2. Expenses

Compensation and benefits dominate Postal Service expenses, comprising approximately 79 percent of total expenses. These costs are detailed in Table 3-2. In 2005 management continued to control personnel costs, reducing career complement by approximately 2,800. For the first time in 6 years, however, workhours increased by almost 11 million due to the addition of 2 million delivery points and an increase in mail volume of 5.6 billion pieces. The rate of increase in compensation and benefits expenses was held to 3.4 percent, the same rate recorded in 2004, through management’s cost control actions, Public Law 108–18’s reduction of the previously scheduled 2005 Postal Service obligations to the Civil Service Retirement and Disability Fund, and a decrease in workers’ compensation expense. Even so, costs per workhour, driven higher by contractual wage increases, cost-of-living allowances (COLAs), and rising health benefit premiums, continued to exert upward pressure on expenses. The September 2005 COLAs were the largest ever. The Postal Service’s primary strategies for controlling workers’ compensation costs are to reduce accidents and to identify productive work assignments for those employees who cannot return to their normal duties. Historical fluctuations in this expense are shown in Table 3-3. Health benefits for employees and retirees, another significant expense driver, increased by $437 million in 2005, a 7.1 percent increase. Total non-personnel costs increased 4.6 percent reflecting the significant fuel price increases during 2005. Interest expense on deferred retirement obligations increased $160 million.