No Postage Hike Till ’06: Too Good to Be True?

The U.S. Postal Service made a stunning announcement on Nov. 5: Because the agency owes far less to the Civil Service Retirement System (CSRS) fund than it had anticipated, it might be able to stabilize rates for four years. Instead of raising postal rates next year as planned, the USPS could hold off until 2006.

But a four-year postal rate freeze is hardly a done deal. Congress still needs to write and pass a bill by Sept. 30 that would correct the formula that determines how much the Postal Service must continue to pay into the retirement fund. And as Gene Del Polito, president of the Association for Postal Commerce, says, “When you live in Washington, you never predict anything will go smoothly.”

A lucky mistake

This past autumn, the federal Office of Personnel Management (OPM) conducted a review of the retirement payments the USPS has made to the U.S. Treasury since 1971. The Postal Service requested the analysis, based on postal CSRS participant data.

OPM analysis showed that postal payments have almost fully funded future retirement obligations for USPS employees and retirees enrolled in the CSRS. Thanks primarily to higher-than-expected yields on the Treasury Department’s pension investments, the Postal Service needs to pay into the retirement fund $5 billion rather than the originally budgeted $32 billion.

If Congress passes by Sept. 30 legislation to correct the current formula, which calls for the USPS to pay $4.7 billion this year alone, then the USPS will owe only $1.8 billion for the year. And as a result, it won’t need to raise rates until 2006.

Jerry Cerasale, senior vice president of government affairs for the Direct Marketing Association, believes the chances are “better than 50%” that Congress will pass legislation in time. “It’s always safe to assume the worst at this point,” he says, “but realistically it’s more likely this will happen.”

More likely, but far from certain. “The fate of our industry’s hands lies in this legislation,” Del Polito says, “and while the Bush administration has already said this change is a good idea, it still needs the president to say ‘This is what I want Congress to do.’”

Rallying the troops

Both Cerasale and Del Polito are encouraging their associations’ members to write letters to President Bush urging him to mobilize Congress. Mailers have to persuade the Bush administration to “make this a top priority, to get legislation passed quickly,” Cerasale says.

Some mailers are already rallying. Del Polito says that within three weeks of Postmaster General Jack Potter’s announcing the news to the USPS Board of Governors in November, “I had calls, inquiries, follow-ups from members — response has been amazing.” Members were asking Del Polito what they could do to help get legislation written.

Jon Medved, president/CEO of Colorado Springs, CO-based gifts and housewares cataloger Walter Drake, has already passed out letters prepared by both trade groups to all of his department heads. “We’re mounting a fairly extensive letter-writing campaign,” he says. “I’ve encouraged them to encourage their staffs to contact the president, congressmen, and senators.”

But don’t stop here, say other mailers. In addition to trying to get Congress to introduce and pass this more immediate legislation, they believe that mailers should work to persuade Congress to pass postal-reform legislation.

“The real solution to the Postal Service’s problems will require a presidential commission,” says Christopher Bradley, president of Cuddledown of Maine, a $20 million-plus bedding cataloger based in Portland, ME. “To get that done also means writing to the president and talking to every member of Congress in every state.”

Mike Muoio, chairman/president/CEO of Oshkosh, WI-based gifts and housewares cataloger Miles Kimball, agrees. “Congress knows it has to do something and that the Postal Service is on the agenda for this year,” he says.

Some catalogers are fatalistic, if not downright pessimistic. “We have no plans to do anything about this, although I think we’d certainly participate in any kind of organized effort if there were one,” says Joe Buesgen, vice president of consumer direct marketing for $15 million Collectibles Record Corp., an Ardmore, PA-based music cataloger. “We’re a small company, so we don’t feel the need to do anything on our own,” says Buesgen, who doubts that legislation will be passed any time soon.

Four years of stable postal rates could do wonders for catalogers’ bottom lines and budgets. “We take into consideration yearly increases in postage and shipping,” Buesgen says. “So we’ll probably be able to mail more aggressively knowing that a postal rate freeze would be in place for four years. We’d take that money and throw it back into the growth and development of our business.”

Other catalogers aren’t sure what they’ll do if legislation is passed. “Our long-term planning over the next five years calls for us to be a little more aggressive with our circulation planning than we have been,” Muoio says. “But that’s because we had record sales this year. The rate situation, however, hasn’t changed my thinking much — if anything, it’s made me only mildly more aggressive in our circulation planning for the future.”

Cuddledown’s Bradley hasn’t changed his long-term plans yet either. “Although we built projected postal rate increases into our five-year plan, we’ll still wait and see what happens before we change it. Most of our circulation planning is based on current costs, breakevens, and projected profitability of every circulation segment we mail. And those constantly need to be looked at,” he explains. “If this happens, it will alleviate the pressure on our cost structure, but that’s about it.”

How the USPS Struck Gold

The discovery of overpayments by the U.S. Postal Service into the Civil Service Retirement System (CSRS) fund represented the first time that Office of Personnel Management (OPM) actuaries had gone back into the books and isolated the USPS and postal employee contributions and interest earned on those contributions into the Civil Service Retirement System (CSRS) fund.

Looking at total CSRS employee population, including retirees, the OPM actuaries computed that $172.6 billion would cover all future CSRS costs. But under current legislation governing how CSRS costs are funded, USPS and employee contributions into the future would total $243.6 billion, thus overfunding CSRS costs by $71 billion.

Assuming that legislation is enacted allowing for the change in USPS funding of CSRS, the remaining $5 billion would be amortized over 40 years.

The net result would be a reduction of $2.9 billion in the Postal Service’s CSRS retirement contributions in fiscal 2003 and a net reduction of $2.6 billion in fiscal 2004.

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