US Postal Service 2011 Annual Report Download - page 73

2011 Report on Form 10-K United States Postal Service - 71 -
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, the Postal Service continues
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. The Postal Service also
suspended discretionary pay awards and has frozen
officer and executive compensation. Additionally, the
Postal Service continues to reduce the size of its
workforce. Over the last five fiscal years, the Postal
Service has decreased its workforce by approximately
140,000 career positions and saved nearly $14 billion in
total costs.
As noted in previous filings, the Postal Service 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 its operations. The PRC responded
to this request on March 24, 2011, and indicated, among
other things, that they believe the Postal Service 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.” The Postal Service continues to pursue
this matter.
In Quarter IV, 2011, the Postal Service announced plans
to rationalize its 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.
 Studying underutilized Post Office locations for
potential consolidation, closure, or conversion to
a contract unit or a Village Post Office.
 Enhancing and expanding alternate access sites,
including Village Post Offices and
http://www.usps.com, and exploring franchising.
 Modifying service standards which will allow for
longer operating windows and will reduce the
requirements for equipment, facilities, and work
hours.
These efforts are expected to help the Postal Service to
reduce labor and benefits costs. Current Postal Service
projections anticipate a decrease of approximately
100,000 employees over the next three years, with
potential annual savings of approximately $6.5 billion.
The service standard changes related to these plans
require that the Postal Service request a non-binding
advisory opinion from the PRC, which the Postal Service
expects to file in December 2011. The PRC is allotted a
minimum of 90 days from the date of filing to render a
non-binding opinion.
As previously noted, the ability of the Postal Service to
execute strategies to increase efficiency and reduce costs
by adjusting its network, infrastructure, and workforce,
and to retain and grow revenue, is currently constrained
by contractual, statutory, regulatory, and political
restrictions. As a result of these restrictions, Postal
Service efforts to positively impact cash flow will not be
sufficient, either individually or in the aggregate, to avoid a
cash shortfall. Absent significant changes in the law, the
Postal Service will default on the $5.5 billion prepayment
due to the PSRHBF by November 18, 2011, and on the
$5.6 billion prepayment due by September 30, 2012.
Additionally, even if legislative changes defer or eliminate
the $11.1 billion of prefunding payments currently due to
the PSRHBF in 2012, the $15 billion debt ceiling will likely
be reached in October 2012, thereby exhausting the
Postal Service’s external funding ability.
POSTAL LEGISLATIVE REQUESTS
Even if legislation is enacted to address shorter-term
liquidity matters such as the PSRHBF prefunding
payment schedule and FERS overfunding, the Postal
Service will continue to face financial stability concerns.
The Postal Service has taken, and continues to take,
specific actions to address those elements under
management’s control. Despite these changes, the
financial outlook continues to show the necessity of the
following legislative changes, which we have already
asked Congress to make:
 Resolve the retiree health benefits prefunding
requirement which currently calls for $33.9 billion
of additional prefunding payments from 2012
through 2016.
 Address the inequities in the current Civil Service
Retirement System (CSRS) pension liability
allocation methodology which has led to
overfunding by the Postal Service by as much as
$75 billion.
 Refund the FERS overfunding of $6.9 billion
which according to OPM’s latest calculation 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.
 Grant the Postal Service the authority to
determine delivery frequency.