<story><title>Amazon to Begin Sunday Deliveries, With Post Office&apos;s Help</title><url>http://online.wsj.com/news/article_email/SB10001424052702304868404579190091121691258-lMyQjAxMTAzMDEwMDExNDAyWj</url></story><parent_chain><item><author>yummyfajitas</author><text>&lt;i&gt;So where does the $6B loss come from? It turns out that the overwhelming chunk of USPS expenses are due to a 2006 Congressional mandate that forces the agency to prepay for 75 years of benefits.&lt;/i&gt;&lt;p&gt;So do all private sector businesses. You can&amp;#x27;t promise employees $X in future benefits without putting $X into a pension fund. This requirement is uncommon in government, which is why many municipalities have unfunded pension obligations, but it&amp;#x27;s completely reasonable. The scary fact is that we only require the USPS to do this.&lt;p&gt;You are also misrepresenting the 75 year time horizon. The USPS is required to make the following (wildly oversimplified) spreadsheet:&lt;p&gt;&lt;pre&gt;&lt;code&gt;    year    #living employees   # earned costs&amp;#x2F;employee
    2014       1000000            50000
    2015        900000            51000
    etc
&lt;/code&gt;&lt;/pre&gt;
The pension fund needs to have SUM(column B x column C) dollars in it (again, wildly oversimplified - it&amp;#x27;s actually the Present Value of Future Benefits). The 75 year requirement means the spreadsheet must have 75 rows. This prevents the fund from cheating by cutting off the calculation early and failing to account for payments they promised to make. Changing 75 years to 100 years wouldn&amp;#x27;t change anything.&lt;p&gt;The number &amp;quot;earned costs&amp;#x2F;employee&amp;quot; is the fraction of the pension costs that have already vested. I.e., if the employee has earned a pension of $100&amp;#x2F;month so far, but will have earned a pension of $5000&amp;#x2F;month at retirement, their earned costs are $100&amp;#x2F;month, not $5000&amp;#x2F;month.&lt;p&gt;This is the same calculation that ERISA requires of all private sector companies.&lt;p&gt;(Certain grandfathered companies in the private sector are also allowed to escape ERISA, and this will be a problem if any of them go out of business.)</text></item><item><author>jxf</author><text>From the article:&lt;p&gt;&amp;gt; The Amazon contract will be a much-needed financial boost to the Postal Service, which continues to bleed red ink as more Americans eschew &amp;quot;snail mail&amp;quot; in favor of email, instant messaging and social networks. The agency, which said it expects to lose around $6 billion this year, has been closing locations and has proposed ceasing Saturday delivery of many items to cut costs.&lt;p&gt;But the USPS is, operationally speaking, profitable; it makes about $400M in operating profit per year. So where does the $6B loss come from? It turns out that the overwhelming chunk of USPS expenses are due to a 2006 Congressional mandate that forces the agency to prepay for &lt;i&gt;75 years&lt;/i&gt; of benefits.&lt;p&gt;In other words, Congress believes that a hypothetical 30-year-old USPS employee&amp;#x27;s benefit costs need to be fully covered at current levels for 75 years, when the employee would then be 105. Likewise, a retiring 60-year-old USPS employee&amp;#x27;s pension benefits need to be fully covered for 75 years out -- when the retiree would then be 135 years old.&lt;p&gt;So, if USPS wants to hire, say, a new mail carrier whose benefits are worth (say) $20,000&amp;#x2F;year, they must immediately pay $1.5M into the fund (it&amp;#x27;s actually higher than that because there is a discount factor applied to account for interest and rising health care costs). Imagine if your startup or small business were held to the same requirements, and any reasonable person can see this is insanity.&lt;p&gt;Here&amp;#x27;s a WaPo article covering the problem in more detail:&lt;p&gt;&lt;a href=&quot;http://www.washingtonpost.com/blogs/federal-eye/wp/2013/02/08/mandate-pushed-postal-service-into-the-red-for-first-quarter/&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;www.washingtonpost.com&amp;#x2F;blogs&amp;#x2F;federal-eye&amp;#x2F;wp&amp;#x2F;2013&amp;#x2F;02&amp;#x2F;0...&lt;/a&gt;</text></item></parent_chain><comment><author>gamblor956</author><text>After reading through the entire thread, I can see where your misunderstanding arises.&lt;p&gt;You are referring only to the payment of &lt;i&gt;vested&lt;/i&gt; pension benefits.  In this regard, you are correct--ERISA generally requires companies to fully fund vested pension benefits.  Pension plan payments for vested benefits are not &amp;quot;pre-funding payments&amp;quot; since the liability has already accrued.  A &amp;quot;pre-funding payment&amp;quot; would be a payment for pension benefits for which the liability has not yet arisen, i.e., for unvested pension benefits.&lt;p&gt;That is what is significant about the USPS--it is required to pre-fund its pension liabilities for its current and past employees, &lt;i&gt;including for those benefits that have not yet vested&lt;/i&gt; and which would, absent the specific Congressional mandate not be required to be funded under ERISA.&lt;p&gt;The USPS is not required to prefund pensions for employees it hasn&amp;#x27;t hired yet, but you&amp;#x27;re the only one on the thread arguing that.</text></comment>
<story><title>Amazon to Begin Sunday Deliveries, With Post Office&apos;s Help</title><url>http://online.wsj.com/news/article_email/SB10001424052702304868404579190091121691258-lMyQjAxMTAzMDEwMDExNDAyWj</url></story><parent_chain><item><author>yummyfajitas</author><text>&lt;i&gt;So where does the $6B loss come from? It turns out that the overwhelming chunk of USPS expenses are due to a 2006 Congressional mandate that forces the agency to prepay for 75 years of benefits.&lt;/i&gt;&lt;p&gt;So do all private sector businesses. You can&amp;#x27;t promise employees $X in future benefits without putting $X into a pension fund. This requirement is uncommon in government, which is why many municipalities have unfunded pension obligations, but it&amp;#x27;s completely reasonable. The scary fact is that we only require the USPS to do this.&lt;p&gt;You are also misrepresenting the 75 year time horizon. The USPS is required to make the following (wildly oversimplified) spreadsheet:&lt;p&gt;&lt;pre&gt;&lt;code&gt;    year    #living employees   # earned costs&amp;#x2F;employee
    2014       1000000            50000
    2015        900000            51000
    etc
&lt;/code&gt;&lt;/pre&gt;
The pension fund needs to have SUM(column B x column C) dollars in it (again, wildly oversimplified - it&amp;#x27;s actually the Present Value of Future Benefits). The 75 year requirement means the spreadsheet must have 75 rows. This prevents the fund from cheating by cutting off the calculation early and failing to account for payments they promised to make. Changing 75 years to 100 years wouldn&amp;#x27;t change anything.&lt;p&gt;The number &amp;quot;earned costs&amp;#x2F;employee&amp;quot; is the fraction of the pension costs that have already vested. I.e., if the employee has earned a pension of $100&amp;#x2F;month so far, but will have earned a pension of $5000&amp;#x2F;month at retirement, their earned costs are $100&amp;#x2F;month, not $5000&amp;#x2F;month.&lt;p&gt;This is the same calculation that ERISA requires of all private sector companies.&lt;p&gt;(Certain grandfathered companies in the private sector are also allowed to escape ERISA, and this will be a problem if any of them go out of business.)</text></item><item><author>jxf</author><text>From the article:&lt;p&gt;&amp;gt; The Amazon contract will be a much-needed financial boost to the Postal Service, which continues to bleed red ink as more Americans eschew &amp;quot;snail mail&amp;quot; in favor of email, instant messaging and social networks. The agency, which said it expects to lose around $6 billion this year, has been closing locations and has proposed ceasing Saturday delivery of many items to cut costs.&lt;p&gt;But the USPS is, operationally speaking, profitable; it makes about $400M in operating profit per year. So where does the $6B loss come from? It turns out that the overwhelming chunk of USPS expenses are due to a 2006 Congressional mandate that forces the agency to prepay for &lt;i&gt;75 years&lt;/i&gt; of benefits.&lt;p&gt;In other words, Congress believes that a hypothetical 30-year-old USPS employee&amp;#x27;s benefit costs need to be fully covered at current levels for 75 years, when the employee would then be 105. Likewise, a retiring 60-year-old USPS employee&amp;#x27;s pension benefits need to be fully covered for 75 years out -- when the retiree would then be 135 years old.&lt;p&gt;So, if USPS wants to hire, say, a new mail carrier whose benefits are worth (say) $20,000&amp;#x2F;year, they must immediately pay $1.5M into the fund (it&amp;#x27;s actually higher than that because there is a discount factor applied to account for interest and rising health care costs). Imagine if your startup or small business were held to the same requirements, and any reasonable person can see this is insanity.&lt;p&gt;Here&amp;#x27;s a WaPo article covering the problem in more detail:&lt;p&gt;&lt;a href=&quot;http://www.washingtonpost.com/blogs/federal-eye/wp/2013/02/08/mandate-pushed-postal-service-into-the-red-for-first-quarter/&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;www.washingtonpost.com&amp;#x2F;blogs&amp;#x2F;federal-eye&amp;#x2F;wp&amp;#x2F;2013&amp;#x2F;02&amp;#x2F;0...&lt;/a&gt;</text></item></parent_chain><comment><author>rayiner</author><text>It should be noted that post-ERISA, the preferred alternative to promising $X in future benefits without putting $X into a fund is to put in $X, but then get the money back on the backend when some private equity company takes the company through bankruptcy to reduce its pension liabilities. Private sector pension plans are overall in much better shape than public sector ones, but that&amp;#x27;s not saying all that much.</text></comment>