(Work Hours in thousands)
2013
2012
2011
2013/2012 2012/2011City Delivery
393,986
389,219
399,010
1.2% (2.5%)
Mail Processing
203,802
210,170
215,221
(3.0%) (2.3%)
Rural Delivery
176,697
177,715
177,384
(0.6%)
0.2%
Customer Service Operations
138,477
144,309
150,203
(4.0%) (3.9%)
Postmasters
56,028
58,429
59,484
(4.1%) (1.8%)
Other*
140,841
142,309
147,535
(1.0%) (3.5%)
Total Work Hours
1,109,831
1,122,151
1,148,837
(1.1%) (2.3%)
* Including Vehicle Services, Plant Maintenance, Operational Support, and Administration.
These work hour reductions were driven by continued efforts to improve efficiency and to respond to the decline in mail volume. Significant operational initiatives include adjustments to our mail processing and transportation networks, adjustments to the hours of operation of retail units, and delivery changes, such as the consolidation of delivery units and adjustments to delivery routes.
We continually strive to optimize the use of personnel and minimize variable costs. The challenge that remains is to reduce the fixed labor costs. This will require structural changes, many of which require legislative or regulatory approval.
In an effort to aggressively reduce costs in those areas over which we have the most control, as announced in September 2011, we are implementing a strategy to increase the efficiency of our mail processing network. This requires a reduction in the number of mail processing and distribution plants and the rescheduling of transportation routes. On May 17, 2012, we announced a modified, phased plan to continue the consolidation of our network of mail processing locations. In 2013, we consolidated 97 mail processing facilities. This was instrumental in reducing mail processing work hours by over 6 million in 2013.
In 2013, we continued our efforts to consolidate delivery units and centralize business deliveries on a voluntary basis. The majority of the benefit from consolidating delivery units appears in reduced customer service hours. For the year, customer service operations hours decreased by 5.8 million hours. The growth in city delivery work hours reflects the hiring and training of 30,433 city carrier assistants in 2013, which increased the number of city carrier workhours, but lowered the overall cost of the function by $120 million.
The Postal Service is also working to increase the efficiency and reduce the costs of its retail network, while continuing to provide an appropriate level of service to communities throughout America. On May 9, 2012, the Postal Service announced a strategy to preserve the Post Offices serving rural America while providing a framework to achieve significant cost savings. This strategy, known as the POSt Plan, allows Post Offices to remain operational with modified window hours, based on demand. This helped to reduce postmaster workhours and save significantly on the wage rate. In total, postmaster workhours were down by approximately 2.4 million in 2013.
Approximately 90% of career employees are covered by collective bargaining agreements. The contracts with the four labor unions representing the majority of our employees have traditionally included provisions granting COLAs, which are linked to the Consumer Price Index–Urban Wage Earners and Clerical Workers (CPI-W). Under the current APWU and NRLCA contracts, employees represented by these unions did not receive a COLA in 2010 or 2011, and 2012 COLAs were deferred until 2013 when these employees received both years’ adjustments applied to the then current wages. Eligible employees covered by NPMHU and NALC collective bargaining agreements received a cost of living adjustment of approximately $980 in September 2011 with an overall annual financial impact of approximately $300 million in 2012.
Non-bargaining unit employee salary rates were frozen in 2011, 2012, and 2013. As a result, non-bargaining employees did not receive pay increases in 2012 or 2013, nor are there increases scheduled for calendar year 2014. These employees did not receive automatic salary increases, nor did they receive COLAs or locality pay.
As a result of management’s continued focus on increasing efficiency and decreasing work hours, compensation expense has dropped from $36,877 million in 2002 to $35,639 million in 2013, a decrease of $1,238 million, or approximately 3.4%. This decrease was achieved despite the 33% increase in the hourly compensation rate over this same period and the addition of over 13 million new delivery points.
R
ETIREMENTE
XPENSEPostal Service employees participate in one of three retirement programs of the U.S. Government, based on their starting date of employment with the Federal Government. These programs are the Civil Service Retirement System (CSRS), Dual CSRS/Social Security System (Dual CSRS), and the Federal Employees Retirement System (FERS). These programs are administered by the Office of Personnel Management (OPM). The funding requirements and timing of employer and employee contributions to the programs can be altered at any time with the enactment of a new law or regulation, or an amendment of existing law or regulation. For additional information, see Note 8, Retirement Benefit
Plans, in the Notes to the Financial Statements, which is located in Part IV, Item 15 of this Form 10-K.
All expenses of the retirement programs, except for retiree health benefits, are included in compensation and benefits expense. Retirement expense for current employees consists of accrued employer contributions to FERS, the Thrift Savings Plan, and Social Security. P.L. 109-435 suspends until 2017 the employer contributions to CSRS that would otherwise have been required under Title 5, Section 8334(a)(1) of the United States Code. In 2017, OPM will determine whether additional funding is required for the benefit of postal CSRS retirees. As a result of P.L. 109-435, the Postal
Retirement expense was 12.3%, 12.3%, and 12.2%, of total compensation and benefits expenses in 2013, 2012, and 2011, respectively. The required agency contribution to the FERS retirement plan was 11.9% for 2013 and 2012, and 11.7% for 2011. Reflecting the lower number of employees in 2013, retirement expense of $5,738 million for current employees was $116 million, or 2.0%, less than the 2012 expense of $5,854 million. In 2012, retirement expense for current employees decreased by $25 million, or 0.4%, from the 2011 expense of $5,879 million, in-line with a lower number of FERS employees. The decrease was partially offset by the increase in the required agency contribution to the FERS retirement plan which grew from 11.7% to 11.9% of employees’ basic pay in 2012.
OPM has announced the contribution rate for 2014 will continue to be 11.9%.
P.L. 109-435 REQUIRED REPORTING
As described in Note 3, Summary of Significant Accounting Policies, in the Notes to the Financial Statements, which is located in Part IV, Item 15, of this Form 10-K, we account for participation in the retirement programs of the U.S. Government under multiemployer plan accounting rules. Although the Civil Service Retirement and Disability Fund (CSRDF) is a single fund and does not maintain separate accounts for individual agencies, P.L. 109-435 requires certain disclosures regarding obligations and changes in net assets as if the funds were separate. The following information is provided by OPM and represents the most recent actual data available, which is as of September 30, 2012, with projections to September 30, 2013.
FUNDINGSTATUS
As required by P.L. 109-435, the Postal Service discloses OPM provided information regarding the costs and changes in obligations related to the FERS and CSRS retirement programs. We have reported this information based on OPM- provided actuarial valuations, the same valuations that are used by the Civil Service Retirement System Board of Actuaries to establish the normal cost and funding requirements for these retirement programs. The OPM actuarial valuations utilize the long-term economic assumptions established by the Civil Service Retirement System Board of Actuaries. These assumptions are not specific to the Postal Service; rather they are prepared for the Federal Government as a whole.
The Postal Service’s portion of the FERS liability has been overfunded since 1992 and we have, at various times, sought either a reduction in our required payroll contributions or a refund of the overfunded balance. In June 2011, to conserve cash and avoid an interruption of mail service, we sought to apply overfunded balances to amounts currently due for employer contributions and ceased making employer contributions through November 2011. We resumed the regular biweekly FERS employer’s contributions and remitted all previously withheld payments in December 2011, including $911 million accrued at September 30, 2011. We continue to seek a refund of the overfunded FERS balance.
OPM’s most recent calculation estimates the FERS surplus at $0.9 billion at September 30, 2012, the latest actual data available. OPM had previously estimated that we had overfunded our FERS obligations by approximately $2.6 billion at September 30, 2011. This reduction in the estimated surplus resulted primarily from changes to economic and demographic assumptions made by OPM, as well as actual 2012 experience. OPM currently estimates the FERS surplus will fall to approximately $0.5 billion by September 30, 2013.
The Postal Service believes that, as a matter of equity, its FERS obligation should be estimated using the best available data that most accurately reflects Postal Service-specific demographics and expected pay increases. This means that, instead of using government-wide salary and demographic data to calculate the FERS surplus, which unfairly increases our present and future costs, actual Postal Service salary and demographic data should be used. The Postal Service’s FERS surplus would be substantially larger if OPM calculated the liability using available postal data, as experience over the last decade clearly demonstrates that average Postal Service salary increases are significantly lower than the remainder of the Federal Government. The Postal Service has reduced its workforce and is exercising relentless efficiency and cost reduction programs, yet the OPM calculation inappropriately fails to credit the Postal Service for these initiatives. Instead, government-wide factors are used when the Postal Service cannot manage these costs and workforce trends, and accordingly, we continue to request OPM to reconsider its use of such government-wide factors.
Under current law, there is no mechanism for addressing a FERS surplus once it has occurred, nor is there a mechanism for appealing OPM’s valuation of our FERS liability, or the normal cost percentage used to determine required contributions. However, in the event that OPM publishes new government-wide contribution percentages, then an agency may appeal to OPM to use agency-specific data, if the agency estimates that its normal cost percentage is at least 10% lower than the OPM calculation. Legislation returning the OPM-estimated surplus and requiring use of Postal Service- specific economic and demographic assumptions is being considered in Congress, but has not reached the floor of either
chamber. Until a law is passed that refunds the Postal Service surplus, the OIG report recommends that Postal Service contribution rates be adjusted to reflect the Postal Service-specific assumptions. Accordingly, we continue to request that OPM utilize Postal Service-specific salary and demographic assumptions in its calculations of our FERS liability and normal cost contribution percentage.
The following table provides OPM’s estimation of the funded status of the CSRS and FERS programs for Postal Service participants as of September 30, 2012, and 2011, and the projected Postal Service status as of September 30, 2013. The following amounts have been estimated based upon assumptions from Federal Government Employee demographics, rather than the demographics of the Postal Service’s workforce.