Next Postal Rate Hike May Be Delayed Until 2006

The next postal rate increase may not happen until 2006, two years later than planned, after a financial review uncovered that funding for a retirement plan is in much better shape than previously thought, postmaster general John E. Potter said yesterday at the monthly USPS Board of Governors meeting.

But congressional action would be needed to allow changes to the retirement funding, he said.

The financial review, which took place last month, revealed that postal payments have almost fully funded future retirement obligations for U.S. Postal Service employees and retirees enrolled in the Civil Service Retirement System, which provides benefits for employees who joined the service by 1983. Postal workers who joined after that year are enrolled in another retirement system.

Potter said the review indicated that the postal service's liability to the retirement account is about $5 billion, rather than the $32 billion previously believed. As a result, the USPS could see a net reduction of $2.9 billion in its retirement contributions in fiscal year 2003 and a $2.6 billion reduction in FY 2004.

The agency also could keep current postal rates until 2006, Potter said, and possibly raise the amount of money available for debt reduction in FY2003 from $800 million to more than $3 billion.

Findings resulted from several factors, Potter said, but the change was driven mainly by higher-than-expected yields on pension investments made by the U.S. Department of the Treasury.

“We have an opportunity to use these unexpected changes in retirement costs to secure the future of the mailing industry,” he said.

However, Potter said that changes in the payment schedule would require a modification of the law by Congress.

“All these positive financial outcomes for our ratepayers depend on statutory change,” he said. “Without that legislative change, we will be required to provide the Treasury with the higher level of funding in the coming years, which would necessitate a rate increase in 2004.”

Potter said that the federal Office of Personnel Management has drafted such a legislative change and sent it to the Office of Management and Budget. He said he thinks the Bush administration will support the change and that OMB, OPM and the Treasury Department offered their support to brief Congress.

The Direct Marketing Association applauded the postal service's announcement but warned that work remains to enact the new law.

“We are pleased about the possible delay in any future rate increase and call on Congress to enact the necessary legislative change to fix this broken system quickly,” said H. Robert Wientzen, president/CEO, the DMA. “We will work with the postal service and others to effect necessary changes which will ensure that the American mailing public receives the lowest possible mailing rates.”

The DMA said that absent the needed changes in current law, the USPS likely will file a new rate case with the Postal Rate Commission in spring 2003 that could bring higher postage rates in 2004.

This is not the first time Potter has surprised the mailing industry with good news.

At the National Postal Forum in Boston in September, he told attendees that the USPS wouldn't raise rates until well into 2004 because of the agency's improving financial situation. Many in the industry previously expected rates to rise by early 2004.

The postal service's net loss of less than $1 billion for the 2002 fiscal year that ended in September was lower than the projected $1.35 billion. The USPS also projects $600 million in net income for the 2003 fiscal year and a 1.9 percent rise in mail volume to 205.7 billion pieces.

Despite the recent positive financial news, Potter said, fundamental flaws remain in the postal service business model under the 30-year-old Postal Reorganization Act.

With legislative change to the funding of the retirement provision, Potter said, the USPS could extend the rate cycle and give customers a dividend they deserve.

“Customers will be able to focus on growing their use of the mail,” he said. “No one should be lulled into a sense of complacency that all is right with the nation's postal system. That's simply not true.”

Board of Governors chairman Robert Rider said the board will keep working with Congress to bring legislation in the near term and will work with a presidential commission should one be named.

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