Changes to service standards for First-Class Mail and Flats, postal increases 1% above the rate of inflation for the next decade, and revamping how retiree health benefits are calculated, are key parts of a plan by the United States Postal Service (USPS) to turn around its finances.

The long-awaited 10-year strategic plan, “Delivering for America,” was released on Tuesday. The USPS recorded a net loss of $9.2 billion in FY2020, adding to 14 years of losses totaling $87 billion. Almost two-thirds of the $160 billion identified in the plan will require approval from Congress and the Postal Regulatory Commission (PRC):

• $58 billion – Legislative and administrative action, including Medicare integration and eliminating pre-funding retirement obligations.
  
• $44 billion – Regulatory changes via the PRC.
  
• $34 billion – Cost improvement, including mail processing, transportation, retail, delivery, and administrative efficiency.
  
• $24 billion – Revenue improvement, including package growth, competitive products and pricing changes.
  

The USPS will seek public comment through the formal rulemaking process and will request an advisory opinion from the PRC before the change is implemented. USPS will hold a virtual meeting on April 6 from 1 p.m. to 3 p.m. to educate the public on proposed service standard changes for First-Class Mail and Periodicals. Registration is available here.

USPS plans to file with the PRC to modify service standards for First-Class Mail Letters and Flats and First-Class Package Service. “These modifications will shift volume from unreliable air transportation to more reliable ground transportation,” USPS contends. The plan also projects market dominant price increase at CPI (Consumer Price Index) + 1% through FY2030.

The Postal Accountability and Enhancement Act (PAEA) of 2006 capped price increases for mailing services at CPI and required the PRC to evaluate the price cap system after 10 years and modify or replace the system if it was not meeting the objectives of the law. “Had the Postal Service been able to raise prices above CPI, we would not be in such a financial state,” according to a USPS statement in the plan.

USPS estimates it would have generated $55 billion in cumulative gross revenue since 2006, based on the density rate authority of the recent PRC ruling.

Postal rates rose an average of almost 2% in January and are set to rise again in July by as much as 7%. The PRC allows for above-inflation rate authority, based on density (4.6%), retirement costs and non-compensatory mail (2%) and retirement costs (1%).

PAEA also required USPS to prefund retiree health benefits (RHB) “even though other private and public employers are not subject to such a prefunding mandate.” Since FY2007, retirement-related expenses have totaled $153 billion, including $11.6 billion in FY2020, or 14% of total expenses. USPS estimates that 6.4 cents of every revenue dollar is expensed on retiree healthcare. In FY2020, the total accrual for normal cost and amortization payments for retiree health benefits was $4.7 billion.

USPS will ask Congress to pass legislation requiring that retiree health benefits be integrated with Medicare and the expense of those benefits be based on vested benefits, which would reduce the cash flow expenses by $44 billion over 10 years.

“It looks as though they are assuming major increases for 10 years to generate $44 billion,” Stephen Kearney, executive director of the Alliance of Nonprofit Mailers (ANM), said. He estimates that the above the CPI authority for this year, ranging from 5.5% to 7.5% depending on the class and category, would be worth about $2.3 billion.

The USPS plans also proposes to modify existing service standards for First-Class Mail Letters and Flats from a current one- to three-day service standard within the continental United States to a one-to-five-day service standard. That would allow 43% of that portion of First-Class currently transported through the air to shift to surface transportation, which also would require adjustments to standards for Periodicals, which travel with First-Class. First-Class Mail traveling within a local area (up to a three-hour drive time) will not experience a service standard change and would still be delivered within two days.

The alliance issued a 335-word statement in response to the “Delivering for America” plan. “We strongly believe that the USPS must continue to be an affordable, reliable public service to all Americans, including the organizations and businesses that provide approximately 90 percent of its funding,” the statement read, in part. “Key to doing this is retention and growth of existing mail customers. The postal network depends on adequate volume to fund universal service.

“We want to make it clear that we were not consulted or briefed on this plan, in spite the fact that nonprofits mail 10 percent of all mail volume,” according to the alliance.

Mailers will only accelerate their exit from the USPS if rate increases above inflation on captive market dominant mailers are relied upon for $44 billion of the $160 billion in projected losses, ANM said. “Requiring customers to cover over one-fourth of the goal with higher prices has not been a component of previous successful industry restructurings, such as autos.” 

The USPS plan also includes more than $40 billion in capital investments to help modernize the Postal Service, including:

• $20 billion toward mail and package process network, including USPS facility space upgrades and procurement of new processing equipment;
  
•  $19 billion toward retail and delivery network, including upgrades to retail lobby spaces and acquisition of a Next Generation Delivery Vehicle fleet.
  
• $2 billion in technology upgrades, including upgrades to major IT systems.
  

The complete 58-page Delivering for America plan can be accessed here.