Postal News
FOR IMMEDIATE RELEASE
November 5, 2002
Contact: (202) 268-2155
REMARKS OF JOHN E. POTTER
POSTMASTER GENERAL/CEO
UNITED STATES POSTAL SERVICE
BOARD OF GOVERNORS MEETING
WASHINGTON, DC
NOVEMBER 5, 2002
Thank you Chairman Rider . . . I recognize this is the final Board meeting for Governor Einar Dyhrkopp.
Einar, I want to salute you for your commitment and dedication to the Postal Service and our employees. I know how much time you have devoted to bettering the organization during your tenure. I would like to personally thank you for the guidance and support you've given me over the past years. On behalf of every employee who you have personally touched and all postal employees who have benefited from your 9 years of service, two of them as chairman, I want to thank you very much.
I also want to share with the audience that at the dinner we had last night to honor Governor Dyhrkopp, I took the extraordinary step as Postmaster General to issue a proclamation naming the Shawneetown, Illinois, Post Office "The Einar V. Dyhrkopp Post Office." As his tenure comes to a close, I can think of no more fitting and long-lasting gift than putting his name on his long-time hometown post office.
Congratulations Governor Dyhrkopp.
I also want to acknowledge the death of former Postmaster General Winton M. Blount. I represented the postal community at the funeral in Montgomery, Alabama, last week. Red, as he was known to all of us, served as postmaster general during the turbulent postal years of 1969-1972. It was a pivotal time in the history of the Postal Service.
It was Red -- in the wake of mounting financial crises, inadequate facilities, lack of resources, outdated business practices, and frustrated employees -- who worked with Congress and the Nixon administration to enact Postal Reorganization in 1970. The following year, the former Post Office Department transformed into the United States Postal Service and the pony express rider logo gave way to our eagle symbol.
Red was a visionary. Thanks to his foresight and his determination, the Postal Service of the last 30 years has truly maintained his vision of universal service, at affordable prices. And it was done in a businesslike manner. He left an indelible mark on the history of the nation and a lasting legacy for all of us who follow in his footsteps today.
Our thoughts and prayers are with his wife Carolyn and his family in their time of sorrow.
I think it only fitting now for us to observe a moment of silence in memory of Postmaster General Red Blount. Please join me now. Thank you.
Let me give everyone a brief update on where we stand with the clean-up of Brentwood. Engineering Vice President Tom Day met last Friday with officials from the D.C. government. It was a very positive meeting, as have been our meetings with EPA.
Following public notification and the final okay from EPA later this month, we expect to move forward with the decontamination of this facility on weekend of November 16-17. If all goes well -- as we fully expect -- we should have Brentwood fully operational again by next Spring.
October, as most postal observers know, is traditionally the month when our financial group works with our outside auditors to close our financial books for the previous fiscal year. This year is no exception. CFO Dick Strasser, his staff and the independent auditing firm of Ernst and Young continue to finalize our year-end report. It will be announced at the December Board meeting.
However, I do want to share with the Governors and with our stakeholders some very good financial news that I learned late last week. As most postal observers know, our long-term retirement liability for employees covered by the Civil Service Retirement System - CSRS - has been an issue of concern.
Clearly, it is a complicated issue whose nuances are understood best by accountants and actuaries. Nevertheless, as part of our Transformation Plan and activities surrounding the Plan's implementation, Comptroller General David Walker and our finance managers earlier this year asked the Office of Personnel Management for a new financial analysis so we could know where we stood in both the short and long term when it comes to pension benefits.
As a result, OPM recalculated Postal Service retirement payments going back to 1971 and its analysis showed that postal payments have almost fully funded future retirement obligations for our employees and retirees enrolled in the Civil Service Retirement System (CSRS).
Subsequent reviews by the Office of Management and Budget and the Department of the Treasury validated OPM's financial analysis.
The actuarial review provides new assurance that the Postal Service will be able to close the gap between its total CSRS retirement obligation and the amount already funded.
Prior to this review, and based on current federal statutes, the Postal Service has maintained a deferred liability of $32 billion to reflect the retirement obligation and has made annual payments budgeted to fund the liability over 30 years.
The new analysis, based on postal CSRS participant data, shows that the funding gap is only $5 billion. The findings are the result of a number of factors, but the change was primarily driven by higher than expected yields on pension investments made by the Department of the Treasury.
To gain a better understanding, let me summarize key elements OPM Director Kay Coles James has shared with us.
For ease of discussion, all the numbers are based on 2002 dollars:
- For the first time in history, OPM actuaries went back into the books and isolated Postal Service and postal employee contributions and interest earned on those contributions in the CSRS fund. That total since 1971 is $152.1 billion. In effect, that's the current balance.
- When the actuaries looked at the total CSRS employee population, including retirees, and ran the future costs, they arrived at a total of $172.6 billion required to cover all future CSRS costs.
- However, and here's where the nuance of what we are discussing today takes hold: under the current legislation that applies to how we fund CSRS costs, the Postal Service and employee contributions into the future would total $243.6 billion.
- Therefore, under the current legislation, Postal Service contributions would overfund CSRS costs by $71 billion if left unchanged.
- In actuality, for CSRS to be fully funded requires $20.5 billion in agency and employee contributions.
- Clearly, there are significant potential benefits for our ratepayers. However, and let me stress this, for the positive net effects to take place for our ratepayers, legislation will be required. Given the existing situation, OPM, OMB, and Treasury plan to advance a legislative proposal that is the best and most responsible course of action. It would change the funding formula whereby the Postal Service would pay its CSRS costs on a dynamic, normal cost basis.
Therefore, this change in funding for the Postal Service contribution -- from 7% to 17.4% for current employees -- and continuation of the 7% employee contribution will provide $15 billion of the needed $20 billion. The remaining $5 billion would be amortized over 40 years.
The proposed legislation is consistent with the financing provisions of the newer FERS system, as well as the Administration's proposal for CSRS liabilities associated with non-postal employees and retirees.
The net result produced by passage of the proposal would benefit all postal ratepayers by a reduction of $2.9 billion in our CSRS retirement contributions in Fiscal 2003 and a net reduction of $2.6 billion in Fiscal 2004.
If the legislation is enacted, it has the potential impact of allowing the Postal Service to:
- reduce the deferred retirement liability for postal CSRS employees to about $5 billion;
- dynamically pay any future retirement costs for current CSRS employees in the same way postal employee retirement costs are fully funded now for those in the newer Federal Employee Retirement System (FERS);
- increase the amount available for debt reduction for fiscal year 2003 from the planned $800 million reduction to more than a $3 billion reduction; and
- stabilize current postage rates into 2006.
Importantly, all our employees should be comforted to know that there will be no change in their level of contributions to their retirement plan. The only change is how the Postal Service finances the benefits. The certainty of future retirement benefits is a core, legitimate and justifiable concern among employees.
As all the parties concerned work together on these funding issues, we unequivocally articulate that the changes we propose will not change any individual's retirement benefits.
This is clearly a good news story for all -- our employees and our ratepayers. A lot of credit goes to OPM director Kay Coles James and OMB director Mitch Daniels.
Both understood the long-term financial challenge the Postal Service faces and approached the issue of postal retirement liabilities with a fresh perspective and open mind as part of our Transformation Plan activities. I admire their courage and professionalism in surfacing the issue as quickly as they did.
It also enables the governors of the Postal Service and management to look at rapidly approaching ratemaking decisions in a new light. To those in this room, it's no secret that management and the governors would soon have to begin deliberations on when to file a new rate case and for how much. Today's news provides flexibility.
But all these positive financial outcomes for our ratepayers depend on statutory change. Without that legislative change, we will be required to provide the Treasury with the higher level of funding in the coming years which would necessitate a rate increase in 2004.
At the same time, no one should be lulled into a sense of complacency that all is right with the nation's postal system. That's simply not true. The nation still faces a long-term challenge to continue postal services to everyone, everywhere while financing the costs of the growing delivery network. We want to do it as we have for the past 20 years -- through postal revenues and without tax dollars.
We have an opportunity to use these unexpected changes in retirement costs to secure the future of the mailing industry.
In addition to our review of pension benefits, we are also wrestling with future obligations for retiree health benefits.
I will maintain management's focus on improving service, increasing productivity, continuing smart cost cutting activities, and streamlining postal operations. I remain steadfast to the Transformation Plan commitment to take $5 billion out of our operating expenses by the end of 2006.
With the passage of a revision to the legislation that governs the Postal Service, our customers can focus on growing their use of the mail knowing that these rates will remain stable into the latter half of the decade.
Our management team will retain its focus on moving America's mail at the lowest cost with the most efficient means.
Mr. Chairman, and fellow governors, I am delighted to bring this positive financial news to you this morning. This concludes my remarks.
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