> 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:
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
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.)
You are referring only to the payment of vested pension benefits. In this regard, you are correct--ERISA generally requires companies to fully fund vested pension benefits. Pension plan payments for vested benefits are not "pre-funding payments" since the liability has already accrued. A "pre-funding payment" would be a payment for pension benefits for which the liability has not yet arisen, i.e., for unvested pension benefits.
That is what is significant about the USPS--it is required to pre-fund its pension liabilities for its current and past employees, including for those benefits that have not yet vested and which would, absent the specific Congressional mandate not be required to be funded under ERISA.
The USPS is not required to prefund pensions for employees it hasn't hired yet, but you're the only one on the thread arguing that.
Your interpretation is certainly not "in accordance with generally accepted actuarial practices and principles" as the law demands.
Above and beyond that companies set aside money each year for each working employee which is supposed to cover the majority of there pension they don't need to set asside the full cost on day one like the USPS.
You are simply incorrect that the USPS needs to pay for an employee's pension on day one. They contribute according to a vesting schedule, same as any private sector company not grandfathered.
It's only in their projections that they must include full costs. Unlike many other agencies, the USPS can't tell Congress that a program will cost $X over the next 10 years, where $X excludes the cost of employee pensions.
You are probably misunderstanding the pre-funding schedule. Beginning in 2006, the USPS was obligated to make pre-funding payments with the goal of fully pre-funding 75 years worth of pensions by 2017. See the linked WaPo article, which explicitly states "Congress passed a statute in 2006 requiring the early payment of 75 years worth of retiree benefits within 10 years. " (This is not the same as vesting, because the pre-funding obligation is not tied to the vesting of any particular group of beneficiaries' benefits.)
More specifically, see section 801, et. al., for the specific language of the Postal Accountability and Enhancement Act fo 2006 which creates the silly requirement.
According to the actual law, what must be fully funded is the "actuarial present value of all future benefits payable from the Fund." What this means is that if an employee's pension has 50% vested, their "future benefits payable from the Fund" are 50% of their pension. The USPS is then obligated to put 50% of the NPV of their pension into the fund by 2017.
It's explicitly stated 5 times it should comport with "generally accepted actuarial practices and principles", which rules out all the insanity people seem to be attributing to this law.
Is your claim that the postal service must pre-fund unvested benefits at the day the employee is hired? That is, is that how you think "future benefits payable" is being interpretted? Because what's definitely not true is that the postal service is being required to fund un-hired (or unborn) employees. See this article, which has quotes from the Congressional Research Service.
(c) Variance from minimum funding standards
(1) Waiver in case of business hardship
(A) In general
(i) an employer is (or in the case of a multiemployer plan, 10 percent or more of the number of employers contributing to or under the plan are) unable to satisfy the minimum funding standard for a plan year without temporary substantial business hardship (substantial business hardship in the case of a multiemployer plan), and
(ii) application of the standard would be adverse to the interests of plan participants in the aggregate,
the Secretary of the Treasury may, subject to subparagraph (C), waive the requirements of subsection (a) for such year with respect to all or any portion of the minimum funding standard. The Secretary of the Treasury shall not waive the minimum funding standard with respect to a plan for more than 3 of any 15 (5 of any 15 in the case of a multiemployer plan) consecutive plan years.
Most of them already have.
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.
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."
There is the question of whether, in 2017 once this has been sorted out, what (if anything) they'll change to remain profitable with the increased employee costs going forward but they were quite profitable before this happened so I don't see too much of an issue.
Although the federal government DOES HAVE special economic status so I'm not sure how you think that's particularly weak unless you think reality is pretty weak.
$100 in revenue - $75 in costs - $50 in off balance sheet debt is not profitable.
The special economic status of the federal government simply means that the taxpayer is on the hook for the USPS's hidden debts. No one disputes this. What's under dispute is whether the USPS should be allowed to incur hidden debts on behalf of the federal government (PAYGO accounting), or whether their debt should be transparently included in the federal debt (ERISA accounting).
USPS is NOT put in a worse situation than private companies. It had a privilege that put it in a much, much better situation revoked.
The fact that future governments can (probably) be relied on to make good on promises made today is a "weak argument" for just kicking the can down the road instead of funding the liability immediately.
In 2017, USPS's costs will go down, significantly, because they no longer have the backlog of pensions to fund, they will just to funding pensions on an ongoing bases. Exactly like private companies. At that time, USPS will be in a situation where it can be reformed, because it no longer carries around a glut of unfunded liabilities that will be dumped in the government's lap if something goes belly up.
Not quite. It should be "all private sector companies that offer pensions." That's only about 18% of private employers as of 2012. See http://www.bls.gov/opub/mlr/2012/12/art1full.pdf
Also, please note that in other posts you are conflating 401-k contributions with pension contributions. They are not even remotely the same thing.
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-... Please read it before the next time you say something about this issue.
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.
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.
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.
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.
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.
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.
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 :-)
I am definitely one of those people. It seems like I always end up remembering to order something late Thursday night or Friday. When using my Prime membership's 2 day shipping on a friday, the package does not arrive until Tuesday. Is this ever going to change?
What exactly is the reason these shipping companies seem to go into a kind of hibernation over the weekend? Surely there are people out there who would be willing to work weekends (if the pay was right)? How much more would it cost them?
I feel really bad for the people working in the drugstore now!
Just to be clear, the idea that weekly cyclicality in demand for labor, or any restriction on demand for labor hurts employee welfare makes little sense when the legislative efforts already focus on labor friendly restrictions on supply. In fact, one of the ways that unions served their members was by insisting that outmoded positions (eg. coal shoveler on a diesel-electric train) were still filled.
In general, labor interests are served when employers need more work done, and the supply of labor is constrained through things like limits to how many hours can be worked in a stretch without a break and when overtime pay is required. (I say in general, because everyone is also a consumer, so efficiency and productivity gains are not a net loss, they're a net gain)
The real question is: Will this will just create more jobs in the end? I am not sure though. Because, it will make life even harder for B&M stores. I already use only the local hardware store, and the bicycle shop as far as the local retail stores go. Even then the nearest bicycle shop closed last summer after many years of service.
Supposedly preachers lobbied the government to shut down the USPS on Sunday because people were hanging out at the post office instead of going to church.
You can thank the Jews, the Christians, unions, Henry Ford, and the Great Depression.
When you start tracing the dependencies between organizations throughout the economy, you start seeing why having a widely shared set of shared working days and working hours actually makes quite a bit of sense from that perspective.
Obviously this sort of spread wouldn't work in every industry, but the idea that any "professional" should work from approximately 9-5 on M-F causes obvious lifestyle load balancing issues we could avoid by spreading it out much more were possible.
Maintaining sufficient overlap is partly a matter of individual schedule preferences, and it gets easier as amount of free time increases (though, obviously, at a cost of overlap in work time) and as scheduling flexibility generally increases. Currently, if my wife has a "9-5" and I am stuck working something with weekend shifts, my wife typically lacks the flexibility to shift her schedule to match mine. What I am most strongly arguing for is increased flexibility where it is feasible.
One factor is what type of deliveries your company does. Some delivery companies want to deliver to offices; most offices have receptionists and are open 9-5 so deliveries are quick and you don't have to make multiple delivery attempts, the parking and roads are usually good, and offices tend to be in densely populated areas so you don't have to drive too long. Offices aren't open over the weekend.
Another factor is the shifts your staff are going to work. You have to give people several days a week if you want to keep them skilled and stop them needing a second job. You need managers as well as drivers. So you don't just have to hire one day's more warm bodies, you need to reorganise all your existing employees' shifts too.
If your company has always done Sunday deliveries, and your drivers knew they'd be working Sundays when they signed up, that's all well and good. But if you have a bunch of people who signed up with a company that always gave them Sunday off, and you have to change that, that's going to cost you a lot of staff goodwill, a.k.a. money.
This disturbs me, just like forcing shops to open on the weekend. People need a break, and should have a break, just because you can't wait an extra day?
Sure, they have a choice to work, just as shop workers have a choice to work, they can always get a job somewhere else.
So by the same argument--but in reverse, only opening shops one day a week or even month would not destroy wealth generation, but would just reshuffle income?
Maybe that's why I live in France :-).
Fortunately, here in Italy, Mario Monti got rid of some of the rules about working on Sunday.
It is impossible to mandate that nobody work on any of the 7 days, because hospitals. So we already admit that some people will be working when most people are not - the question is whether we tell them to suck it up, society is going to ignore them forever, or whether we can re-arrange society so that the family of the ER doctor can also work Sunday and take Wednesday off to be together.
So it sounds like they're just using Express mail.. not really anything special. USPS will deliver express mail on Sunday for an extra fee ($12.50). I'm in Denver, you can drop off an express mail package @ the post office in stapleton until 10pm on Saturday, and it will be delivered on Sunday by 3pm.
That facility used to be open 24hrs a day/7 days a week.. so it wouldn't surprise me if the cities amazon picked have facilities open for 24hrs, and they are able to drop off packages at 2-3am sunday, and still have them delivered on sunday (within the city, or near it).
They are not "bleeding red ink" they are just being gouged and forced to fund things even the largest corporations do not do.
Pensions at the post office are probably the most secure retirement fund in the US right now, well other than what congress awards itself.
The pension costs of future workers are simply required to be included in future projections of USPS costs. It used to be that the USPS could go to congress and say "we want to do X over the next 10 years, it will cost $Y". The $Y value was allowed to exclude the cost of retirement benefits for workers hired during those 10 years. Now it must be included.
This is simply good accounting practice.
The government is requiring USPS to set aside money for benefits which it has already promised, which is a no-brainer. Did you know that health benefits for employees in the private sector are not promised, and they have been yanked away?
According to Wikipedia:
During the 1990s and 2000s, many employers who promised lifetime health coverage to their retirees limited or eliminated those benefits. ERISA does not provide for vesting of health care benefits in the way that employees become vested in their accrued pension benefits. Employees and retirees who were promised lifetime health coverage may be able to enforce those promises by suing the employer for breach of contract, or by challenging the right of the health benefit plan to change its plan documents in order to eliminate those promised benefits.
AppleCare and Apple Retail place enormous focus on these customer surveys.
In Japan (well, at least in cities) pretty much everything works on Sundays.
One of my favorites is the recommended carrier of Monoprice, Norcon, that emails you a photo of the delivered package once delivered.
Ontrac is a west coast delivery service, and from what I can tell they keep prices low by using mid-90s beater white minivans with a company logo magnet and issuing their employees a polo T uniform.
Is it conceivable that the USPS could leverage their infrastructure to build a national same day delivery network? It's obviously a stretch, but they already have the scale and resources. As a country, we aren't as interested in having letters delivered to our houses anymore, but we sure are interested in groceries and appliances.
(to be honest I immediately though of Owls! http://www.youtube.com/watch?v=EBfxOatX0tU)
So any idea why Amazon-Post partnership was considered as "unlikely"?
When I was reselling used books, USPS was the best ROI for shipping (packages and media).
Even before then it was the clear winner. Flat rate standardized (free) packaging is such an awesome perk. USPS loses way too many of my parcels, but it's just not worth going to UPS/FedEx and paying 2x the rate plus way more hassle for a slightly reduced lost package rate.
Of course you know what they say about the plural of anecdotes.
Shipping is highly localized so options are always appreciated, a bad USPS delivery person or a bad UPS person can be all the difference.
That having been said -- because of the discounts offered to large shippers, the non-preferred carrier may cost 2x or 3x as much. For example, when Newegg switched from Fedex to UPS, they continued to offer Fedex. But they passed along the difference in price.
And I should note that UPS loses a ton of packages too. I shipped 50 laptops once and 2 went mysteriously missing (aka stolen).