PMG Donahoe: Postal Service May Not Prepay Retiree Health Benefits

May 05, 2011 9:29 PM  By

The cash-strapped U.S. Postal Service may choose not to pay its $5.5 billion annual obligation to the Treasury Department this fall. That payment covers the healthcare benefits of retired employees.

The USPS will have to make a decision on this later in the year, said Postmaster General Patrick Donahoe at a press conference at the National Postal Forum in San Diego. But it seems Donahoe has already made up his mind.

“We’ll pay our employees, we’ll pay our suppliers, and we won’t pay the government,” he said. “We have contention as far as owing that. Disruption in mail delivery won’t serve the government or the stakeholders.

Under the Postal Accountability and Enhancement Act of 2006, the USPS is required each year to prepay about $5.5 billion to cover the healthcare benefits of retired employees until 2016.

He noted the USPS is working with Congress to try and find a solution to this problem.

“We are trying to work this through with the legislators in Washington D.C.,” he said. “From a customer prospective we’d like to get this taken care of before it hurts our brand or hurts the industry. If we can get these mandates resolved, we can focus on growing the industry.”

Here are some of the questions Donahoe took at the press conference.

Q: What is Plan B?
Donahoe: If we move from six to five day [mail delivery]—and some of the other things around the union contracts…if we can get those costs down around $60 billion. that will make us very healthy. The Postal Service has cut its workforce down to about 400,000 employees, about half of its 2000 levels.

Q: What if Congress does not cut mail delivery to five days?
Donahoe: Here’s the problem: This year, first class mail is down 6% from last year. Last year it was down 6%. Compounded, we know there’s growth in marketing mail and growth in packages. But I can get $3 billion out of the organization by going to five days.

Q: Will cutting delivery to five days hurt the volume?
Donahoe: No. Very few mailers tell us we absolutely need Saturday delivery. They tell us privately one thing and publicly say another. I believe that Saturday actually is the worst day for delivery, because people are so busy today and don’t even look at their mail until Sunday p.m. No eyeballs on mail on Saturday.

Q: What is the major mailers’ attitude towards this?
Donahoe: You know it’s mixed, we hear both for and against. Privately, I ask people, well, what would you do otherwise? And there’s no answer for that.

What we are faced with is: We will deliver mail to 165 million addresses this year. With the volume and revenue that we lose from first class mail, pressure on the system builds. We’ve lost 23%-24% over last few years.

We run a lot of routes with tight schedules. We’ve cut a lot of people—$10 billion of labor costs. There is not a lot of wiggle room, which is why we need to make big changes and need Congressional mandates.

Q: Do we have to give up first class mail?
Donahoe: Realities are changing. The biggest loss we have is people paying their bills. As young people come in, and older pass on, it’s just not their nature to [pay bills via the mail]. If we have large customers moving away, mergers, or eliminate mail as advertising, it’s our biggest concern.

We don’t want people to move away from mail. We want to keep people interested in first class mail. We are rolling out a big TV advertising campaign in September, focusing on the value of mail.

Q: Will getting five day delivery be more difficult with this Congress?
Donahoe: Not more difficult, but there is a certain education needed of Congress. Thirty percent of this Congress is freshman, and others may not know anything about the Postal Service. We have to get people on board with knowledge about us and this obligation.

Guess which age group said eliminate Saturday service rather than raise rates? It was 65-plus age group. Surprisingly, they don’t want to waste money. They want to keep post offices open and don’t care about Saturday service.

Q: Will the USPS’s thousand of vehicles continue to use gasoline?
Donahoe: Our fleet vehicles are kept an average of 25 years. What are our options? Fix or fail with our fleet. Keep the fleet moving.

We test electric, diesel, gas, hybrid, etc.—if you want me to replace our fleet with the most efficient [power], it would still be gasoline. If we have to replace batteries, they are tremendously expensive. Hydrogen is not ready. We want to see clear winners. Replacing the fleet costs $7 billion. You can’t do it bit by bit.