• on Feb 16th, 2015 in Finances: Cost & Revenue | 24 comments

    What if your credit card company told you: “You will charge a million dollars on your credit card during your life; please enclose the million dollars in your next bill payment. It’s the responsible thing to do.” Doesn’t seem quite right, does it?

    Well, that’s what the U.S. Postal Service’s requirement to prefund its long-term pension and healthcare liabilities is like. The Postal Service is required to pay the full estimate of its liabilities, currently estimated at nearly $404 billion, even as that estimate moves around and is based on assumptions that are highly uncertain and can frequently change over the life of the liability. Our recent white paper, Considerations in Structuring Estimated Liabilities, evaluates these assumptions and other considerations and shows the Postal Service is closer to being fully funded, or potentially overfunded, when certain assumptions are reasonably adjusted or considered.

    First, let’s look at current funding levels. The Postal Service has set-aside cash totals of more than $335 billion for its pensions and retiree healthcare, exceeding 83 percent of estimated future payouts. Its pension plans are nearly completely funded and its retiree healthcare liability is 50 percent funded – much better than the rest of the federal government. But getting to this well-funded position has been painful. The Postal Service’s $15 billion debt is a direct result of the mandate that it must pay about $5.6 billion a year for 10 years to prefund the retiree healthcare plan. This requirement has deprived the Postal Service of the opportunity to invest in capital projects and research and development.

    As things stand now, retiree healthcare, pensions, and workers’ compensation are unfunded by about $86.6 billion. But our paper says any discussion of unfunded liabilities should take into consideration assets that could be used to satisfy the liabilities, such as real estate. The Postal Service’s real estate assets have a net book value of $13.2 billion. But fair market value of these properties is estimated as high as $85 billion. Neither is factored into the Postal Service’s ability to meet future liabilities.

    In addition, the liabilities are not exact or static amounts and they require certain assumptions, such as interest rates and demographic inputs, to estimate the future costs of these programs. For example, interest rates are at historic lows. Even slightly higher interest rate assumptions would reduce or eliminate the estimated liabilities.

    Our paper details how different assumptions and considerations would affect the liabilities. Basically, if the Postal Service’s real estate assets were considered and one other assumption adjusted, the long-term liabilities would be overfunded.

    Mandating 100 percent prefunding of future liabilities that are frequently changing and highly uncertain could unnecessarily damage the Postal Service, inflate prices, and overfund future liabilities.

    Share your thoughts on our paper. Do you agree or disagree with the overall premise of the paper or have additional insight to share? 

  • on Nov 11th, 2013 in Strategy & Public Policy | 10 comments

    Innovation is a hallmark of the digital revolution yet for many companies innovation remains hard. The popular book The Innovator’s Dilemma notes that companies often either ignore a disruptive technology or if they recognize it, they try to manage it like their traditional business. The book says companies need to recognize the disruptive technology and then set up a separate unit to manage it.

    The U.S. Postal Service finds itself struggling to innovate in a rapidly changing communications market. Yet, stakeholders agree that innovation is necessary to transform the Postal Service into a 21st century provider. The Postal Service has indicated a willingness to try new things, as allowed under the current law, but the time it takes new ideas to become a product or service is often too long in this fast-changing market. Some stakeholders have suggested the creation of a small, dedicated innovation unit that would have the authority to make partnership decisions and the flexibility to bring innovative products and services to market quickly. The major postal reform legislation now before Congress includes a provision that could essentially lay the groundwork for such a unit.

    The Postal Service actually tried small, cross-functional business units in the late 1990s. It had an international business unit that was given considerable autonomy and an Expedited Package Services (EPS) group located completely outside of headquarters in Atlanta. The EPS group was given freedom to pursue new partnerships and parcel services. Insiders might argue over how much of the credit EPS deserves, but in its short life, a number of package services were revamped or unveiled, including Parcel Select, Carrier Pickup of residential packages, and the groundbreaking contract with FedEx to provide airlift for Priority Mail. These separate units probably had some flops too, but innovation means taking risks and being allowed to fail occasionally.

    Do you think a small, agile, cross-functional “innovation unit,” led by a chief innovation officer, would help the Postal Service launch new products and services? Or does a dedicated innovation czar create a bottleneck that is inconsistent with the spirit of having innovative thinking permeate the entire organization? Would an “incubator” or “innovation lab” approach be better? What institutional changes might be needed to promote innovation? Does the current regulatory environment allow the Postal Service enough latitude to innovate effectively?

  • on Nov 4th, 2013 in OIG | 3 comments

    Wow, how time flies. Five years ago we launched our first blog as a way to engage stakeholders and solicit input on important postal topics. We haven’t stopped blogging since – 282 and counting (and more than 670,000 views!). A lot has changed in that 5 years – not necessarily for the U.S. Postal Service but in the social media realm. Things happen fast in the social media world: Facebook went public last year and now stands at a $100 billion company; Twitter has reached more than 230 million active users; the number of blogs out there has surpassed the 180 million mark; and a constant stream of newer players like Instagram and Vine further boost the impact of social media.

    Our blogging experience has changed in that time as well. Over the past year, we have noticed that overall comments to the blogs have declined, but activity on our Facebook page has soared. We post each week’s blog to our Facebook page and often find that’s where the action is. For example, our May 6 blog, “Community Connection: Stamp Out Hunger Food Drive” yielded one lonely comment on the blog, but absolutely lit up on Facebook. As of October 18, 2013, our May 9 Stamp Out Hunger Facebook post was viewed by more than 3,000 people. Similarly, using our Twitter account to mention blogs can drive activity as people retweet and favorite what we post.

    No matter where you share them, we encourage your comments. Send them via blog comments, on our Audit Project pages, on Facebook, or tweet us using @OIGUSPS. Your comments have prompted audit projects, white papers, or even the need to turn something over to our Office of Investigations. We’d also like to hear your ideas on future blog topics. What would you like us to cover? Keep in mind, a blog is a small window into an idea, not the place for exhaustive research. Often, we just tee up an issue and provide the pros and cons on it and then let the public weigh in. But we are always open to ideas.

    It might seem ironic that stakeholders like to comment online about a hard-copy service that is as old as the country itself. But we think the juxtaposition is apt – the Postal Service is still a valuable infrastructure in an increasingly digital world. Social media provides stakeholders yet another outlet for “informing the debate” about what our postal system should be. We look forward to hearing from you. 

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