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Home Publications Blogs Beat the Press The Postal Service Would Have Broken Even Without Accounting Charges

The Postal Service Would Have Broken Even Without Accounting Charges

Tuesday, 12 August 2014 04:36

The NYT reported that the Postal Service lost $2.0 billion in the third quarter of its 2014 fiscal year. While the piece did note that much of this loss was attributable to a requirement imposed by Congress that the system prefund its retiree health benefits, it would have been useful to also point out that a change in the accounting of liabilities in its workers' compensation fund added $0.6 billion to its losses this quarter. By contrast, in the third quarter of last year the accounting for this fund increased profits by $0.8 billion. Without the charges for workers' compensation and the prefunding of retiree health benefits, the system would not have shown a loss for the third quarter. Excluding these charges it would have shown a profit of $1.0 billion for the first three quarters of the year.

It is also worth noting that the prefunding requirement has little or no precedence in the private sector. It targets an extraordinarily high level of prefunding (many companies pay benefits as current expenses), to be reached in a short period of time. It also uses assumptions on health care cost growth that are far above recent growth rates. 

Comments (11)Add Comment
written by s ken brown, August 12, 2014 6:19
So what's going on? I see these ostensibly dumb moves that cast UPS in the worst light. I think funded pensions and future benefits are rare as hen's teeth in the private sector. Are they socking this dough away so when they privatize, the new owners can raid these funds? Would they need to do that to get a suitor or can someone see this coming and are just gilding the lily (so they can steal the gold)?
Cannibalizing the Public Sector in the Name of Privatization - Not Efficiency
written by Last Mover, August 12, 2014 6:24
A large portion of the increased revenue in package delivery comes from contracts with FedEx and United Parcel Service. Although neither the postal service nor UPS would comment on their contract, the post office delivers an average of 2.2 million FedEx packages a day, or about 30 percent of the company’s United States ground shipments.

Funny how that works. Congress has no problem destroying the US Post Office in order to save it.

Save it that is, for the likes of Fed Ex and UPS to cannibalize it on the way down for those ground deliveries they just can't seem to do efficiently - so they contract them to USPS.

It all works out so nicely, forcing USPS prices up at the same time. What better situation than to force one's "competitor" into raising its prices - so its two "competitors" can raise their prices too.

For USPS to cover those prefunded pensions results, it shows a phony paper loss, absent which it actually shows a profit.

In this case the ongoing con game by economic predators to privatize gains and socialize losses as they hollow out America is more clear than usual. They couldn't hide it like they usually do, say for private military contractors.

The efficiencies of USPS were so high, the predators had to create beforehand a widespread crippling competitive disadvantage for USPS - prefunded retirement - to bring it down as they bleed the victim for the very efficiencies they cannot provide.

It's a perfect example of what happened to America in general. Everything in sight has been monetized by the predators in the name of the great lie of "free market efficiency".

It's a lie because because whatever efficiencies were there to be had, were confiscated by the predators and converted to monopoly profits via economic rent that create value only for them - not consumers and not the economy in terms of growth.

Worse, in many cases public efficiencies were replaced altogether by private means less productive, allowed to exist simply by virtue of being privatized.

The disgusting part is how predators never fail to continue scabbing off what bits and pieces are left over after the carnage, the public remains of which, for whatever reason, they could not manage to confiscate and control.

But not to worry. Somewhere somehow there is a sock puppet for the predators who will explain to Americans how they are actually better off in the long run for the pillage and plunder.

You see if necessary, Fed Ex and UPS can get a one ounce letter from halfway around the world to your doorstep in 24 hours for only a hundred dollars or so - with the help of USPS of course.

It won't be long says the sock puppet spin, until the snail mail service in America is as good as its health care - overpriced, underconsumed with worse outcomes than the rest of the developed world.
re s ken brown
written by djb, August 12, 2014 9:31
good point, never thought of that,

privatize it and then let private equity or wall street steal the pension fund

written by JDM, August 12, 2014 1:01
Another bizarre thing they've been forced to do with the pension fund is invest only in government securities.
written by Bart, August 12, 2014 4:33

Well, at least the Post Office wasn't forced to invest in Coconut Water or Anatabloc.
Actual Cost Comparison
written by John Parks, August 12, 2014 4:46
Below is an actual copy paste for a rate quote to a customer about a week ago who was in a hurry for his parts.
early am next day air is 251.33
regular by 12 pm is 218.00
economy next day air is 208.00

Two Day UPS is 170.00

Priority mail is 12.35 (2 day)
Wow Liberals Are Stupid
written by Jay, August 12, 2014 5:50
Pension funds - and in this case the PSRHBF - are legal entities that are separate from the company. Beyond the accrual-basis accounting argument for funding employee post-retirement benefits in the period that they are earned (accrued), all the capital stashed away in pension funds and the PSRHB cannot be raided. What can be raided in a takeover is unfunded liabilities. Let the PSRHBF be funded at 0% and legally the whole promise can evaporate overnight (note ERISA only provides insurance for pensions not for health insurance benefits).

If Detroit's pensions and retiree health insurance liabilities were funded at 100% they would not have taken a haircut.
Rule of Law
written by John Parks, August 12, 2014 6:19
@ Jay
I like your optimism. If wisdom is the ability to not jump to conclusions, I will take a more measured acceptance of any contract, treaty or law entered into by the various governments, local, county, state, or federal found in this land. I assume they are written in smoke signal script and can last just as long as the political breezes allow.
written by Mark Jamison, August 13, 2014 12:21
And here you are again spouting off about something you apparently know nothing about, didn't you get enough over at Angry Bear?
The USPS pensions have been overfunded, far beyond any prudent actuarial policy. The RHBF was a device designed to drain funds from the Postal Service, if eligible postal employees were required to use Medicare as a first provider, something they and the employer have both paid for, the need for prefunding pretty much evaporates.
Dean points out the problems the accounting for workamn's comp which is also governed by some convoluted arrangements with DOL.
Jay keeps wanting to portray these funding devices as necessary and prudent when they have been designed primarily as a means of draining cash from the Postal Service as a means of shifting postal infrastructure to the private sector.
Mark continues his lies
written by Jay, August 13, 2014 4:12
There he is again. They guy that sides with the USPS when they want to use unrealistic assumptions about future growth rates of medical costs and asset appreciation - a portfolio of only US Treasuries is going to return you 7% over the long wrong?

And now he wants to dump all of the USPS employee post-retirement health insurance benefits on the federal government.

That is great that the USPS pension is overfunded by $10B or so. Compared to the health insurance liability being underfunded by $60B or so. You probably can't do second grade math so that was a bad analogy for this audience.
written by J Hansen, August 18, 2014 2:46
@ Jay: Mark did not say there way a 7% return on T Bills. There is no reason, other than to privatize the USPS, that this requirement was put in place!

The private, for profit insurance companies, require those insured by them to utilize Medicare first, if they are 65 or disabled. The employees have paid for and continue to pay for their Medicare coverage through the premiums they pay, as well as paying out of their paychecks during ALL their productive working years. When you reach 65, most people, unless otherwise stated in a contract with thier employer (usually unionized then but not now), they must take Medicare first, and pay their monthly premium for coverage that doesn't cover much. This necessitates the Medicare recipient having to pay the balance out of pocket, unless they choose to purchase private co-pay insurance to cover the large unpaid bill that Medicare doesn't cover. Co-pay insurance is very costly, but prevents one from going bankrupt, if you can afford it. The co-pay insurance companies negotiate with Medicare on what the co-pay insurer is willing to pay and THEN if there is a balance, the person receiving the care must pay the balance.

Paying for healthcare 75 years in advance is ridiculous and not required by any other private corporation. This is a "red herring" to privatize USPS. If you want to require all corporations to fund healthcare 75 years in advance, and apply the law equally, then so be it, but it would be totally unnecessary (stupid), since Medicare and private insurance companies (if you purchase co-pay insurance) are required to negotiate pricing and patients pay the balance out of pocket for any amount not covered by Medicare and/or private insurance.

If you are not 65 years of age yet, or disabled you would be paying into ACA for your insurance coverage or a policy through your employer.

No, Jay, we have not made the government nor Medicare (which is a separate healthcare agency) pay for our health coverage. Medicare was set up this way for those who paid into it.

It is unconscionable that our own government senators and representatives have allowed and pushed for such a pile of feces!

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.