• The Honorable John Berry, Director,U.S. Office of Personnel Management

• OPM believes the Postal Service and its employees and retirees are well-served by the existing health benefits program and retirement system. Currently, OPM overhead costs for the FEHB Program are only 0.08 percent of total health premiums. These very low overhead costs have been achieved by managing programs with very large numbers of enrollees and the accumulated experience of the agency and its staff having managed these programs for decades. The FEHB Program offers good value to employees and the taxpayer and is not an excessively costly benefit as compared with other employer plans. In addition, annual premium increases for FEHB plans are typically at or below industry averages.
   
• OPM expects that a withdrawal of the Postal population would not have a significant impact on the FEHB Program as a whole. In addition, the overall cost impact on the FEHB Program would be minimal.
   
• A Postal withdrawal would have an impact on health plans with a large Postal population, such as Rural Letter Carriers, National Association of Letter Carriers, and the American Postal Workers Union. While Postal employees and retirees represent less than one quarter of the FEHB covered population, 23 health plans are comprised of 50 percent or more Postal employees and retirees and 56 plans are comprised of one third or more Postal employees and retirees.
   
• The Postal Service has suggested establishing its own Postal Service Health Care Plan (PSHCP). It may be challenging for the PSHCP to have provider networks for employees and retirees located all across the country, especially in rural areas.
   
• The Postal Service’s proposal to withdraw its annuitants and employees from CSRS and FERS would pose significant challenges because Postal and non-Postal service are integrated into the same retirement system. As such, many individuals have creditable CSRS and/or FERS service both in Postal and non-Postal employment, and the Federal Government has a legal obligation to pay these benefits. It is also possible that the USPS proposal to transfer a portion of the Civil Service Retirement and Disability Fund from the Treasury to the Postal Service would place the Postal Service’s ability to pay benefits at the risk of investment returns.
   
• Any proposal to withdraw from the FEHB and Federal employee retirement systems would be a complex undertaking. It would require careful examination to avoid unintended consequences that could harm the effectiveness of existing benefit systems. Further analysis would be necessary to ascertain whether the Postal Service’s proposal to address its fiscal challenges by withdrawing from the FEHB Program is a cost-effective approach to decreasing its health obligations, and to determine the impact on those systems left behind and the employees they cover.
   
• The Postal Service’s proposal to remove its employees from CSRS and FERS could create a number of administrative and policy challenges that would also need a careful review to fully understand its effect.
   
• One of the primary concerns of the Postal Service is the cost of retiree health benefits. There are a number of potential approaches to reduce the cost of retiree health benefits; we are piloting one approach to better coordinate FEHB coverage with Medicare in two of our current FEHB plans. OPM believes that the Postal Service and its employees and retirees can also reduce health care costs while maintaining valuable benefits by staying within the FEHB program.
   
• OPM would like to clarify the term “overpayment” as it has been used because it implies a problem with the current allocation method that OPM uses regarding CSRS benefits paid to former Post Office Department (POD) employees. OPM applies the method established under current law for apportioning responsibility for CSRS costs between USPS and the Treasury. Congress first established this policy in 1974, under P.L. 93-349, and all subsequent legislation has been consistent with this policy. As OPM states in a letter last year to the Chairman of the Postal Regulatory Commission (PRC), after careful review by counsel, we concluded that OPM does not have the authority to make a reallocation of these CSRS costs in the manner suggested in the report commission by the PRC. However, if Congress determines that another methodology is more appropriate, OPM will of course comply with any changes in the current law.
   
• The President will be submitting a proposal of his own to address the issues raised by the Postal Service. [EdNote: Berry did not specify what sort of USPS proposals the administration would put in its $1.5 trillion deficit-reduction plan. According to Bloomberg, President Barack Obama, in the budget he released in February, proposed delaying $4 billion of the congressionally mandated $5.5 billion payment due Sept. 30 for future retirees’ health care costs and refunding some surplus pension payments made by the service.]

• Phillip R. Herr, Director, Physical Infrastructure Issues, U.S. Government Accountability Office

• USPS urgently needs to restructure its networks and operations as its financial condition and outlook have reached a crisis level.|
   
• USPS’s financial problems are related to customers’ changed mail use—that is, mail volume is declining as people shift to electronic communications and payment alternatives rather than using USPS.
   
• USPS does not now have—nor expects in the future to have—sufficient revenue to cover its costs without legislative changes. These costs include compensation and benefits for a workforce of about 653,000 total employees, a network of about 33,000 USPS-operated retail2 and processing facilities, and 6-day delivery services to about 150 million locations, which expands by roughly 1 million new residences and businesses each year.
   
• We have reviewed a variety of proposals to address USPS’s ongoing financial difficulties by reducing costs and improving operational efficiency, but the overall effects of these proposals are uncertain because many questions remain. The key considerations of the USPS benefit-related proposals include the financial impact on USPS, its employees, future hires, retirees, the federal budget, and benefit programs and USPS’s ability to administer its own program.
   
• Several legislative proposals have been made to defer costs by revising statutory requirements, including extending and revising prefunding payments to the Retiree Health Benefits Fund, with smaller payment amounts in the short term followed by larger amounts later. Deferring some prefunding of these benefits would serve as short-term fiscal relief. However, deferrals also increase the risk that USPS will not be able to make future payments as its core business declines. Therefore, it is important that USPS continue to fund its retiree health benefit obligations—including prefunding these obligations—to the maximum extent that its finances permit.
   
• Some of the key questions that should be considered by Congress, USPS, and other stakeholders regarding USPS’s recent proposal to create its own health benefit program include:
  
  Legal authority – While USPS has stated that it will request legislative authority to withdraw from FEHB and start its own health benefit program, what other legal and regulatory provisions (e.g., its retiree health prefunding requirements12) may be affected by such a withdrawal?
  
  Budgetary – What impact would such a move have on the federal budget, particularly transferring $42 billion in assets from the current Treasury-held Fund to the proposed Postal Service-administered health benefits program?
  
  Financial impact to USPS – What savings would USPS expect from such a shift, both in the short-term and in the longer-term? How would such a change impact USPS health benefit contribution rates and costs? How would the current costs paid by USPS to OPM to administer the program compare to those USPS expects to incur by administering the program itself?
  
  Employee impacts – What would be the expected impact on employees’ contribution rates, costs, and benefits? What would be the impact of this proposal on collective bargaining?
  
  Impact on other federal employees – How would the benefits, contribution rates, and costs of other federal employees enrolled in FEHB be impacted by this proposal? Also, how would non-USPS federal employees13 who are currently enrolled in postal union sponsored FEHB plans be impacted?
  
  Fiduciary responsibility – How does USPS plan to acquire the experience needed to sponsor health benefit programs for over 1 million participants? Who would decide what the required funding level and investment strategy should be? Also, if USPS defaults on benefit payments, what would be the federal government’s obligation?
  
  Oversight – How would disagreements between the proposed Plan Management body and USPS and/or employees be resolved, e.g. scope of coverage, procedures, etc.?
   
• The following questions provide a starting point to consider USPS’s proposal to withdraw from the federal pension programs:
  
  USPS legal authority – USPS would require new statutory authority to withdraw future employees from the federal pension annuity. USPS proposes to eliminate the FERS annuity for new employees so that their benefits are comparable to the private sector. Is additional clarification needed to determine whether USPS’s pension proposal for new employees is comparable to the private sector?
  
  Budgetary – What would be the impact on the federal budget of transferring the $6.9 billion FERS surplus to USPS?
  
  Financial impact to USPS – What savings would be expected from eliminating the FERS annuity for new hires?
  
  Employee impacts – How would such a change impact employees’ and USPS’s contribution rates to the Thrift Savings Plan for new hires?
   
• We have noted in a number of reports and testimonies that USPS needs to eliminate costly excess capacity in its networks due to declining mail volume, increased automation, and incentives that allow mailers to bypass USPS processing by entering 83 percent of Standard Mail, (primarily advertising) closer to its destination in return for a discount.
   
• USPS has proposed initiatives to remove more than $11 billion in costs from its networks and workforce. USPS plans to reduce the number of processing plants from over 500 to fewer than 200 and has proposed changing service standards to increase delivery time. USPS has announced plans to streamline its postal-operated retail facilities from 32,000 to fewer than 20,000 by 2015, and has already begun studying 3,700 retail facilities for possible closure. It also plans to continue increasing the number of locations where postal services are provided in privately owned businesses.
   
• USPS initiatives and legislative proposals outline significant changes in the retail, delivery, and processing network and workforce to achieve cost savings, including enhancing USPS’s ability to close unneeded facilities and layoff employees. Coordination with customers will be important so that USPS efforts to reduce its costs will not result in significantly increasing costs or decreasing services to customers.
   
• These proposals require making trade-offs among USPS cost savings, customer convenience and costs, employee agreements, and expectations related to the level of services USPS can afford to provide. Some unresolved issues and questions to consider include:
  
  Universal service: What aspects of universal service, including 6-day delivery, are appropriate given the changed use of mail? What, if any, changes are needed to delivery standards to optimize USPS’s processing network? Can USPS’s proposed retail optimization improve customers’ access to postal products and services through alternatives while also maximizing costs savings?
  
  Statutory and regulatory changes: What statutory or regulatory changes are needed to give USPS the flexibility it needs to restructure its operations, networks, and workforce, while also assuring appropriate oversight? Are changes needed to facilitate more timely review of appeals of retail facility closures and consolidations?
  
  Stakeholder involvement: What role, if any, should Congress, the Board of Governors, and the Postal Regulatory Commission have in developing, approving, or reviewing decisions to modernize and realign postal services? What input should postmasters and other postal employees, mailers, and the public have in these decisions?
  
  Accountability: What oversight mechanisms are needed to assure USPS decisions are consistent, transparent, and supported by reliable data? For example, are USPS’s decisions on facility closures sufficiently transparent to the public?
   
• The stark reality is that USPS’s business model is broken. Difficult choices must be made. Now is the time to decide USPS’s future.

• Thomas D. Levy, Senior Vice President and Chief Actuary, The Segal Company

• The most relevant benchmark was the accounting standard applicable to private companies. This was the only approach that had as a primary objective the matching of revenues with the labor costs to produce those revenues – our assessment of the appropriate basis for evaluating the fairness of the CSRS cost allocation. That standard provides clear and nondiscretionary direction.
   
• The preferred method to allocate CSRS benefits to the Federal Government was to reflect post-1971 salary increases but otherwise to follow OPM’s methodology. We indicated that we did not believe that the omission of future salary increases with respect to POD service was fair and equitable. We also noted that a pro-rata reflection of benefit accruals that did not follow the CSRS accrual formula (effectively, use of an “average” accrual rate over the participant’s working career) was within the range of fair and equitable alternatives, but it was not our preferred methodology.

• We are here because the Postal Service needs immediate relief from the requirement that it pre-fund its retiree health benefits obligation over a short period of time. No other federal agency is required to pre-fund its retiree health benefits obligation, and very few private sector firms do so. None of them would attempt to fund this obligation over such a short time period. The Postal Service needs relief from this requirement.
   
• The central postal issue of the day is whether Congress will do what is right and necessary to preserve and protect the United States Postal Service by permitting the Postal Service to apply its CSRS and FERS overpayments to meet its retiree health benefits pre-funding obligation and to reduce its debt. If that is done, every other necessary change in the Postal Service can be done deliberately and with due regard to the public interest. If that is not done, then other steps will prove to be half-measures in stabilizing the Postal Service’s finances and will do unnecessary damage to the Postal Service and its customers and employees.
   
• In lieu of legislation that would provide this financial relief, the Postal Service has stated that it will take steps to curtail service as a means of cutting costs. These proposed service cuts, including elimination of Saturday delivery, closure of thousands of small post offices, and rapid and extreme consolidation of mail processing facilities threaten to de-value and weaken the Postal Service in ways that could exacerbate its revenue problems.
   
• Eliminating Saturday delivery, for example, would save about 5 percent of the postal budget, but it would eliminate 17 percent of delivery service. Saturday delivery is important to many small businesses, and it is very important to individuals who receive their prescription medications through the mail. The mail order pharmacy business provides a good example of the need for Saturday delivery.Inevitably, small businesses will find other ways to obtain Saturday deliveries, and mail order pharmacies and their customers, will be finding other ways of getting medicines delivered when people are home to receive them.
   
• We have now reached the point in postal cost-cutting where further cuts are going to have a negative effect on service. The Postal Service, having been engaged in several years of cost cutting, has become like the man whose only tool is a hammer. To him, everything looks like a nail.
   
• Small offices serve as the delivery point for more than 900,000 households to which the Postal Service does not currently provide street delivery because of the difficulties and hazards of such delivery. The Postal Service provides free PO boxes to these customers. Closure of any office providing this service would mean change of addresses for these customers; relocating to box elsewhere; or where street delivery is initiated, the construction of curbside mail box.
   
• There is much that can be done to make small post offices less costly and more effective than simply closing them. The new collective bargaining agreement between the APWU and the Postal Service makes provision for a less costly, more flexible workforce that will permit the Postal Service to operate post offices for longer hours – keeping them open when people are able to use them.
   
• We recognize that decreased mail volumes and the changing world will require postal change. But, once again, as in the area of post office closings, the Postal Service is being driven to consolidate by a lack of funds to do otherwise. As in the case of small post office closings, a major part of the costs saved by the Postal Service will be borne by the public in the form of degraded postal services and increased costs to postal customers.
   
• To cut mail processing facilities as deeply as the Postal Service has proposed will require a change in service standards. This reduction in service would be compounded if it were to be combined with the cessation of Saturday delivery, as the Postal Service also has proposed, Our point is that the Postal Service should be seeking greater efficiency in order to deliver services to the public at the least cost; instead, they are so determined to cut costs that service has become a decidedly secondary consideration. This is not a formula for success in any service industry.
   
• I will turn now to a discussion of the Postal Service’s most recent proposals on workforce reductions, and separate postal health insurance and retirement plans. On March 14, 2011, the APWU and the Postal Service reached agreement on a new National Agreement that will expire on May 20, 2015. That contract was ratified by APWU. That agreement was reached after lengthy negotiations. We learned that, without letting the APWU know in advance, the Postal Service had begun circulating on Capitol Hill proposals to repeal our no-layoff protections and to replace our health benefits and retirement benefits plans. I am at a loss for adjectives sufficient to the task of describing these actions by the Postal Service. Several that come close are outrageous, illegal and despicable.
   
• The attempt by the Postal Service to keep what it gained from our bargain and to unilaterally abrogate what the APWU gained is in utter disregard for the legal requirement to bargain with the APWU in good faith. It also is illegal in the sense that not even the legislation they seek would succeed in freeing them from their contractual obligations.
   
• The Congress would be well-advised to study very carefully the ramifications of permitting the Postal Service to withdraw from the FEHBP. The withdrawal of postal employees and retirees from the FEHB Program would have very serious negative and destabilizing effects on that important federal program.
   
• We adamantly oppose the Postal Service proposal to leave the federal retirement programs. It would be a cruel irony for the Postal Service to withdraw from a pension program it has overfunded, using in part contributions from postal workers, and then to expose its employees to the risk of losing their retirement benefits.
   
• We are outraged by the Postal Service’s attempt to abrogate the agreement on the subject of layoff protections for APWU bargaining unit members we signed only a few months ago. Furthermore, this effort by the Postal Service is not only outrageous, it is ridiculous. The Postal Service is simultaneously crying that it needs greater power to lay off employees and failing to exercise the power it already has to lay off employees.
   
• This situation makes it clear that what the Postal Service is really saying is that it wants the Congress to authorize it to lay off 120,000 career postal employees and replace them with temporary workers without retirement benefits.
   

• Louis M. Atkins, President, National Association of Postal Supervisors (file on Senate site is damaged)
   
• Ellen Levine, Editorial Director, Hearst Magazines, Hearst Corporation

• For the industry as a whole, subscription copies have grown to about 90 percent of circulation. Almost all of these copies are delivered to readers by the United States Postal Service. The Internet has not eliminated the need for mail delivery of magazines. Magazines will also continue to play a crucial role for the Postal Service.
   
• The direct economic effect of a viable and affordable Postal Service on the magazine industry is fairly obvious. In the US, there are about 300 million paid subscriptions serviced each year, representing billions of dollars of circulation revenue. But the indirect economic impact of a viable and affordable Postal Service, while perhaps less obvious, is even greater. Most consumer magazines carry advertising, about $20 billion worth in 2010. Every dollar of this advertising affects the spending patterns of nearly five people and drives them to action: 77 percent of people at some point have purchased a product after seeing or reading about it in a magazine. Without a way to distribute magazines and the advertising therein… I don’t think any of us want to quantify the lost sales that would result.
   
• The Postal Service is now in a precarious financial situation. Mail volumes have plummeted over the past five years, and are expected to decline further over the next decade. But these volume declines need not be a dooms-day scenario for the Postal Service: I understand that even the Postal Service’s pessimistic forecast of mail volume at the end of the decade exceeds 100 billion pieces. The Postal Service and its many stakeholders must, however, adapt to the new reality of lower volume. The Postal Service can continue as an important American institution, but must quickly become much smaller, more efficient, and less costly to operate. From the perspective of the magazine industry, incremental improvement is not enough.
   
• A strategy to take full advantage of today’s advanced technologies and re-engineer operations to do more with less seems a move in the right direction, and the cost saving efforts should be supported.
   
• Two of the operational changes proposed by the Postal Service could affect magazine publishers – (1) shrinking the mail processing network; and (2) five day delivery. Magazine publishers have long urged the Postal Service to adjust its network to eliminate costly excess capacity. I encourage the Postal Service to aggressively pursue rightsizing its processing networks to match current and future volumes. To avoid driving away mail volume, the Postal Service should work closely with the mailing industry to guarantee that acceptable service levels are maintained. The magazine publishing industry has not taken a formal industry position on five-day delivery because of its potential effect on service.
   
• I also understand that the Postal Service is considering ways to reduce employee benefit costs. Again, this is something that many industries, including the magazine industry, have had to do in recent years. It appears that benefits comprise a large portion of USPS’ labor costs and that any comprehensive solution to the Postal Service’s financial problems will need to address these costs as well. While I’m not qualified to evaluate specific proposals, I do think the Postal Service and Congress should look for ways to bring down these costs.

• Tonda F. Rush, Director of Public Policy, National Newspaper Association

• NNA realizes that strategic restructuring of the Postal Service is urgently and imminently necessary. Dramatic rebuilding of the way USPS moves mail, manages its workforce and serves its customers is needed. We support steps toward the sustainability of our valuable national asset, but the steps must be taken with customer needs in mind.
   
• I have three messages today:
  
  A community newspaper's local mail is its bread and butter. To remain viable, the newspaper must be able to enter its mail at a local post office, prepared in delivery-ready form, and have it delivered from that office. About 80 percent of a typical community newspaper's readership is in its core market.
  
  To reach smaller communities around the newspaper, we must have the ability to drop that mail at smaller offices whether they are USPS-owned, contract offices, Village Post Offices or some other option, and to find successful workarounds with USPS as mail processing facilities are closed, relocated or merged.
  
  For longer distance mail, the industry is working rapidly toward electronic delivery options, as the ability of the Postal Service to deliver a newspaper to zones outside a core area has long deteriorated, and with these new changes may be non-existent. We need the cooperation of USPS to have these electronic copies recognized as circulation, as USPS provides our primary circulation reporting system.
   
• Most NNA newspapers rely upon the US Postal Service for distribution of issues to readers. When a community newspaper mailing is delivered by publishers to the Postal Service it is typically ready for delivery.
   
• Newspapers have been involved in shaping postal policy since recorded history of the Post Office Department. Moreover, newspapers have a strong and long-standing relationship with Congress, which intentionally spurred the development of the frontier by anchoring newspapers in new counties through favorable postal rates. Congress has emphasized again and again since the founding of the Republic the importance of keeping newspapers in the mail. Even in today's digital age, with information flying around the globe in nanoseconds, the importance of these two relationships--with the Postal Service and with Congress-- to community newspapers is as critical as ever in keeping the nation informed.
   
• Besides carrying out a fundamental role in tying communities together with information, newspapers and the industries that support them--in printing, computer technology, distribution and advertising agencies--represent significant numbers of jobs.
   
• NNA believes there must be serious change, including reforms in the workforce, and it has been supportive of many of the initiatives the Service has taken to Congress and to the Postal Regulatory Commission. We recognize that the Postal Service, like our industry, is being reshaped by changing information technology. We also believe the Postal Service, like our industry, has to face these changes by taking steps that are painful over the short-term but restorative over the long-term.
   
• NNA does not inflexibly oppose post office closings. Nor do we necessarily oppose plant closings. We agree with our colleagues in the mailing industry that the network carries the heavy weight of excess capacity.However, the system leans heavily into inflexible one-size-fits-all solutions, when a leaner, more flexible institution is what the economy wants, and our industry requires.
   
• Forcing an automation scheme where the scheme cannot succeed for us is deadly for our business.
   
• Closing smaller, efficiently-managed Sectional Center Facilities so larger metropolitan plants can be stacked up with mail for a 22-hour processing clock may help trim downtime at the bigger city plant. But it is going to bog down mail delivery to the smaller communities. A better solution would be to keep Origin-Entered mail destined for close destinations in smaller well-designed plants, but develop more flexible work schedules to handle the mail that is there.
   
• Closing some small post offices is clearly needed. When local post offices do close and then contract post offices or Village Post Offices replace them, newspapers should be permitted to drop bundles for the PO Box customers there. Paperwork can be processed electronically at a larger office. But the physical newspaper issue cannot make a 100 mile round trip for processing and still achieve a timely delivery.
   
• It is well known that NNA opposes the end of Saturday residential mail delivery. We believe the lost First-Class remittance mail will create cash-flow disruptions for small businesses. The loss of a Saturday issue day will cost small newspapers their most important revenue day.
   
• We request Congress to require an extension of an existing privilege for limited use of the mailbox by local Periodicals newspaper permit holders so that we can deliver our own newspapers on Saturday. This extension does not threaten the sanctity of the mailbox, as it merely extends an existing practice; it will help daily newspapers to remain in the mails by maintaining a consistent delivery point, and it will demonstrate good faith by the Postal Service that it does not intend to unreasonably restrict access by those who need self-help to stay in business.
   
• The process by which USPS is exploring post office closings needs tweaking. The Postal Service must make a much greater effort to notify the public, and it is imperative that it create an open and transparent atmosphere for news media coverage.