Operating Expenses

In 2010, total operating expenses increased by $3,596 million, or 5.0% to $75,426 million. Excluding the impacts of the increase in the PSRHBF pre-funding expense and the impact of the discount rate and actuarial estimation change on the workers’ compensation liability, operating expenses would have decreased by $1,661 million. Employee-related expenses including compensation and benefits, workers’ compensation, and retiree health benefits represented 80%, 79% and 78% of total operating expenses for 2010, 2009, and 2008 respectively.

In 2010, compensation and benefits costs of $49,035 million decreased $1,896 million or 3.7% driven by the reduction of 75 million work hours. However, these reductions did not offset the increases of $4,357 million, or 128.5%, in retiree health benefits expense and $1,343 million or 60.4% in workers’ compensation expense. As discussed below, the large increase in retiree health benefits was primarily due to an increase in the PSRHBF contribution, to $5.5 billion, up from $1.4 billion in 2009. Significant changes in interest and inflation rates during 2010 caused the majority of the workers’ compensation increase. The impact of these changes is further explained in the retiree health benefits and workers’ compensation sections below. Slightly offsetting these expense increases were decreases in transportation expenses of $148 million, or 2.5% and other operating expenses of $60 million or 0.6%.

In 2009, total operating expenses of $71,830 million were $5,908 million, or 7.6%, less than 2008 operating expenses of $77,738 million. Retiree health benefits decreased by $4,017 million in 2009 compared to 2008, primarily due to the passage of P.L. 111-68, which reduced the contribution to the PSRHBF from $5.6 billion in 2008 to $1.4 billion in 2009. Despite a 6.2% increase in the average hourly compensation rate from 2008, attributable primarily to the carry-over effect of COLA increases granted in 2008, and a $197 million incentive accrual for employees who elected by September 30, 2009, to retire or resign from the Postal Service, compensation and benefits expense decreased in 2009 by $1,427 million, or 2.7%, from $52,358 million in 2008 to $50,931 million in 2009. The decrease was primarily due to a 115 million hour reduction in work hours. Transportation expenses decreased by $935 million, or 13.4%, and other expenses decreased $525 million, or 5.4%, in 2009 compared to 2008.