Photograph: Victor J. Blue Photograph: Victor J. Blue

Arbitrators have resolved a bargaining deadlock between the U.S. Postal Service and one of its largest unions, awarding a contract providing for modest pay raises but a decrease in the employer contribution toward health insurance premiums, along with strengthened job security.

The arbitration panel had been convened after USPS and the National Association of Letter Carriers failed to reach a contract to replace one that expired in November 2011. The binding award covers four and a half years, effective retroactively.

The quasi-corporate USPS is one of the few governmental entities that bargains with employees over pay and benefits; for most federal workers, those policies are set by law. NALC has about 280,000 members, about two-thirds of them actively employed city carriers.

“Although we would have preferred to reach a negotiated settlement in November
2011, the process worked as intended to resolve all outstanding issues and to address both sides’ key concerns while laying the groundwork for a  productively innovative Postal Service in the years to come,” NALC president Fredric V. Rolando said in a statement.

The new contract, effective as of Jan. 12, calls for raises in November 2013, 2014 and 2015 of 1, 1.5 and 1 percent, plus seven cost of living adjustments, with the COLAs for 2013 deferred until next year. Entry-level wages were lowered, but restrictions against contracting out certain functions were strengthened, and a new category of non-career employees was created, with greater opportunity to convert to career status than under the former system, according to NALC.

However, the Postal Service’s contribution toward Federal Employees Health Benefits Program premiums for active employees will drop from the current 80 percent to 78 percent in 2014, then by another percentage point the next two years. The rate will be 77 percent for those hired after the effective date of the award, dropping to 76 percent in 2016.

That decrease follows the pattern of several recent contracts with other large postal unions, but even the reduced rates will be above the average employer contribution for non-postal FEHB enrollees of about 70 percent. The contribution is the same for both postal and non-postal retirees.

The contract sets up a labor-management group to study creation of a separate health insurance program for letter carriers that, if put in place, would override those provisions. USPS has proposed breaking away from FEHB as part of a package of reforms it is seeking to address its financial problems. Postal reform made only partial progress in the last Congress, passing the Senate but stalling in the House.

On Monday, the USPS issued the latest in a series of calls for legislation, saying that despite cost-cutting efforts, including reducing its workforce by a quarter since 2006, it “continues to operate with an inflexible business model that hinders its ability to be self-sufficient.”