Letter Carriers

Fredric V. Rolando
President

National Association of
March 26, 2012 Dear Senator:

100 Indiana Ave. NW Washington, DC 20001-2144 202.393.4695 www.nalc.org

I write on behalf of the 284,000 members of the National Association of Letter Carriers who work for the United States Postal Service in every state of our nation. Ninety-two percent of all city letter carriers voluntarily belong to their union, and about a quarter of NALC-represented carriers are military veterans. While the NALC vigorously protects the rights of letter carriers in the workplace, we have always viewed our mission more broadly than that. We consider it our duty to preserve and protect the best postal service in the world. The USPS is mandated in our Constitution, and for more than 250 years it has played a vital role in our nations economic and social infrastructure. It serves as the hub of a mailing/shipping industry that employs more than 7 million private-sector workers. It offers unparalleled service at the most affordable postage rates in the world, and it enjoys overwhelming public support. Our members take great pride in the work we do and we are dedicated to playing a constructive role as the Senate takes up legislation that could determine the very existence of the Postal Service in the years ahead. As you know, the Senate is scheduled shortly to take up S. 1789, the 21st Century Postal Service Act, a bill designed to address the financial crisis at the USPS. Although we understand that the bills co-sponsorsSenators Joe Lieberman, Susan Collins, Tom Carper and Scott Brownare working on amendments to S. 1789, we believe that the legislation, as it was adopted by the Homeland Security and Governmental Affairs Committee, is fatally flawed. First, and most fundamentally, S. 1789 is a well-intentioned Band-Aid that does too little to address the Postal Services most serious problems. While the bill might provide resources to allow the Service to limp along for a few more years, it will not change the downward trajectory of this vital institution. Passage of S. 1789 almost guarantees that the Postal Service will face a new crisis in the near future, and when that crisis occurs, the Service will be far less able to pull itself out of what by then could be a death spiral. S. 1789 appears to be based on the Postal Services dangerously misguided business strategy, which relies almost exclusively on reducing the quality and value of its services to households and American businesses, the main users of the mail. This approach, which will see the elimination of at least 150,000 good paying jobs, will not work. As Senator Collins observed in a Senate-floor speech on March 19, this plan will drive away customers and shrink the Postal Service to a level that will ultimately hasten its insolvency. Indeed, last week, one of the Postal Services own witnesses at a Postal Regulatory Commission (PRC) hearing on the USPS network optimization plan acknowledged the existence of a withdrawn study that found the combined effects of all the service cuts under consideration, including the elimination of Saturday delivery (and 80,000 delivery-related jobs), would reduce mail volume by an extraordinary 10.3 percent. Although the USPS dubiously claims that the buried study was unreliable, the study strongly suggests that the revenue loss associated with the service cuts could easily

Timothy C. OMalley Executive Vice President George C. Mignosi Vice President Jane E. Broendel Secretary-Treasurer Nicole Rhine Asst. Secretary-Treasurer Lew Drass Director, City Delivery Manuel L. Peralta Jr. Director, Safety & Health Myra Warren Director, Life Insurance Brian E. Hellman Director, Health Insurance Ernest S. Kirkland Director, Retired Members Board of Trustees: Larry Brown Jr. Chairman Randall L. Keller Michael J. Gill

Affiliated with the AFL-CIO & Union Network International

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exceed the projected savings. (See testimony of Greg Whiteman and Rebecca Elmore-Yalch on March 21, 2012, in Docket N2012-1.) In the words of a tragedy from another era, it appears that the Postal Services plan is to kill the USPS in order to save it. Legislation must be based on a business plan for the Postal Service that its stakeholders and Congress can believe in, not one which even its most ardent supporters admit does not point the institution toward a sustainable future. Such a plan must preserve the Postal Services most important strategic assetits network. This includes, importantly, a robust last-mile network that operates six days a week. Although the bill now before the Senate delays the elimination of Saturday delivery for two years and provides an all-too-easy-to-pass review at that time, passage of S. 1789 in its current form will make the end of six-day delivery a forgone conclusion. Second, S. 1789 does not adequately address a critical source of the Postal Services recent financial distressits unique obligation to fund in advance future retiree health benefits for the next 75 years. No other agency or private company faces such a burden, which has cost the USPS $21 billion over the past five years. Rather than using its cash to intelligently restructure its operations for the Internet age, invest in new services and replace its aging vehicle fleet, the USPS has been forced to fund decades and decades of future retiree health costs up frontand to relentlessly downsize. No rational business would pursue such a strategy. And no other enterprise in America is forced to do so by law. Sadly, the downsizing and the massive financial losses caused by the pre-funding mandate and the economic crisis are themselves driving even more mail volume away. Although the bill would reduce the level of pre-funding, any burden at all is indefensible at a time when 150,000 jobs are at risk. It is unthinkable that the Senate would double down on a misguided 2006 policy advanced in much different economic circumstances. Unfortunately, S. 1789 abandoned the most sensible way to handle the pre-funding burden found in the legislations predecessor billsS. 1010 and S. 353, authored by Senators Carper and Collins. Both of those bills, introduced at the beginning of this Congress, would have implemented the results of independent audits of the postal sub-account in the Civil Service Retirement System (CSRS) performed by two respected private-sector firms, the Hay Group for the USPS Office of the Inspector General and the Segal Company for the PRC. Both audits concluded that the pension allocation methods used by the Office of Personnel Management were grossly unfair to the Postal Service and its stakeholders, business mailers and employees. (See the attached chart.) Using modern actuarial methods, they concluded that a massive postal surplus of $50 billion to $75 billion exists in CSRSenough to cover the entire unfunded liability for future retiree health benefits. Under current law, any such CSRS surplus is already scheduled to be transferred into the Postal Service Retiree Health Benefits Fund (PSRHBF) in 2015. This would allow the repeal of the pre-funding mandate. This solution, which has bipartisan majority support in the House of Representativeswhere 228 members (including 32 Republicans) have co-sponsored H.R. 1351was dropped after the Government Accountability Office (GAO) supported the OPM in its dispute with the USPS over pension costs in an October 2011 report, restating a previously expressed view that prompted the independent audits in the first place. Contrary to statements made by those without all of the facts, that report did not reject the methods advocated by the Hay/OIG and Segal/PRC audits. In fact, it concluded that all three competing methodsfrom the OPM, the OIG and the PRCwere reasonable and suggested that the choice of which method should be used is a policy decision for Congress to make. The Senate should make that policy decision in S. 1789 and adopt the modern methods proposed in the PRC/OIG audits. Otherwise, it should suspend the pre-funding mandate until a new business model for the Postal Service can be developed. As drafted, the proposed S. 1789 does neither. Third, while all agree that the Postal Services unique last-mile network offers the best

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opportunity for new business development, S. 1789 does little to allow the Service to fill that network with products and services that the American people would value. And it continues numerous other restrictions that prevent the Service from asking its customers to pay the full cost of the exceptional service that it provides. We embrace the Postal Services obligation to provide universal service at affordable prices to all Americans, but if we want the Service to continue to support itself, it must be given the tools to do so. Finally, S. 1789 includes a punitive and regressive reform of the federal-employee workers compensation program. The bill would cut the compensation benefits of injured workers. Those who reached retirement age would see their benefits cut to 50 percent of their salaries at the time of their injuries, plunging into poverty those with long-term disabilities as a result of their inability to save through the Thrift Savings Plan or to earn Social Security credits. There are provisions in S. 1789 that NALC can embracesuch as the return of the USPS surplus in the FERS pension plan, over which there is no dispute. The bills provisions to permit the Postal Service to deliver beer and wine and to use its networks to generate new revenues under narrowly prescribed circumstances are limited steps in the right direction. We also believe that Medicare integration makes sense as part of a larger reform, as long as the penalty for delayed enrollment in Medicare Part B is waived, and we are prepared to work in good faith with the Postal Service and the other postal unions to explore health care changes that could result in winwin arrangements for our members and the USPS. Congress can help make that happen. Unfortunately, based on what we know now, we have no choice but to oppose S. 1789. Making the pre-funding of future retiree health benefits the principle policy objective in the law and sacrificing more than 150,000 jobsat a time when millions of Americans are out of work and thousands of veterans are coming home from abroadsimply makes no sense. What the Postal Service needs is a business plan based on a comprehensive rethinking of the institution, one that asks for shared sacrifice from all stakeholders but also allows this vital national resource to grow and prosper in the years ahead. Until a plan of this nature exists, it is dangerous to advance reform legislation, particularly when the legislation will do nothing but facilitate the Postal Services decline. We urge you to vote against S. 1789 until it is based on such a plan. Sincerely,

Fredric V. Rolando President Attachment

Forcing the USPS to pay more than its Fair Share of CSRS Pension Costs: How the OPM Defines 50-50 Example: A Retired Letter Carrier with 30 years of Service

Note: This chart demonstrates the pension cost shift from OPM to the Postal Service for a single letter carrier who worked for 30 years, half for the tax-payer funded Post Office Department before 1971 and half for the U.S. Postal Service (USPS) after 1971. This method was used to allocate the cost of pensions for hundreds of thousands of retired postal employees. This reduced the value of the USPS account in the Civil Service Retirement and Disability Fund by $50 billion to $75 billion according to two independent audits performed in 2010by the Hay Group for the USPS Inspector General and the Segal Company for the Postal Regulatory Commission.