 percent, but does not exceed 5 percent, of such employee's or Member's basic pay 

for such pay period. 

(C) Notwithstanding subparagraph (8), the amount contributed under subparagraph (A) by an 

employing agency with respect to any contribution made by an employee or Member during any 

pay period which begins after the date on which such employee or Member makes an election 

under subsection (b)(4) and before July 1, 1987, shall be the amount equal to the sum of--

(i) two times such portion of the total amount of the employee's or Member's contribution as 

does not exceed 3 percent of such employee's or Member's basic pay for such pay period; 

and 

(ii) such portion of the total amount of the employee's or Member's contributions as exceeds 3 

percent, but does not exceed 5 percent, of such employee's or Member's basic pay for such 

pay period. 

(3)(A) There shall be contributed to the Thrift Savings Fund on behalf of each employee or 

Member described in subparagraph (8) the amount determined under subparagraph (C). 

(8) An employee or Member referred to in subparagraph (A) is an employee or Member who--

(i) is an employee or Member on January 1, 1987; 

(ii) has creditable service described in section 8411(b)(2) of this title; and 

(iii) has not received a refund of the amount of the retirement deductions made with respect to 

such service under section 204 of the Federal Employees' Retirement Contribution Temporary 

Adjustment Act of 1983. 

(C) The amount referred to in subparagraph (A) in the case of an employee or Member is equal 

to the sum of--

(i) 1 percent of the total basic pay paid to such employee or Member for service described in 

section 8411 (b)(2) of this title; and 

(ii) interest on such amount computed with respect to such service in the manner provided in 

paragraphs (2) and (3) of section 8334(e) of this title. 
222 


Insert offset folio 148 here 82436.148

(D) The Secretary of the Treasury shall credit to the Thrift Savings Fund, out of any sums in the 

Treasury not otherwise appropriated, the amounts determined by the Director to be necessary 

to carry out this paragraph. 

(4) Notwithstanding paragraphs (1) and (2), the amount contributed by the United States Postal 

Service with respect to an officer or employee of the Postal Service eligible to contribute to the 

Thrift Savings Fund by virtue of section 1005(d)(2) of title 39, shall be determined by the Postal 

Service consistent with the provisions of chapters 10 and 12 of title 39. 

(d) Notwithstanding any other provision of this section, no contribution may be made under this 

section for any year to the extent that such contribution, when added to prior contributions for 

such year, exceeds any limitation under section 415 of the Internal Revenue Code of 1986. 

However, no contribution made under subsection (c)(3) shall be subject to, or taken into 

account, for purposes of the preceding sentence. 

(e) The sums required to be contributed to the Thrift Savings Fund by an employing agency 

under subsection (c) for the benefit of an employee or Member shall be paid from the 

appropriation or fund available to such agency for payment of salaries of the employee's or 

Member's office or establishment. When an employee or Member in the legislative branch is 

paid by the Chief Administrative Officer of the House of Representatives, the Chief 

Administrative Officer may pay from the applicable accounts of the House of Representatives 

the contribution that otherwise would be contributed from the appropriation or fund used to pay 

the employee or Member. 

(f) Amounts contributed by an employee or Member under subsection (a) and amounts 

contributed with respect to such employee or Member under subsection (c) shall be deposited in 

the Thrift Savings Fund to the credit of that employee's or Member's account in accordance with 

such procedures as the Secretary of the Treasury may, in consultation with the Executive 

Director, prescribe in regulations. 

(g)(1) Except as otherwise provided in this subsection, all contributions made under this section 

shall be fully nonforfeitable when made. 

(2) Contributions made for the benefit of an employee under subsection (c)(1) and all earnings 

attributable to such contributions shall be forfeited if the employee separates from Government 

employment before completing-

(A) 2 years of civilian service in the case of an employee who, at the time of separation, is 

serving in--

(i) a position in the Senior Executive Service as a noncareer appointee (as defined in section 

3132(a)(7) of this title); 

(ii) a position listed in section 5312, 5313, 5314, 5315, or 5316 of this title or a position placed 

in level IV or V of the Executive Schedule under section 5317 of this title; or 

(iii) a position in the Executive branch which is excepted from the competitive service by the 

Office by reason of the confidential and policy-determining character of the position; or 

(8) 3 years of civilian service in the case of an employee who is not serving in a position 

described in subparagraph (A) at the time of separation. 
223 


Insert offset folio 149 here 82436.149

(3) Contributions made for the benefit of a Member or Congressional employee under 

subsection (c)(1) and all earnings attributable to such contributions shall be forfeited if the 

Member or Congressional employee separates from Government employment before 

completing 2 years of civilian service. 

(4) Terms governing the forfeiture of contributions made under this section for the benefit of an 

officer or employee of the United States Postal Service eligible to contribute to the Thrift 

Savings Fund by virtue of section 1 005( d)(2) of title 39 shall be determined by the Postal 

Service consistent with the provisions of chapters 10 and 12 of title 39. 

{4} ill Nothing in paragraph (2) or (3) shall cause the forfeiture of any contributions made for the 

benefit of an employee, Member, or Congressional employee under subsection (c)(1), or any 

earnings attributable thereto, if such employee, Member, or Congressional employee is not 

separated from Government employment as of date of death. 

(5) Notwithstanding any other provision of law, contributions made by the Government for the 

benefit of an employee or Member under subsection (c), and all earnings attributable to such 

contributions, shall be forfeited if the annuity of the employee or Member, or that of a survivor or 

beneficiary, is forfeited under subchapter II of chapter 83. 
224 


Insert offset folio 150 here 82436.150

National Association of 

Letter 

May 14,2013 

The Honorable Darrellissa 

Chairman 

House Oversight and Government 

Reform Committee 

2157 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Elijah E. Cummings 

Ranking Member 

House Oversight and Government 

Reform Committee 

2157 Rayburn House Office Building 

Washington, DC 20515 

Dear Chairman Issa and Ranking Member Cummings: 

100 Indiana Ave. NW 

Washington. DC 20001-2144 

202.393.4695 

Thank you for the opportunity to testify on April 17, 2013 at your committee's hearing on 

"Options to Bring the Postal Service Back to Solvency." I hope that you and your staff members 

have been able to review our written testimony as well. 

I write to respond to the questions for the hearing record sent to me by Chairman Issa in a letter 

dated April 30, 2013. The responses to those questions are attached. Please don't hesitate to 

contact me if you have further questions. If you would like to discuss the issues raised in the 

hearing or in our written testimony, I am avai1able to meet with either of you or both of you at 

your convenience. 

NAlC believes that a comprehensive restructuring of the Postal Service is necessary and that 

major stakeholders and both parties should work together to achieve it through legislation. 

Such a restructuring would allow the USPS to fully utilize Its networks and pursue every 

opportunity to achieve long-term viability. It would involve all aspects of the Postal Service, 

including its management, corporate governance, and legal and regulatory environment, and it 

would address the key Issues of pricing and products as well the fair and sensible means to 

finance pensions and retiree health benefits. 

Our goal should be to address the Posta! Service's financial crisis in a way that will strengthen a 

very valuable part of the nation's economic infrastructure in support of some 7.5 million private 

sector jobs. NAlC stands ready to work with legislators in both parties to achieve this. 

Thanks again for inviting me to testify before the Com·mittee. 

Sin{ereIY"'I. \ 

( 0....,.:-; \.(~) 

FredriC V. Rolando 

President 
225 


Insert offset folio 151 here 82436.151

Answers to Committee Questions to Fredric V. Rolando 

Re: Hearing on "Options to Bring the Postal Service Back to Solvency," April 17, 2013 

1. No. Although the NALC worked with leaders from both parties and with stakeholders in 

the broader mailing industry to forge consensus on many provisions in the PAEA, we 

could not support the final bill for a variety of reasons. However, we did agree not to 

oppose its passage. 

2. a. NALC stands by its testimony. The PAEA did set a lO-year schedule of pre-funding 

payments that was based on a 75-year projection of future retiree health premiums in 

2006. The quote cited from our website is based on a briefing done for the NALC by 

Postal Service management in the summer of 2006 when the pre-funding policy was 

being formulated by OPM and GAO. We have seen no evidence from OPM that 

contradicts that briefing. We would need to review the OPM's valuation report on the 

Postal Service's retiree health liability in its entirety to comment further. 

To our knowledge, the OPM has never shared its full report (with all associated work 

papers) with the Postal Service or any other party. The OPM declined to share the full 

report when we asked for it. It has been the OPM's practice to provide the Postal 

Service a two-page summary of its valuation (on blank sheet of paper without 

attribution) - a practice that falls far short of private sector standards for valuation 

reporting. The summary offers very little detail on the actuarial methods and 

assumptions employed to calculate the Postal Service's retiree health liability - and 

none of the supporting calculations and documentation. 

b. The Postal Service annual report does note that the accrued liability for retiree health 

has increased to $93.575 billion -- even as the balance in its Postal Service Retiree 

Health Benefits Fund has increased to nearly $50 billion. Again, because of the lack of 

transparency by the OPM, it is not clear what is driving the liability increase - there is no 

explanation in the summary. 

On the one hand, we know interest rates have fallen to historic lows, which has clearly 

increased the liability - a trend that would be reversed when interest rates rise to more 

normal levels as the economy recovers. On the other hand, changes reportedly adopted 

by the OPM to use lower, more appropriate medical inflation trend assumptions and to 

reflect the sharp reduction in USPS employment since 2006 would normally reduce the 

liability. We cannot verify if these changes have been implemented and unless we can 

review the OPM's full valuation report and related work papers, it is impossible to 

comment on the accuracy of the $93.575 billion estimate. 

c. Your question partially quotes a sentence in a GAO report. The full sentence states 

"Contrary to statements by some employee groups and other stakeholders, PAEA did 

not require USPS to prefund 75 years of health benefits over a lO-year period." We 

believe the GAO misunderstood our statement. Please see our answer to 2.a. 

d. Please see our answer to question 2.a. It is impossible to answer this question 

without access to full valuation report from the OPM. 
226 


Insert offset folio 152 here 82436.152

3, a, The Postal Service has among the lowest postage rates in the world, Of course, we 

would be concerned about the ability of low-income, older and rural Americans to 

afford higher postage rates that would result from the use of the CPI-Delivery Services, 

To address this concern, we would support using the CPI-Allltems index for householdgenerated single piece letters (so-called Aunt Minnie mail), However, the vast majority 

of mail is produced by business mailers and any price index to regulate postage rates 

should be related to an appropriate private sector benchmark, As we argued in 2006 

and in my recent testimony, the CPI for Delivery Services is the appropriate benchmark; 

it reflects the cost structure of our industry - the national delivery services industry, In 

our view, if the Congress is going to impose a massive pre-funding mandate on the 

Postal Service, its business customers should be asked to bear some of the cost, 

b, No customer in any industry wants to pay higher prices, However, cutting services 

and reducing the quality of service while charging the same rates, is tantamount to an 

increase in postage rates, We believe downsizing and reducing service in a way that 

degrades the value of the Postal Service's first- and last-mile networks is 

counterproductive and will do much more harm than good, It will drive away much 

more business than the modestly higher, but predictable, postage rates that would 

result from the adoption of the CPI-Delivery Services, 
227 


Insert offset folio 153 here 82436.153

GOVEHNMENT RELATIONS 

May 15, 2013 

The Honorable Blake Farenthold 

Chairman 

Subcommittee on Federal Workforce, 

U,S Postal Service and Census 

House of Representatives 

Washington, DC 20515-4327 

Dear Chairman Farenthold: 

Enclosed please find responses to the questions for the record you submitted following the Committee on 

Oversight and Government Reform's April '17, 2013 hearing entitled, "Options to Bring the Postal Service 

Back from Insolvency," The responses are submitted on behalf of Postmaster General Patrick R 

Donahoe, 

If you have any questions, please let me know 

Sincerely, 

Enclosure 

475 L"EwANl PlAl!\ SW 

DC 20260-3500 
228 


Insert offset folio 154 here 82436.154

HOUSE OVERSIGHT Ai\'J) GOVERNMENT REFORM COMMITTEE 

"OptiollS to Brillg the Postal Sen'ice Back/rom Insoh'ellcy" 

Wcdne~day, Aprill7, 2013 

Post-Hearing Questiol1S for tfte Record 

Submitted to the HOllorable Patrick R, DOllahoe 

From Subcommittee Chairman Blake Farenthold (R-TX): 

I, ;\pproximatcly ho\\ many reports dOes the tJSl'S receive each year of clcctirlJ1l11atcrials, 

such as vOleI' registration cards (VRe) and absentee ballots, going missing" 

The Postal Service IIlIS in place procedures that m'e followed whencyc,' it receives 

reports of issnes with allmaii, includin~ election materials. It should be noted that 

there is a distinction hetween yadous types of election materials and the timing of 

mailing for these items. Ballots, for example, arc typically mailed in conjunction 

with scheduled e1ectiollS which generally occur l'Vuy two yea,'s. For items such as 

Voter Registration Cards (VRC), howevcr, municipalities 01' counties often utilize a 

staggered sdICdule for the mailing of these items. They do not typically adhere to a 

two-~'ear c:vclc and they m'e not mailed within any specific timdinc, as is the case 

with oallots. 

Regardless of when items arc mailed, including election materials lind VRCs, the 

Postal Service takes seriously any rcport of missing or delayed mail, Local postal 

officials work with customers to research and resolyc all such reports, In addition, 

each election year, thc Postal SCI'yicc forms an Electiou Mail Task Force (EylTF) to 

,'Ilwre further that all issucs concerning election and political maillll'c reported and 

resolYCd in a timely mannl'r. During the 21H2 election mail scason, the Postal 

Sen'ire's EMTF received (no ,'cports of isolated incidents, regllrding what were 

thought to he missing election mllil items, hut that wC"C hlter confirmed as delivered 

following investigation of ellch incident. 

Whal actions docs the I lSI'S take in response to cases of missing or stolen election 

malL-rials'.' 

The [ll'Oeednrcs for responding to reports of missing or delayed L'lcction mlltcrillis 

usually hegin at the local kvel. Standard Opc"lIiing P"oc('durt's (SOP) exist which 

direct each Plant l\<1anagCl', Postmaster, or other local manager to investigate. 

\\'h,'11 th(' Postal Sc,'viee becomes aware of any such situation, thc Dish'iet Manager, 

who is the highest-ranldng postal official in the local arca, investigates and 

,'('seal'chcs the re(lorted incident. Ifwarranted, the Dish'ict Mamrger will furthe,' 

escalate the mattcr lip the chain of command, which includes devating the issue to 

the Vice I'resident, Ar'ea Oper'ations. If the circumstances warrant, the II,S. Postal 

Inspcction Scn'icc (llSPIS) is notified. They investigate thc daims and determinc 

the scopc and validity of each casco The,'c is a distinction with regard to 

investigatory activity. The liSPIS investigates 11l1~' external cdminal acth'ity. Tbey 
229 


Insert offset folio 155 here 82436.155

also rcview and report on any security deficiencies discovered llnd assist the Postal 

Sen'icc in assuring that missing materials are not pl'cscnt in postal facilities, The 

Postal Service Officc of the Inspector General (OIG) investigates intnnaillctivit}, 

such liS intcntional employee misconduct, and any such l'asc would be referred to 

that group, 

,'. The 1 lSI'S OIG recently completed an investigation into missing VRes in Fort Bend 

County, Texas, at the request orR.:p. Pete Olson (TX-22). The investigators were unable 

to ascL'rlain eitlwr th.: whereabouts of the VRes or how they \vent missing. What is the 

ncxt step in an invcstigation or this sort? \Vil1 the USPS continue to investigate or \vill 

the USPS gin: up and acknowledge that tll",y cannot guarant",c the security oj' election 

l11:lterials? 

The Postal Scn'ice is una hie to comment on any aspect of thc investigation 

conductcd by the OIG, as we have received no information from the 01(; regarding 

their investigatioll 01' the outcome. \\lhen the Postal Service became aware, in .June 

of 2012, of the situation involving Fort Bend Count}' mailings sent in MaI'eh and 

Apl'il of 2012, thc District Manager immediately began an investigation of thc 

mllttu. Local postal management lIsccl·taincd that the mail in questioll was 

rccdyed, \'crifietl and doculllcnted through thc Postal St'rvicc's Business 1\1ail Entry 

linit (BMEl.:), They conductcd a I'cview to verify that there were no VRCs from 

Fort Bend County preSl'nt within the applicable mail prol'essing facility or delivery 

units. All VRes received at the applicable delivery offices were delivered. 

In ,July 2012, a repl'csentative frolll the Postal Srrviee provided 1I synopsis of the 

inycstigatory efforts to a representative from the Fort Bend County elections office. 

Additionally, the District Managcr met with local county eketion officials in August 

20U to flll'thcr discnss this llIailing. Also discussed at this meeting was an upcoming 

additional mailing of VRCs by Fort Bend County that would be sent in Septemher 

2012, It was mutually agreed that the Postal Service would closely monitor the 

Scptrmbcr mailing and cledion officials appeared to be s:ltisfied with the responses 

provided by the Postal Service. There were no issues reported with the Scptl'mber 

VRC mailing. To fUl'ther assist in detcrmining what might have oCCUlTed with this 

case, the Postal Service ,'cviewed addresscs provided by Fon Bend County elections 

officials and found no discel'l1ihlc pattern to indicate non-delivcry on any pm'lieular 

route 01" ZIP Code. 

The security of all mail, including election materials, is of paramount importance to 

the Postal Service. Working with the trSPIS, the Postal Service provides the highest 

possible Il'vel or security for the mail, including electioll IlIaterials, frolll point of 

acceptance to final delivery. 

a) What policies did thc USPS han: in place at the time of the Fort Bend County 

incident to ensure the integrity and security 01' election materials') !lave then:: 

been any changes in those policies since then'? If so, wby'! 

2 
230 


Insert offset folio 156 here 82436.156

The mlliling in question fOl' Fort Rend County occurred in March lind April 

2012. As noted previously, the Postal Service puts in place additional 

procedures in advance of each election cycle every two years. These 

heightened processes normally begin approximately four to six months pri()r 

to each Elel'tion Day date. At the time of this mailing, these additional 

procedures were not yet activated. It is important to note, however, thM 

issues of mail security arc ahVll)'s at the forefront of the Postal Sen'ice's 

openltional pmcesses, each and every day of the year. 

Postal Scnice policies currently in place to prevent the thd't or loss ()f mail 

include: ensuring the secm'it} ()f mail pl'Occssing and deliyery facilities to 

protect against the intrusi()n of unauthoriz,ed individuals; ensul'ing the 

security and handling of mail transported for delivery by mail carriers and 

contractors; and rigorous personnel sccul'ity policies requiring appropriate 

background investigations on employees and contractors. There haye been 

no significant changes in Postal Service pl'Oeedurcs since the incident 

involving the FOI·t Bend VRCs; however, the Postlll Service is constantly 

striving to impn)"c its processes and is focused on keeping the mail safe and 

secun:. The Postal Service has hl'cn named the Most Trusted Goycrnml'nt 

Agency for se\en yem's and the fourth Most Trusted Business in the nation 

hy thc I'onclllon Institute. 

-1. In light of the inability ofthe OIG to get to the bottom of the missing VRCs in Fort Bend 

County, Texas_ what policies does the USPS plan to institute in order to ensure that this 

neyer happens again',' 

As pl'l,viously stated, the Postal Service is unable to comment on the OIG 

inycstigation. \Ve will continne to afford lIlaii security to election materials by 

enhancing \'is;bili!y within the mailing system. We cUlTently utilize tools such as 

tagging, logging, lind tracking of election mail. In addition, there an: tools available 

that election officials can usc to h'ack individual mail pieces, such as the Full Sen'icc 

Intelligent Mail barcode (1Mb). This system pl'Ovides for sClinning lind tracking 

clIplibility that offers optimal security and visibility. The Post:ll Service will 

l'ontinnc to wor], c1osel~' with election officials lind election organizations to further 

improvc existing processes and ensnn' the security of election materials. 

3 
231 


Insert offset folio 157 here 82436.157

GOVERNMENT RELATiONS 

May 15, 2013 

The Honorable Tammy Duckworth 

Committee on Oversight and 

Government Reform 

House of Representatives 

Washington, DC 20515-1308 

Dear Congresswoman Duckworth 

Enclosed please fmd responses to the questions for the record you submitted following the Committee on 

Oversight and Government Reform's AprH17, 2013 hearing entitled, "Options to Bring the Postal Service 

Back from InSOlvency," The responses are submitted on behalf of Postmaster General Patrick R. 

Donahoe 

If you have any questions, please let me know 

Sincerely, 

Sheila T Meyers 

Manager, Government Liaison 

Enclosure 

475 L'ENF"N; PLV.A SW 

W .l.SH!NGTON DC 20260·3500 
232 


Insert offset folio 158 here 82436.158

HOUSE OVERSIGHT AND GOVERNMENT REFORM COMMITTEE 

"Optiolls to BriJlg the Postal Sen'ice Backfrom llIsolvellcy" 

Wednesday, April 17, 2013 

Post-Hearing QuestioJls for tile Record 

Submitted to tlte HOllorable Patrick R. DOJlahoe 

From Representative Tammv Duckworth (D-IL): 

1. PostmJster General Donahoe. during the hcaring Chairman Barn.:lt mentioned that in 

your previolls discussions with businesses who deliver prescription drugs. presentations 

were given on wa) s to ensure timely delivery of medicine to clistomers without 

increasing the costs to businesses. Could you please elaborate on this point and share 

with 11S additional in!()fJ11ation that USPS' ll1'lI1agcmcnt O[ the Board of Governors may 

havc about any eX]J<:cled cost shi rting to posta] cllstomers. I am particularly conccl11cd 

about this. because in an i\pril 10. 2013. Suhcoll1mil1cc hearing CVS Carcmark testified 

that it was possible that moving to 5 day delivcry could affect their margins and lead to 

cost shifting to their clistomers. 

The Postal Service has no current plans to implement u fcc or surcharge for 

Saturday package delivery. In addition, the ()ostal Service is making every effort to 

l'nsure the h-ansition to five-day delivery with Suturday package dclivc,-y is as 

Sl'amlcss for ollr clistomers as possible. 
233 


Insert offset folio 159 here 82436.159

GOVERNMENT HFLA110NS 

May 17, 2013 

The Honorable Darrell E. Issa 

Chairman 

Committee on Oversight and 

Government Reform 

House of Representatives 

Washington, DC 20515-6143 

Dear Chairman Issa: 

----------_._-_._._---

Enclosed please find responses to the questions for the record for the Committee on Oversight and 

Government Reform's April 17. 2013 hearing entitled, "Options to Bring the Postal Service Back from 

Insolvency." The responses are submitted on behalf of U.S. Postal Service Board of Governors Chairman 

Mickey Barnett. 

If you have any questions. please let me know. 

Sincerely, 

Enclosure 
234 


Insert offset folio 160 here 82436.160

HOUSE OVERSIGHT AND GOVERNMENT REFORM COMMITTEE 

"Options to Bring the Postal Service Back/rom Insoh'ency" 

Wednesday, April 17, 2013 

Post-Hearing Questions/or the Record 

Submitted to the Honorable Mickey Barnett 

From Chairman Darrell Issa (R-CA): 

I. Background: In December of20l1, USPS announced a 5 month self'imposed 

moratorium on the closure and consolidation of mail processing plants and post offices. 

a. Were you aware of such a moratorium proposal before it was announced? 

See response to question Ic below. 

b. Were YOll asked to approve such a moratorium? Was the Board in part, or in 

whole, asked to approve? 

See response to question Ie below. 

c. Were YOll supportive of such a moratorium? Were the other Governors? 

The Postmaster General agreed with certain members of Congress dnring a 

meeting at which the then Chairman of the Board was present. The Board 

was not consulted in advance. At the subsequent Board meeting, the Board 

was briefed on the matter, and individual members of the Board expressed 

their disappointment over the moratorium, including myself. Following the 

Board discussion, the Postal Service issued its official press release on the 

matter. 

The Postmaster General considered the moratorium a wise choice as he was 

sensitive to maintaining a productive and collaborative relationship with 

Congress. He was asked by numerous Senators to enact the moratorium to 

give them a chance to consider and enact comprehensive postal reform. 

Subsequently, the Senate did enact a postal reform bill in April 2012, bnt 

unfortunately no further action was taken by Congress. 

The moratorium was very limited both in time and in scope, in that it applied 

only to the actual closing of facilities, and did not preclude the Postal Service 

from taking all preliminary steps to review facilities short of actual closure. 

In fact, the moratorium resulted in only approximately two month's change 

in the schedule. 

2. How many employees report directly to the Board? 
235 


Insert offset folio 161 here 82436.161

The Office of the Governors currently has two employees who work for the 

Governors. Additionally, the Inspector General reports to and is under the 

general supervision of the Governors. The Board also utilizes external 

subject matter experts to augment its staff on an as-needed basis. 

a. Did the Board have a larger staff in the past? Do you know why the staff shrank? 

In the past, there was, at times, a Deputy Secretary to the Board in the Office 

of the Governors. My understanding is that this position was eliminated 

after a review of the roles and responsibilities of the staffing for the office 

and due to efficiencies gained within the office. 

b. If the Board relies almost solely on individuals who also report to the Postmaster 

General for all of its information, exactly how independent can the Board be? 

The Board does not rely almost solely on individuals who also report to the 

Postmaster General for its information. The permanent staff of the 

Governors are selected by and report only to the Governors, and are 

therefore independent of management. The full-time Board Office 

employees carry out the administrative duties of the office, represent us at 

senior meetings of management, ensure that the by-laws are adhered to, keep 

us informed between formal meetings, and manage contracts with external 

subject matter experts who are under the direction of and report their 

findings directly to the Board. 

To augment the staff, the Board regularly utilizes independent, external 

subject matter experts to answer specific questions, work on projects, and to 

provide independent outside counsel on legal matters. The Board also meets 

with members of the academic community to explore policy and strategic 

issues from different viewpoints, and meets with customers and members of 

the industry to understand issues from their perspectives. 

Board members themselves bring years of experience in a variety of different 

functions. This experience is considered when assigning committees, and 

often brings private-sector and public policy perspectives into deliberations. 

The Board also relies on personal interaction with personnel when 

considering key issues. The Board and its committees visit Postal Service 

facilities to observe first-hand how the Postal Service operates, and to speak 

to employees below the senior-most levels of the organization to ensure that 

the perspectives they hear from senior management are consistent with those 

implementing strategies. Moreover, the Board considers competitors' and 

partners' operational strengths to gain insight into best practices in efficiency 

and the use of technology. 

2 
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Finally, the Board has the findings of the DIG, the PRC, and the GAO at its 

disposal and uses those as sources of information as well. 

See question 3 for some examples on how the Board utilizes external 

resources. 

c. Should the Board have larger staff'? 

The Board thinks it is much better served by using subject matter experts on 

a case-by-case basis to answer specific questions or work on projects rather 

than havc additional pcrmanent staff that may not have the cxpertise in any 

one given area. The Board also has the ability to utilize the DIG when 

nccessary. 

To add perspcctive, corporate boards generally have no staff or a very small 

staff, as a large permanent staff is not generally seen as effective or efficient. 

Creating additional bureaucracy, which is what a large permanent Board 

staff would be, would be a step in the wrong direction. 

3. How often has the Board disagreed with the current Postmaster General? Can you name 

any specific instances? What were the results of these disagreements? 

In order to provide a complete answer to this question, it is neccssary for me 

to explain the role of the Board of Governors and the process through which 

the Board reaches decisions. 

Thc Governors are charged by law with the responsibility to represent the 

public, dircct and control the expenditures, and to oversee the practices and 

policies of the Postal Service. The Board accomplishes its purposes by 

monitoring the operations and performance of the Postal Servicc, and by 

establishing basic objectives, broad policies, and long-range goals for the 

Postal Service. In addition, by law certain key decisions of the Postal Service 

are specifically rcserved to the Board or to the Govcrnors alone. 

Dnring my tcnurc, the Board and the Governors havc taken our 

responsibilities very seriously and we have been actively involved in fulfilling 

them, focusing on our obligation to take all actions within our authority to 

ensure that the Postal Service will continue to be ablc to provide prompt, 

reliable, and efficicnt postal services to all citizens and communities of the 

United Statcs. 

The Board has actively cngagcd in Postal Service business during thesc 

critical timcs. In calendar year 2011, either a full Board or a committee 

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meeting was held on 40 separate days; in calendar year 2012, 40 days were 

dedicated to meetings; and during the first five months of 2013, Board 

members have dedicated 17 days to meetings. These meeting days do not 

include the significant amount of time that the Governors spend preparing 

for the meetings, traveling to the meetings, and engaging in follow-up 

activities generated by the meetings. The Board works tirelessly together to 

shape many of the transformative plans that have been developed in recent 

years as we have struggled to chart a course for the Postal Service toward a 

financially sustainable future. We have undertaken these efforts 

collaboratively and collectively with Postal management, but we have 

remained independent and mindful of our responsibility to the American 

public. 

Generally, the decision making process of the Board is an interactive one that 

involves a free exchange of opinions, judgments and information; substantial 

give and take; and healthy debate which oftcn result in changes in individual 

positions during the coursc of the discussion. 

Within this context, there have been many instances within my tenure where 

management's initial proposals were modified, revised, or reconsidered as a 

result of the interactive process described herein. In addition, the Board 

frequently provides specific guidance and direction to management on policy 

and strategic issues on a proactive basis, often with advice and analysis of 

indcpendent subject matter experts, where the Board believes that such 

proactive advice, guidance, or direction is in the best interests of the Postal 

Service and the American people. Examples of this activity for illustrative 

purposes are set forth below: 

• In 2008 and 2009, when business conditions began to deteriorate, the 

Board required Postal Service management to put together a long-term 

plan to better understand the financial outcome of the Postal Service. 

Prior to this, management only identified quantifiable strategies in the 

short-term. This long-term plan then became the basis for identifying the 

degree of change necessary for the Postal Service in the future. It also 

formcd the starting place where the Board called in several independent 

sources to review, update and supplement the plan. 

• Over the course of several meetings, the Board met with BCG, a wellknown market analysis firm, and an external source, to analyze and 

project volume trend scenarios. BCG interacted directly with customers 

to get perspective, conducted an analysis of market conditions and 

drivcrs, and provided an in-depth analysis of management's initial 

volume projections. The vohime forecast scenarios used as the 

foundation of the plan were updated by management after their input. 

• The Board asked Accenture to review the strategic business approach of 

foreign posts and to provide an analysis as to whether any such strategies 

would be effective in the United States. Their findings were presented to 

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the Board, and the outcome of the Board discussion was incorporated 

into the business plan by management. 

• The Board retained McKinsey and Company to assist management in 

compiling the components of the Plan, and to look at additional new 

market and cost cutting opportunities. They also asked McKinsey to 

recommend a communications strategy for the Plan roll-out. McKinsey 

met several times with the Board prior to the issuance of the Plan, and 

the Board used the materials provided by McKinsey as well as 

management in its deliberations prior to the final approval of the Plan. 

• After the initial issuance of the Plan, the Board continued to refine its 

analysis, and contracted with McKinsey to assist in the development of a 

viable alternative to the current business model given the changing 

market environment. Over a series of meetings, the Board used this 

external analysis to shape its vision of a viable bnsiness model under 

which the Postal Service could operate. Information garnered from this 

effort has been used for legislative communications efforts and strategies. 

• Approximately one year prior to the commencement of labor 

negotiations, the Board collaborated with management to establish 

strategies and goals for labor negotiations. The Board held regular 

reviews of negotiations strategies, targets and progress until an 

agreement was reached or an arbitration decision was issued, depending 

on the union. The Board requested that management retain an outside 

subject matter expert to validate the plan and to advise in labor 

strategies. Evercore was the company retained for this, and met several 

times with the Board. The Board pushed management to be more 

aggressive and to think beyond the historical goals, and made a flexible, 

part-time workforce a priority based in part on its personal visits and 

discussions with senior management of 'Fed Ex and ups. This flexibility 

remains a key strategy for reducing labor costs today. 

• To increase Board oversight of succession planning and compensation 

policies, the Board created the Compensation and Management 

Resources Committee. The Board, through this committee: 

o Utilized external executive search experts to be consultants to the 

Board for succession planning, and to provide an independent 

evaluation of potential candidates for key positions. These 

independent evaluations ensure the Board receives an unbiased 

assessment of candidates for senior-most positions, and allow for 

external recruitment to augment the internal pool. 

o Utilized an independent compensation consulting firm to conduct a 

market assessment and identify best practices of private sector senior 

officer compensation. As a result, compensation levels were set for 

the "top 12" officers, and a new performance based incentive system 

was created that tics compensation to quantifiable goals. 

o Redefined the job description of the Deputy Postmaster General to 

better meet the needs of the Postal Service in the current 

environment, resulting in being able to attract the current Deputy 

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Postmaster General into a critical vacancy. 

o Directed management to look externally for some senior level 

positions, such as the Chief Marketing Officer, in which they had an 

insufficient internal pool of candidates with the needed private-sector 

competencies. 

• The Board pushed for the initiation of a continuous improvement 

strategy which has resulted in substantial operational savings through 

process improvements. Management continues to use this as an 

overarching strategy for actions to close the financial gap. 

• The Board encouraged management to utilize external expertise in 

communications while internal capabilities were being strengthened. The 

use of an external communications firm continues with good results. 

• Through the Audit and Finance Committee, the Board: 

o Directed management to create an Enterprise Risk Management 

process for the organization. Management embraced the concept and 

has implemented a bi-weekly review of strategies to address high risk 

areas. 

o Collaborated with management to hire an external consultant with 

expertise in Sarbanes-Oxley compliance after the passage of P AEA to 

help the Postal Service develop and implement its compliance plan. 

The resulting robust compliance processes led to enough operational 

and other savings to offset the costs associated with implementation of 

the new SOX requirements, which werc significant. 

• The Board disagreed with the way management was pursuing its digital 

strategy, and strongly encouraged management to use external experts in 

developing and implemcnting its digital strategy. As a result, the Postal 

Service is successfully lcveraging the expertise of a group of world-class 

experts in this area that is not presently found within the Postal Service 

or any other one organization. 

• The Board challcnged management to review its capital investment 

strategy for facilities, and as a result the Postal Service reduced costs and 

nltimately reached a decision' to stop virtually all new construction. This 

resulted in substantial savings for the Postal Service. 

• The Board disbanded the Capital Investment Committee, which allowed 

both the Board and management to redirect its efforts to more productive 

work, and to create a more streamlined process. More of the detail 

review is now conducted by the Operations Sub-Committee of the Audit 

and Finance Committee, and the Board receives periodic capital 

investment summaries and approves the capital budget as part of their 

approval of the Integrated Financial Plan. 

• The Governors have activcly engaged in pricing and product 

classification strategies. The Governors provided guidance to 

management on realigning prodncts within the competitive and market 

dominant categories to better reflect market realities and to gain 

maximum flexibility in pricing decisions. They have also challenged 

management to make bctter and more use of contract pricing and 

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Negotiated Service Agrecments. The Governors consider the external 

perspective of the Postal Regulatory Commission prior to making major 

decisions. 

The Board visited both FedEx and UPS plants, and met with senior 

management of both these highly efficient competitors to see how their 

operations were run and to get ideas on how to make Postal Service 

operations more cost effective. 

• On several occasions the Board obtained independent counsel on certain 

legal matters to ensure that all perspectives are considered and a nonPostal view is obtained, prior to making decisions. 

7