US Postal Service 2011 Annual Report Download - page 36

2011 Report on Form 10-K United States Postal Service - 34 -
account surplus valued at approximately $6.9 billion as of
September 30, 2009. OPM’s latest calculation shows that
the surplus has grown to $10.9 billion as of September 30,
2010, the latest actual data available, and is projected to
grow to $11.4 billion by September 30, 2011, assuming all
employer contributions are made. We continue to
transmit to OPM the employees’ contributions to the
FERS defined-benefit plan and also continue to transmit
employer automatic and matching contributions and
employee contributions to the Thrift Savings Plan.
The legally required Postal Service employer contribution
to FERS is approximately $114 million per pay period
(every two weeks). Suspension of payments, effective
June 24, 2011, provided additional liquidity of $911 million
through September 30, 2011. Based on advice received
from the Office of Legal Counsel at the Department of
Justice, in Quarter I, 2012, the Postal Service is expected
to resume the regular biweekly payments for its FERS
employer’s contributions as well as remit all previously
withheld payments, including the $911 million accrued at
September 30, 2011.
In order to avoid default, statutory or regulatory
adjustments to some, or all, of these obligations are
necessary. The legal and/or regulatory consequences to
the Postal Service of a default on the required PSRHBF
contributions or the workers’ compensation payments to
the U.S. Government, are unknown.
POSTAL ACTIONS TAKEN TO IMPROVE
LIQUIDITY
We have taken numerous actions to generate additional
revenue and reduce operating expenses. Some of these
are discussed below.
We increased prices by an average of 1.7% for Mailing
Services in April 2011 and by an average of 3.6% for
Shipping Services in January 2011. The Mailing Services
price increase was the first increase in almost two years.
We announced a 2.1% average price increase for Mailing
Services and expect to implement additional moderate
price increases for Shipping Services, both of which are
expected to become effective in January 2012. At the
same time, efforts have been made to increase revenues
by implementing initiatives such as the expansion of
simplified addressing for businesses, Priority Mail
Regional Rate Boxes, Reply Rides Free, Every Door
Direct Mail, and others. However, these new services are
not expected to offset the decline in volume and revenue
that is occurring in First-Class Mail.
As a result of management cost-control initiatives, work
hours for 2011 were reduced by 34 million hours
compared to 2010. This is in addition to reductions of 75
million and 115 million in fiscal years 2010 and 2009,
respectively.
A new labor contract with the APWU, which affects
approximately 205,000 employees, became effective May
23, 2011. The contract, which expires May 20, 2015,
establishes pay levels for new career employees that are
approximately 10% lower than the existing pay schedule,
provides increased workforce flexibility, and will allow for
increased use of noncareer employees. Our contribution
to employee health insurance premiums also will
decrease. Provisions of the new agreement also include
a 3.5% pay increase over the term of the contract, with no
increases in 2011 and 2012. These pay increases are in
addition to periodic cost-of-living-adjustments (COLAs),
which are eliminated in 2011 and otherwise deferred until
2013.
To further reduce costs, we continue implementation of an
organizational redesign to realign administrative functions
by reducing the number of Area and District Offices, and
decreasing the number of authorized administrative,
supervisory, and Postmaster positions by approximately
7,500. We also suspended discretionary pay awards and
have frozen officer and executive compensation.
Additionally, the Postal Service continues to reduce the
size of its workforce. Over the last five fiscal years, we
have decreased our workforce by approximately 140,000
career positions and saved nearly $14 billion in total
costs.
As noted in previous filings, we filed a request with the
PRC on March 30, 2010, seeking an advisory opinion
regarding the elimination of Congressionally mandated
Saturday mail delivery to street addresses and associated
changes. This is projected to save approximately $3
billion annually and remains a crucial component of the
Postal Service’s efforts to restructure operations. The
PRC responded to this request on March 24, 2011, and
indicated, among other things, that they believe that we
would save $1.7 billion annually from the elimination of
Saturday delivery according to their calculations. At
approximately the same time, the Government
Accountability Office (GAO) issued its own report, Ending
Saturday Delivery Would Reduce Costs, But
Comprehensive Restructuring is Also Needed, on March
29, 2011. The GAO’s position was that “when fully
implemented, 5-day delivery would provide USPS with
needed cost savings, although the extent of those savings
is uncertain” and that “USPS’s 5-day proposal should be
considered in the context of other restructuring strategies
both within and outside the delivery network.” We
continue to pursue this matter.
In Quarter IV, 2011, we announced plans to rationalize
our mail processing, delivery, and retail networks, along
with revisions to service standards. These programs
consist of a variety of initiatives, such as:
 Streamlining the network of mail processing
facilities.
 Modifying delivery routes, apart from five-day
delivery.