FedEx Giving Employees Cash Balance Option

February 21, 2003 ( - FedEx Corp is giving employees the option of participating in a cash balance pension plan.

The new option, affecting approximately 137,000 workers in the United States and US citizens working abroad, is being offered by the shipping company to avoid controversy seen as other companies have changed the way pension plans are funded in a cost cutting measure.

Not covered under the changes are FedEx pilots, independent contractors or employees not covered under the FedEx corporate pension plan.

Eligible employees as of May 31 can elect the new plan or choose to stay with FedEx’s current defined benefit pension plan starting June 2. Employees who elect the new option also retain the previous plan.

FedEx has begun a six-month campaign to educate employees about the plan, the FedEx Portable Pension Account by mailing notices to eligible employees.   Those eligible will have until August 29 to select the cash balance option, the last day of the election period.

Employer Adds Money to Employee Accounts Based on Formula 

In a cash-balance plan (technically considered a defined benefit plan) employees get individual accounts and are generally provided regular statements showing their account’s value. The employer credits the employee’s account with income based on a pre-determined formula.

Cash balance arrangements have come under fire in recent years because of several potential problems:

  • older workers can end up with less since benefits generally accumulate evenly throughout a career. So, a person with 20 years to accumulate benefits will get more than one with five.
  • actuarial assumptions made during the conversion could reduce a participant’s benefits
  • many employers undergoing a plan conversion have communicated poorly with employees about the benefits they can expect.