The Postal Service Reform Act of 2022 (PSRA) was signed into law about one year ago, on April 6, 2022. Many people associate the legislation purely with the elimination of the requirement for the USPS to prefund its retiree health benefits, which admittedly was a very significant piece of the legislation, but there are other changes included in the PSRA that mailers should be aware of. And what does the elimination of the prefunding of retiree health benefits actually mean to the USPS and users of the mail? Where are we one year after the legislation was passed, and what is still to come?
Financial Reforms. Let’s start with the financial reforms for USPS contained within the legislation. The PSRA did remove the requirement for USPS to prefund retiree health benefits (which was part of the Postal Accountability and Enhancement Act of 2006). This had an immediate impact on the USPS in that it had about a $59.6 billion one-time cash benefit since the USPS would no longer have to include billions in prefunding payments as expenses each year.
At the time of the writing of this article, however, there was disagreement on how the USPS should account for this change in its financials – something that most would not think is a significant issue, but the outcome of which could amount to about one percent in additional rate authority for the USPS to use in a July 2023 price change, as well as negative impacts on workshare discounts. If the USPS accounts for the change in one manner, it means nearly one percent in additional rate authority for the density factor in its next price change, whereas if it accounts for the money differently, it would result in the density additional rate authority being zero percent. And because the way the USPS accounts for the money impacts the costs attributed to each product, how that accounting is done will have an impact on workshare discounts. At the time this article was written, there was an ongoing Postal Regulatory Commission (PRC) proceeding to decide how the USPS should account for this change from the PSRA.
Other provisions of the PSRA are intended to improve the USPS’s future financial position, including the integration of USPS retirees into Medicare starting in 2025 and elimination the USPS’s future prepayment requirements; the establishment and implementation by 1/1/25 of a new Postal Service Health Benefits Program (PSHB) for employees, annuitants, and dependents within the Federal Employees Health Benefits Program; a requirement for the PRC to conduct a review of the USPS’s cost attribution guidelines (which are used for budgeting, forecasting, pricing, and product decisions) and make modifications if deemed appropriate (review must be initiated by April 6, 2023); and other changes.
The USPS will still be required to make payments from the Retiree Health Benefits Fund (RHBF) in the future, scheduled to begin in 2026, and the USPS estimates the first payment will be approximately $1.3 billion. OPM estimates the total payments needed between FY2026 and FY2031 to be $10.7 billion, and after that, the USPS will need to make future payments into the fund, reverting back to a “pay as you go” system.
The PSRA also requires the USPS to issue a report to the President, Senate and House Committees charged with USPS oversight every six months for the next five years with information on volumes, the effect of prices on volumes, the status of its USPS Connect program, the use of Priority Mail and other information.
Public Service Performance Dashboard. As part of the PSRA, the USPS is required to develop a public service performance measurement dashboard to be updated weekly and be searchable by address or ZIP Code. The PSRA requires the new dashboard to be created and maintained within 60 days from when the PRC provides the USPS with requirements and recommendations. The PRC, at the time of this writing, had not yet done so, although it initiated a proceeding and a notice of proposed rulemaking where comments were due October 31, 2022. The PSRA also requires the USPS to establish and provide the PRC with “reasonable” performance targets within 60 days of the start of each Fiscal Year. Other provisions require additional reporting from the USPS on service performance.
Studies on Flats Costs. The PSRA requires the PRC in conjunction with the USPS Office of Inspector General (OIG) to study causes and quantify the effects of possible inefficiencies in the collection, sorting, transportation, and delivery of flats mail. Flats costs have risen over the years, requiring the USPS to implement greater price increases for flats, in accordance with the PRC’s 10-year rate system review rules. The PRC/OIG study must be completed by April 2023, then the USPS has six months to develop a Flats Operation Reform Plan.
New Non-Postal Services. Another provision of the PSRA allows the USPS to earn revenue by offering non-postal services in collaboration with state/local/tribal governments. Examples of such services include hunting/fishing licenses, or other services currently provided by state/local/tribal governments, as long they cover their costs, do not detract from core postal services, and are approved by the USPS Board of Governors. In addition, the PSRA imposes a new requirement that any USPS arrangements to provide property and services to federal agencies must cover their costs. The USPS has been allowed to provide property/services to federal agencies in the past, for example, Passport services for the Dept. of State, but there was no explicit requirement until the PSRA that such arrangements cover their costs.
Integrated Network and Six-Day Delivery. The PSRA requires the USPS to maintain an integrated network for the delivery of Market Dominant and Competitive Products, and codifies six-days-a-week delivery by the USPS with exception for areas where there is an existing policy of delivery less than six days a week. Prior to the PSRA, six-day delivery was mandated by Congress in an annual appropriations bill.
Other Requirements. Other requirements included in the PSRA include revisions to the USPS’s transportation selection policy to focus on selecting modes of transportation that provide consistent and reliable service in addition to providing prompt and economical services; expanded marketing tools for rural newspapers; changes to PRC funding; and giving the USPS OIG oversight of the PRC Office of Inspector General, which is eliminated.
For More Information. A great resource is the “Primer on Postal Reform” published by the USPS Office of Inspector General (OIG) on December 20, 2022 (https://www.uspsoig.gov/sites/default/files/document-library-files/2022/RISC-WP-23-002.pdf) which takes a look at many of the other aspects of the legislation. It also looks at other areas for potential postal reform legislation in the future.
This article originally appeared in the March/April, 2023 issue of Mailing Systems Technology.