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FedEx Resets Pensions

Loyal Muke

Scout Team
Nov 16, 2019
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The company is closing its pension plan to new U.S. hires starting next year, the WSJ’s Paul Ziobro reports, joining the ranks of large U.S. companies phasing out guaranteed retirement benefits. The issue has cast a financial cloud over the company, with a pension deficit of nearly $4 billion and obligations of $28.9 billion at the end of its fiscal year ended last May 31, 2019.

FedEx is part of a shrinking group of U.S. companies with traditional pension plans, and the company told its workers that just 22% of Fortune 50 companies and 11% of transportation companies offer pensions to new hires. Rival United Parcel Service Inc. closed its pension plan to new workers in 2016.
 
The company is closing its pension plan to new U.S. hires starting next year, the WSJ’s Paul Ziobro reports, joining the ranks of large U.S. companies phasing out guaranteed retirement benefits. The issue has cast a financial cloud over the company, with a pension deficit of nearly $4 billion and obligations of $28.9 billion at the end of its fiscal year ended last May 31, 2019.

FedEx is part of a shrinking group of U.S. companies with traditional pension plans, and the company told its workers that just 22% of Fortune 50 companies and 11% of transportation companies offer pensions to new hires. Rival United Parcel Service Inc. closed its pension plan to new workers in 2016.

There aren't many companies left providing defined benefits. Nevertheless, we have had the longest stock market bull run in history. It amazes me that any well-run pension plan could be drastically underfunded. Either they invested poorly, made absurd assumptions or just failed to properly fund it.
 
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There aren't many companies left providing defined benefits. Nevertheless, we have had the longest stock market bull run in history. It amazes me that any well-run pension plan could be drastically underfunded. Either they invested poorly, made absurd assumptions or just failed to properly fund it.

Although I am not familiar with the specific details of the FedEx plan, there are other very plausible scenarios beyond the ones that you correctly identified that could easily explain how a defined benefit(DB) pension fund could get upside down over time.

1a. Many DB plans were set up with the assumption of growth in terms of an ever increasing number of people participating, read making contributions to the fund, in the plan. When any industry overall ceases to grow, or a particular company in said industry ceases to grow, and then people start retiring and drawing benefits and the number of "new" workers making contributions is not enough to keep up then the health of the fund drops.

1b. Corollary - It is possible too that simple demographics could be at play here too. There are many more Boomers, now retiring left and right, than there are in the subsequent generation, Gen X. This is just a reality and one that is impacting retirement vehicles such as pensions EVERYWHERE. See link below.

https://www.statista.com/statistics/797321/us-population-by-generation/

2. Straight up fraud. Again, I don't know the particulars on the FedEx plan, but this has happened plenty of times and plenty of places and often then leaves the future health of the fund in a figurative straight jacket.

3. Perhaps this fits under your #2 or #3 above, but the contribution rate and corresponding payout formula are often the result of labor negotiations and let's just say that there are no guarantees that wise, long term decisions are always made when management and labor are locking horns. Sometimes things are agreed to now, that will certainly lead to problems in the future, but they happen anyway.

I don't think these additional potential reasons are an exhaustive list either FWIW, but all of the above are not without precedent in the world DB plans. I would suspect that there is some combination of the above factors at play here.

Also, not all that many years ago there were changes to the federal tax code that now obligates companies to show their pension liability in their financials. This can be a gigantic stumbling block when said company then say...goes out for additional financing and the prospective lenders say WHOA, what's this giant liability here...no loan for you.
 
I listened to Michael Barbaro’s show on NPR a few weeks ago about Fed Ex and Trump’s tax cut. The CEO of Fed Ex literally helped to write the law, repeatedly stated Capital would be freed up for employees and expansion. They now have an effective tax rate of 0 and spent hundreds of millions of dollars on stock buybacks.
 
Although I am not familiar with the specific details of the FedEx plan, there are other very plausible scenarios beyond the ones that you correctly identified that could easily explain how a defined benefit(DB) pension fund could get upside down over time.

1a. Many DB plans were set up with the assumption of growth in terms of an ever increasing number of people participating, read making contributions to the fund, in the plan. When any industry overall ceases to grow, or a particular company in said industry ceases to grow, and then people start retiring and drawing benefits and the number of "new" workers making contributions is not enough to keep up then the health of the fund drops.

1b. Corollary - It is possible too that simple demographics could be at play here too. There are many more Boomers, now retiring left and right, than there are in the subsequent generation, Gen X. This is just a reality and one that is impacting retirement vehicles such as pensions EVERYWHERE. See link below.

https://www.statista.com/statistics/797321/us-population-by-generation/

2. Straight up fraud. Again, I don't know the particulars on the FedEx plan, but this has happened plenty of times and plenty of places and often then leaves the future health of the fund in a figurative straight jacket.

3. Perhaps this fits under your #2 or #3 above, but the contribution rate and corresponding payout formula are often the result of labor negotiations and let's just say that there are no guarantees that wise, long term decisions are always made when management and labor are locking horns. Sometimes things are agreed to now, that will certainly lead to problems in the future, but they happen anyway.

I don't think these additional potential reasons are an exhaustive list either FWIW, but all of the above are not without precedent in the world DB plans. I would suspect that there is some combination of the above factors at play here.

Also, not all that many years ago there were changes to the federal tax code that now obligates companies to show their pension liability in their financials. This can be a gigantic stumbling block when said company then say...goes out for additional financing and the prospective lenders say WHOA, what's this giant liability here...no loan for you.
D. Mitch McConnell got a hold of it...
 
Probably that lazy manager that spent some time on tropical island and took early retirement.
 
I listened to Michael Barbaro’s show on NPR a few weeks ago about Fed Ex and Trump’s tax cut. The CEO of Fed Ex literally helped to write the law, repeatedly stated Capital would be freed up for employees and expansion. They now have an effective tax rate of 0 and spent hundreds of millions of dollars on stock buybacks.

when is the last time AT&T paid federal taxes?
lowering the corp tax rate down to 21% was a joke...over half of the 500 corporations in the country were paying an affective rate less than 14% in the first place.

U Cons (whatever is left of you) have been fooled...you want to know what the real coup is?
Its this...and now U are the ones whose party has created the largest debt in the history of the U.S.

and you're moaning about socialism....:p:p:p....I'm sure that's ok with some of you...you still got your billfold...for now.
 
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Fred Smith challenged The NY Times article (I think that was who wrote about it, RE tax cuts)- not sure if they ever responded. Fred is a pretty sharp guy, from the times I’ve heard him speak.
 
Although I am not familiar with the specific details of the FedEx plan, there are other very plausible scenarios beyond the ones that you correctly identified that could easily explain how a defined benefit(DB) pension fund could get upside down over time.

1a. Many DB plans were set up with the assumption of growth in terms of an ever increasing number of people participating, read making contributions to the fund, in the plan. When any industry overall ceases to grow, or a particular company in said industry ceases to grow, and then people start retiring and drawing benefits and the number of "new" workers making contributions is not enough to keep up then the health of the fund drops.

1b. Corollary - It is possible too that simple demographics could be at play here too. There are many more Boomers, now retiring left and right, than there are in the subsequent generation, Gen X. This is just a reality and one that is impacting retirement vehicles such as pensions EVERYWHERE. See link below.

https://www.statista.com/statistics/797321/us-population-by-generation/

2. Straight up fraud. Again, I don't know the particulars on the FedEx plan, but this has happened plenty of times and plenty of places and often then leaves the future health of the fund in a figurative straight jacket.

3. Perhaps this fits under your #2 or #3 above, but the contribution rate and corresponding payout formula are often the result of labor negotiations and let's just say that there are no guarantees that wise, long term decisions are always made when management and labor are locking horns. Sometimes things are agreed to now, that will certainly lead to problems in the future, but they happen anyway.

I don't think these additional potential reasons are an exhaustive list either FWIW, but all of the above are not without precedent in the world DB plans. I would suspect that there is some combination of the above factors at play here.

Also, not all that many years ago there were changes to the federal tax code that now obligates companies to show their pension liability in their financials. This can be a gigantic stumbling block when said company then say...goes out for additional financing and the prospective lenders say WHOA, what's this giant liability here...no loan for you.

This was excellent. Great post.

My opinion - very few people understand the risks or benefits of a guaranteed benefit pension plan (especially municipality’s). It’s a complexity that is completely unnecessary when your workforce doesn’t fully appreciate the benefit.
 
when is the last time AT&T paid federal taxes?
lowering the corp tax rate down to 21% was a joke...over half of the 500 corporations in the country were paying an affective rate less than 14% in the first place.

U Cons (whatever is left of you) have been fooled...you want to know what the real coup is?
Its this...and now U are the ones whose party has created the largest debt in the history of the U.S.

and you're moaning about socialism....:p:p:p....I'm sure that's ok with some of you...you still got your billfold...for now.

Are you aware that federal tax receipts are actually up? The problem isn't that the income is insufficient per se, it is that ALL of Washington DC has an insatiable appetite for spending.
 
This was excellent. Great post.

My opinion - very few people understand the risks or benefits of a guaranteed benefit pension plan (especially municipality’s). It’s a complexity that is completely unnecessary when your workforce doesn’t fully appreciate the benefit.

Thank you, that is a short, short version of the subject too. You are right, few really understand the MANY complexities and challenges associated with DB plans...anywhere. There are many good reasons why companies and municipalities everywhere have been trying to get away from DB plans for many years now. With most going towards some sort of defined contribution(DC) plan...such as a 401K.

You can normally spot the uneducated pretty quickly as they will fire off thoughtless retorts such as, "Management drove it into the ground..." or some such drivel. (Yes, sometimes management wreck things all by themselves. Mostly though, it is combination of many other factors, including multiple that are outside the control of the dreaded and oft maligned bad guys in "management'.)
 
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