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From the article: > The Amazon contract will be a much-needed financial boost to the Postal Service, which continues to bleed red ink as more Americans eschew

by jxf 13y ago

From the article: > The Amazon contract will be a much-needed financial boost to the Postal Service, which continues to bleed red ink as more Americans eschew "snail mail" in favor of email, instant messaging and social networks. The agency, which said it expects to lose around $6 billion this year, has been closing locations and has proposed ceasing Saturday delivery of many items to cut costs. But the USPS is, operationally speaking, profitable; it makes about $400M in operating profit per year. So where does the $6B loss come from? It turns out that the overwhelming chunk of USPS expenses are due to a 2006 Congressional mandate that forces the agency to prepay for 75 years of benefits. In other words, Congress believes that a hypothetical 30-year-old USPS employee's benefit costs need to be fully covered at current levels for 75 years, when the employee would then be 105. Likewise, a retiring 60-year-old USPS employee's pension benefits need to be fully covered for 75 years out -- when the retiree would then be 135 years old. So, if USPS wants to hire, say, a new mail carrier whose benefits are worth (say) $20,000/year, they must immediately pay $1.5M into the fund (it's actually higher than that because there is a discount factor applied to account for interest and rising health care costs). Imagine if your startup or small business were held to the same requirements, and any reasonable person can see this is insanity. Here's a WaPo article covering the problem in more detail: http://www.washingtonpost.com/blogs/federal-eye/wp/2013/02/08/mandate-pushed-postal-service-into-the-red-for-first-quarter/ http://www.washingtonpost.com/blogs/federal-eye/wp/2013/02/0...

Wingman4l7 13y ago
When I first heard about the absurd benefits-prepayment scheme, I could swear I read that even USPS employees were against it because they knew what repercussions it would have. I don't have a citation for that unfortunately.
- lotsofpulp 13y ago
  The older ones may have been, because they would have reaped the benefits. But sooner or later, when the taxpayers would have started getting hit with astronomical bills for keeping USPS retirees alive, someone would have had to pay the price. See Detroit's pension retirees. The older retirees took advantage of the nice pension, and now the younger retirees are going to have to have their benefits cut because there is no one left for Detroit to tax.
deleted 13y ago
[deleted]
yummyfajitas 13y ago
So where does the $6B loss come from? It turns out that the overwhelming chunk of USPS expenses are due to a 2006 Congressional mandate that forces the agency to prepay for 75 years of benefits. So do all private sector businesses. You can't promise employees $X in future benefits without putting $X into a pension fund. This requirement is uncommon in government, which is why many municipalities have unfunded pension obligations, but it's completely reasonable. The scary fact is that we only require the USPS to do this. You are also misrepresenting the 75 year time horizon. The USPS is required to make the following (wildly oversimplified) spreadsheet: year #living employees # earned costs/employee 2014 1000000 50000 2015 900000 51000 etc The pension fund needs to have SUM(column B x column C) dollars in it (again, wildly oversimplified - it's actually the Present Value of Future Benefits). The 75 year requirement means the spreadsheet must have 75 rows. This prevents the fund from cheating by cutting off the calculation early and failing to account for payments they promised to make. Changing 75 years to 100 years wouldn't change anything. The number "earned costs/employee" is the fraction of the pension costs that have already vested. I.e., if the employee has earned a pension of $100/month so far, but will have earned a pension of $5000/month at retirement, their earned costs are $100/month, not $5000/month. This is the same calculation that ERISA requires of all private sector companies. (Certain grandfathered companies in the private sector are also allowed to escape ERISA, and this will be a problem if any of them go out of business.)
- jessriedel 13y ago
  My memory from previously looking at this is that you're completely right. But if so, news coverage like that WaPo article are egregiously intellectually dishonest (even if they don't technically lie). Is there a counter-argument to what you've written that smart people on the other side will offer even if it's not convincing? The only one I could imagine is "The federal government has a special economic status so it doesn't need to fund the future costs it commits to, a la social security". But that's pretty weak.
  - yummyfajitas 13y ago
    I don't know of a good argument against applying ERISA to the government. Nor do I know a good argument against fixing all the various ERISA loopholes (e.g., certain private sector post-retirement health care benefits are excluded from ERISA). But I'd also love to hear one. As for the "egregiously intellectually dishonest" WaPo, I'd simply point out that most reporters are innumerate. Full stop. If you give them an explanation like what I just did, their eyes glaze over and they either parrot what I just said (if their intuition/opinions agree with it) or go find an opposing expert (if they dislike my conclusion). For other examples of this, go read financial crisis reporting - "an evil vampire squid just ate a black swan and then pooped toxic waste onto innocent homeowners."
walshemj 13y ago
As they say lies,lies, statistics and pension scheme forecasts :-) I had an off the record briefing about Hermes (the uk's largest pension fund) for some reason the government makes pension funds appear to have major short falls by assuming that magically all the members will suddenly start drawing their benefits all at once. On more reasonable forecasts the scheme was sightly under on more positive estimation it was actually in surplus. Cynics might think that FS pensions are being made artificially expensive to allow employers to kill of the schemes.
- lotsofpulp 13y ago
  Actually, at least in the US, it's the opposite. The US government requires private organizations to abide by strict funding standards to ensure their retirees get their promised benefits, via laws like ERISA and PPA of 2006. On the other hand, government entities don't have to abide by ANY laws regarding funding for future benefits, so the politicians and union leaders/elders promise higher and better benefits to get the votes, while taxpayers get shafted when the bill comes due. It's ridiculous to promise full retiree healthcare (even the US government doesn't offer it to its citizens). That is why when Congress required USPS to prefund the benefits, it became an issue for their budget. Because when benefits actually get accounted for, and you start setting money aside, you realize how stupid it is to offer someone full retiree medical benefits.
  - walshemj 13y ago
    Ah yes but are the strict funding requirements fiddled or not? Pay as you go can work for core civil service jobs - its just that it makes it hard to privatize the jobs. I trust congress and the house also required pre funding of their benefits :-)
  - gress 13y ago
    What's the alternative to offering low paid workers full retiree medical benefits? A bunch of bankrupt and sick and dying pensioners?
    - 13y ago
Shivetya 13y ago
Untrue. Even if you took away the requirement to fund their retirement/pensions the Post Office would have lost nearly five billion dollars last year. The pension funding is a common misdirection that is brought up far too often in discussions about the Post Office. The USPS problems are 1) Congress, how many "corporations" have 535+ people to tell them how to run their operation. Congress routinely prevents the closing of obsolete Post Offices and Sorting facilities. 2) People simply do not use mail, dropping more than a third of the letters shipped in the last six years 3) Businesses are also dropping the amount of mailings made. In 2006, the unfunded liability of the USPS was nearly 75 billion dollars. Who should be funding it? Certainly not the public. The law requires the USPS to put aside 5 to 6 billion a year. The issue that came up was, mail use plummeted.
michaeldhopkins 13y ago
This is not true. The USPS loses billions every year before pre-funding. However, pre-funding pushes them against their statutory debt limit. You can see in their annual report that they expect losses of up to $20 billion annually even after 2017 (when pre-funding catchup ends) and their plan to eliminate pre-funding would only save about $8 billion per year -- and do nothing to address that the USPS will not be able to pay pensions since they lose so much money. I urge you to read primary sources. The USPS' annual report is an easy-to-understand slide deck that explains everything very well. http://about.usps.com/strategic-planning/five-year-business-plan-2012-2017.pdf http://about.usps.com/strategic-planning/five-year-business-... Please read it before the next time you say something about this issue.
- pbreit 13y ago
  I leafed through the 37 pages. If I understand correctly, the losses are projected only if they don't partake in some initiatives. If they actually follow their plans and mail volume is in the upper 2 (of 4) projections, they make money.
  - michaeldhopkins 13y ago
    Correct. I wasn't saying that they have to be unprofitable going forward, just that the pre-funding doesn't entirely explain the losses. I think it's a sensible document and it shows the USPS understands their situation and is willing to remain solvent in a humane and useful way.
    - pbreit 13y ago
      But the pre-funding, which what I can determine, is rare both in public and private sector, brings them from profit to loss.
      - michaeldhopkins 13y ago
        The USPS pension obligations are around 100% funded (has been overfunded at 105% in the past; may still be the case.) The average private company funds its pensions at about 80%. It's supposed to be a complete funding when interest rate of investments is factored and the average used to be about 90%. There are (questionable) accounting tricks that private companies can use to underfund pensions that are not available to the USPS because of the way their Congressional mandate is written, and because of the enormous amount of public scrutiny. So, to bring the USPS in line with what is required of the pensions of private companies, they would reduce their obligations by 10-20% at most. They would still have the same problems. Public pensions don't have funding requirements. This is a disaster for millions of workers since they won't get their pensions. It's not a good idea to rely on perpetually increasing government revenue without any kind of savings in reserve. That said, eventually, the USPS will need to reduce pension payments in order to survive if their other initiatives fail, or they will have to obtain direct funding from Congress. If they are required to pre-fund to the end, then retirees will benefit at the expense of current employees. If they are allowed to drop pre-funding and move to the public pension model, then retirees will suffer for the benefit of current employees.
philwelch 13y ago
USPS is also one of the largest spam operations, and if it filtered out spam they would be much worse off.

by jxf 13y ago

Wingman4l7 13y ago

When I first heard about the absurd benefits-prepayment scheme, I could swear I read that even USPS employees were against it because they knew what repercussions it would have. I don't have a citation for that unfortunately.

lotsofpulp 13y ago
The older ones may have been, because they would have reaped the benefits. But sooner or later, when the taxpayers would have started getting hit with astronomical bills for keeping USPS retirees alive, someone would have had to pay the price. See Detroit's pension retirees. The older retirees took advantage of the nice pension, and now the younger retirees are going to have to have their benefits cut because there is no one left for Detroit to tax.

deleted 13y ago

[deleted]

yummyfajitas 13y ago

So where does the $6B loss come from? It turns out that the overwhelming chunk of USPS expenses are due to a 2006 Congressional mandate that forces the agency to prepay for 75 years of benefits. So do all private sector businesses. You can't promise employees $X in future benefits without putting $X into a pension fund. This requirement is uncommon in government, which is why many municipalities have unfunded pension obligations, but it's completely reasonable. The scary fact is that we only require the USPS to do this. You are also misrepresenting the 75 year time horizon. The USPS is required to make the following (wildly oversimplified) spreadsheet: year #living employees # earned costs/employee 2014 1000000 50000 2015 900000 51000 etc The pension fund needs to have SUM(column B x column C) dollars in it (again, wildly oversimplified - it's actually the Present Value of Future Benefits). The 75 year requirement means the spreadsheet must have 75 rows. This prevents the fund from cheating by cutting off the calculation early and failing to account for payments they promised to make. Changing 75 years to 100 years wouldn't change anything. The number "earned costs/employee" is the fraction of the pension costs that have already vested. I.e., if the employee has earned a pension of $100/month so far, but will have earned a pension of $5000/month at retirement, their earned costs are $100/month, not $5000/month. This is the same calculation that ERISA requires of all private sector companies. (Certain grandfathered companies in the private sector are also allowed to escape ERISA, and this will be a problem if any of them go out of business.)

jessriedel 13y ago
My memory from previously looking at this is that you're completely right. But if so, news coverage like that WaPo article are egregiously intellectually dishonest (even if they don't technically lie). Is there a counter-argument to what you've written that smart people on the other side will offer even if it's not convincing? The only one I could imagine is "The federal government has a special economic status so it doesn't need to fund the future costs it commits to, a la social security". But that's pretty weak.
- yummyfajitas 13y ago
  I don't know of a good argument against applying ERISA to the government. Nor do I know a good argument against fixing all the various ERISA loopholes (e.g., certain private sector post-retirement health care benefits are excluded from ERISA). But I'd also love to hear one. As for the "egregiously intellectually dishonest" WaPo, I'd simply point out that most reporters are innumerate. Full stop. If you give them an explanation like what I just did, their eyes glaze over and they either parrot what I just said (if their intuition/opinions agree with it) or go find an opposing expert (if they dislike my conclusion). For other examples of this, go read financial crisis reporting - "an evil vampire squid just ate a black swan and then pooped toxic waste onto innocent homeowners."

walshemj 13y ago

As they say lies,lies, statistics and pension scheme forecasts :-) I had an off the record briefing about Hermes (the uk's largest pension fund) for some reason the government makes pension funds appear to have major short falls by assuming that magically all the members will suddenly start drawing their benefits all at once. On more reasonable forecasts the scheme was sightly under on more positive estimation it was actually in surplus. Cynics might think that FS pensions are being made artificially expensive to allow employers to kill of the schemes.

lotsofpulp 13y ago
Actually, at least in the US, it's the opposite. The US government requires private organizations to abide by strict funding standards to ensure their retirees get their promised benefits, via laws like ERISA and PPA of 2006. On the other hand, government entities don't have to abide by ANY laws regarding funding for future benefits, so the politicians and union leaders/elders promise higher and better benefits to get the votes, while taxpayers get shafted when the bill comes due. It's ridiculous to promise full retiree healthcare (even the US government doesn't offer it to its citizens). That is why when Congress required USPS to prefund the benefits, it became an issue for their budget. Because when benefits actually get accounted for, and you start setting money aside, you realize how stupid it is to offer someone full retiree medical benefits.
- walshemj 13y ago
  Ah yes but are the strict funding requirements fiddled or not? Pay as you go can work for core civil service jobs - its just that it makes it hard to privatize the jobs. I trust congress and the house also required pre funding of their benefits :-)
- gress 13y ago
  What's the alternative to offering low paid workers full retiree medical benefits? A bunch of bankrupt and sick and dying pensioners?
  - 13y ago

Shivetya 13y ago

Untrue. Even if you took away the requirement to fund their retirement/pensions the Post Office would have lost nearly five billion dollars last year. The pension funding is a common misdirection that is brought up far too often in discussions about the Post Office. The USPS problems are 1) Congress, how many "corporations" have 535+ people to tell them how to run their operation. Congress routinely prevents the closing of obsolete Post Offices and Sorting facilities. 2) People simply do not use mail, dropping more than a third of the letters shipped in the last six years 3) Businesses are also dropping the amount of mailings made. In 2006, the unfunded liability of the USPS was nearly 75 billion dollars. Who should be funding it? Certainly not the public. The law requires the USPS to put aside 5 to 6 billion a year. The issue that came up was, mail use plummeted.

michaeldhopkins 13y ago

This is not true. The USPS loses billions every year before pre-funding. However, pre-funding pushes them against their statutory debt limit. You can see in their annual report that they expect losses of up to $20 billion annually even after 2017 (when pre-funding catchup ends) and their plan to eliminate pre-funding would only save about $8 billion per year -- and do nothing to address that the USPS will not be able to pay pensions since they lose so much money. I urge you to read primary sources. The USPS' annual report is an easy-to-understand slide deck that explains everything very well. http://about.usps.com/strategic-planning/five-year-business-plan-2012-2017.pdf http://about.usps.com/strategic-planning/five-year-business-... Please read it before the next time you say something about this issue.

pbreit 13y ago
I leafed through the 37 pages. If I understand correctly, the losses are projected only if they don't partake in some initiatives. If they actually follow their plans and mail volume is in the upper 2 (of 4) projections, they make money.
- michaeldhopkins 13y ago
  Correct. I wasn't saying that they have to be unprofitable going forward, just that the pre-funding doesn't entirely explain the losses. I think it's a sensible document and it shows the USPS understands their situation and is willing to remain solvent in a humane and useful way.
  - pbreit 13y ago
    But the pre-funding, which what I can determine, is rare both in public and private sector, brings them from profit to loss.
    - michaeldhopkins 13y ago
      The USPS pension obligations are around 100% funded (has been overfunded at 105% in the past; may still be the case.) The average private company funds its pensions at about 80%. It's supposed to be a complete funding when interest rate of investments is factored and the average used to be about 90%. There are (questionable) accounting tricks that private companies can use to underfund pensions that are not available to the USPS because of the way their Congressional mandate is written, and because of the enormous amount of public scrutiny. So, to bring the USPS in line with what is required of the pensions of private companies, they would reduce their obligations by 10-20% at most. They would still have the same problems. Public pensions don't have funding requirements. This is a disaster for millions of workers since they won't get their pensions. It's not a good idea to rely on perpetually increasing government revenue without any kind of savings in reserve. That said, eventually, the USPS will need to reduce pension payments in order to survive if their other initiatives fail, or they will have to obtain direct funding from Congress. If they are required to pre-fund to the end, then retirees will benefit at the expense of current employees. If they are allowed to drop pre-funding and move to the public pension model, then retirees will suffer for the benefit of current employees.

philwelch 13y ago

USPS is also one of the largest spam operations, and if it filtered out spam they would be much worse off.