PPA and Accounting Regulations Prompt FedEx Retirement Plan Changes

February 27, 2007 (PLANSPONSOR.com) - FedEx Corporation said Tuesday it was making some changes to its retirement offerings, which includes bumping up company contributions to its 401(k) plan, automatically enrolling participants and enhancing its cash balance plan.

According to a press release , the Tennessee-based company said the changes to its retirement plans are a direct response to new accounting rules mandated by the Financial Accounting Standards Board, funding requirements of the Pension Protection Act and a demographic shift among retirees.

FedEx said it will offer more investment options and increase its matching contributions to employees’ 401(k) plans, but stopped short of saying what that match would be. The company also plans to automatically enroll employees in 401(k) plans and increase their saving contributions each year to boost savings.

These changes will not affect the benefits of current retirees.

Under the new program, most eligible employees who participate in a pension plan will begin accruing future benefits under a cash balance formula, which FedEx calls the Portable Pension Account, effective June 1, 2008. This means that benefits already accrued under a traditional pension benefit formula will be capped as of May 31, 2008 and will be payable monthly at retirement. FedEx began offering the cash balance plan in 2003 (See FedEx Giving Employees Cash Balance Option ).

According to the press release, the enhanced Portable Pension Account offers the following benefits:

  • Employees can take their vested benefit with them if they leave FedEx;
  • It is flexible and offers the choice of monthly benefit payments or a lump sum payment;
  • Pre-retirement death benefits can be paid to a spouse or any other designated beneficiary;
  • There is no limit on years of service under which benefits accrue;
  • Benefits will be vested after three years of credited service, compared to five years currently;
  • Eligible employees who have accrued benefits under the traditional pension benefit formula will receive transition credits.

The retirement landscape is shifting dramatically and we have a responsibility to our employees and shareowners to meet these challenges head on. We have been studying these issues closely and actively participating in the debate about retirement program reform and believe that given the circumstances this is the right thing to do for our employees, said Alan B. Graf, Jr., executive vice president and chief financial officer of FedEx Corp, in the news release. In light of the unacceptable risk and volatility that the accounting-rule and funding changes are presenting, FedEx is making necessary changes to ensure that the company will remain competitive and help our employees prepare for a comfortable retirement.

The company expects to spend about the same amount on its employees retirement plans over the long run as it would have spent under the current design and current rules, according to the announcement.