FedEx to Modernize Retirement Plans?!?!?!?!
 

FedEx to Modernize Retirement Plans
Tuesday February 27, 1:07 pm ET Recognizes regulatory changes and demographic shifts
MEMPHIS, Tenn.--(BUSINESS WIRE)--FedEx Corporation (NYSE: FDX - News) today announced new measures it is taking to modernize its retirement plans for most of its employees. These measures will take place in the coming year and are in direct response to recent legislative, regulatory and demographic changes that continue to dramatically reshape U.S. retirement benefit needs.
FedEx will continue to offer highly competitive retirement benefits funded entirely by the company and will also enhance its 401(k) plans. 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.
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. Any benefits already accrued under a traditional pension benefit formula will be capped as of May 31, 2008 and will be payable monthly at retirement. These changes will not affect the benefits of current retirees.
FedEx said its new approach to pensions resulted from three recent external factors:

• Recently adopted and proposed changes in accounting rules;
• The recently enacted federal Pension Protection Act;
• Shifting demographic trends among retirees resulting in greater life expectancy, healthier lifestyles and desire for greater control, portability and inheritability of retirement benefits.

'Right thing to do'
"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 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."
Graf said that the Pension Protection Act, signed into law August 2006, allows FedEx to enhance its 401(k) retirement plans and to expand the number of workers covered by its Portable Pension Account, a cash balance feature that FedEx introduced in 2003.
In addition, demographic trends make it apparent employees need to be more active in saving for their retirement and participating more fully in 401(k) retirement plans. "The future is clear: Employees are living and working longer and retirement plans need to offer greater flexibility," said William J. Cahill, FedEx corporate vice president, human resources. "Updated FedEx 401(k) plans will make saving easier and investments more diversified so retirees can better control their finances."
Portable Pension Account Benefits
FedEx summarized many of the changes to employees in a series of communications that began today, and it will share additional information and educational materials in the coming months.
The enhanced, Portable Pension Account offers several 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.

Enhanced 401(k) with higher company match
Under the 401(k) plans, FedEx will increase its matching contributions for most employees and will provide additional investment options. FedEx will take advantage of changes under recently enacted legislation that allow it to automatically enroll employees and increase their saving contributions each year to boost savings.
"FedEx retirement plans are part of an outstanding total benefits package for our employees," Cahill said. "Planning and saving for retirement is a partnership between FedEx and its employees, and we are committed to helping our employees enjoy a financially sound future."
About FedEx
FedEx Corp. (NYSE: FDX - News) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $34 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brand. Consistently ranked among the world's most admired and trusted employers, FedEx inspires its more than 275,000 employees and contractors to remain "absolutely, positively" focused on safety, the highest ethical and professional standards and the needs of their customers and communities. For more information, visit www.fedex.com.
Certain statements in this press release may be considered forward-looking statements, such as statements relating to management's views with respect to the financial impact of the changes to the company's retirement plans. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, the impact of any future pension-related legislative or accounting standard changes and other factors which can be found in FedEx Corp.'s and its subsidiaries' press releases and filings with the SEC.


Contact:
FedEx CorporationMedia Contact:Jess Bunn, 901-818-7463orInvestor Contact:Mickey Foster, 901-818-7468</SPAN>

Does Not Apply
 

True, but does it apply to the management guys who currently have a DB Plan? Are we the only ones left with a DB Plan? Yikes!

Credits for your pension so far :eek:

Now there's something to hang your hat on.

The fact that this does not apply to us makes our union contract worth every penny of dues we have ever paid. Too bad for all the other FDX players, especially the mechanics.

The way the company press release reads, you'd think this change to the company's retirement plan is the best thing since sliced bread for the average employee. It looks like what is actually going on is a cost reduction for the company for its pension obligations. I would love to know what the net effect will be on the average mechanic's (and other Fedex employees) annual retirement income. Anyone smart on a retirement restructuring like this? Anyone think the average employee will understand the implications of today's action on their retirement?

Said the Delta, USAIR, United Alpa members. To me it sounds like the other fdxers are getting what NW did, far superior to the others. Not b1tching about our retirement but sure would like to look at some numbers for Defined Contribution next time (with a freeze of current DB).

didn't the company offer us the cash balance plan? Our R&I committee obviously didn't think it was a very good deal.

Maybe, but we didn't try very hard to improve it either. Just think that some things not on the table last time should be next time. Again not complaining, very happy with the contract, just think my money is safer in my hands long range.

Kinda scary to see the retirement plans of thousands of drivers mechanics and hubites tossed with the stroke of a pen. rest assured we're the next target

BINGO , but they were many of the same employees that Ralled against the pilots on Democrat 1n 1998................Maybe some of them might learn the value of a Union negotiated Contract.

they can ponder that when they are sitting in our jumpseats while opening their profit sharing checks!!


NOT!

Hyperone,
I know a little about it and I'm sure the average employee has little idea of the implications of what just happened. and for most it's too late to make a correction.
Whats happening basically (very basically) is there A plan is being replaced with a 6 or 7% B-plan. Whats in the A-plan is frozen and will not add years of service any more.
I venture most employees barely have been putting enough into there 401K to meet the $500 company match and are years behind in retirement planning. Most other employees don't make enough to drop 10 or 12 thousand into the 401K every year there on a shoestring. This will be devistating to a 50 year old employee with 20 or so years of service.
A young newhire can still make this work but for the old timers it's a mess.
Sorry to be so long winded

A little example a mechanic who has been here 20 years and is 55 years old.
Has a high 5 or 100K per year was expecting 50K per year at retirement age of 60. He will now be lucky to get 40K per year a 20% reduction over a lifetime. You can't recover from that.

No but if he can put 10% of the next 5 years 100K into a good 401K he can recover a lot of it and it is his money. Or his trophy wife's money if he (or fred) keels over at 61. Defined Benefit plans are going away I am glad FEDEX is taking positive financial step to improve their bottom line 15-20 years from now.

Any idea how much "higher company match" is? It would only take $500 to be 100% better. :rolleyes:

I'm 40, and I consider my A plan to be worthless. There is NO WAY the MBA's in Memphis haven't watched the passenger airlines over the past few years. They'll come after us soon. Some dogsh!t deal like this one, maybe even tied into the over-sixty debacle that is on the horizon.

You see why it is so important to maximize your earnings early in this business?

What your missing here is that the 10% you are refferring to is out of his salary...............The A plan was differed compensation that the company just took away.
With his A plan (the old one) he still could have put a that extra 10% you are talking about...............

Bottom line it is a mjor screw job for the Fedex employeess......

I know what 10% I was talking about. What you are missing is there is a 7% DC plan and an increased 401K matching so it is Freds. But I do hope ALPA gets us a better DC plan before we lose the DB plan.

Now imagine a United captain who has worked there for 30 years. He was expecting somewhere in the 180k-200k range at retirement. Now he's lucky if he gets 30K. A huge, huge reduction in benefits. As well, where the mechanic described above can probably work past 60 if he so desires, currently that same United captain must stop work the day before his 60th birthday. So you tell me, just based on the numbers, whose in worse shape? How do you recover from that?

By the way, for someone whose pension was taken back (stolen) in 2005, the maximum benefit for someone that retired at 65 was $45,614 a year, whereas if one retired at age 60, the maximum was $29,649. The above from the Federal Pension Benefit Guaranty Corporation.

Even looking at him putting in 10% for his last 5 years were talking 50K with great luck it grows into 100K. Taking out 5% a year it adds only 5K to his anual retirement still a 10% reduction with 50 K of his own money in the pot

BTW jetjock you're right the United Capt will never recover

I would be glad to talk about annuities but lets just say that since it is his money it is worth more.

You mean these nice folks?

http://www.cnn.com/US/9811/17/fedex....ref=sitesearch

I felt the love. Still do.

On a side note: The last sentence of the article sure tells how things can change. Eh?

Where are you getting the 7% DC plan from? I haven't seen any actual numbers in any of the articles.

Huck,

MBAs in Memphis. HA. :rolleyes:

The problem with maximizing your earning early in this business, is that (as you know) it's rather hard to do. However, that said, maybe a great job in the school house, where one can earn 3 or 400K a year, for 4 or 5 years would be just the ticket. Or better yet, maybe we could pay the new hires 300K to start, then have a declining pay scale, such that when one is ready for retirement, their pay would approximate what they had to look forward to in retirement. That way they could get acclimated (downward) along the way and it wouldn't be such a great shock. What a great idea. I'll pass it by the non-union guys and those that pick up all those disputed pairings. Damn, sometimes I crack myself up.:D :D

Just what I heard but I guess we will see. Update, Bus, I got it from your brother box

Its STILL a defined benefit account, ie. a PROMISE to pay, unlike our B fund, which is a defined contribution account - cold, hard cash in OUR account!

http://www.principal.com/allweb/docs...q/pq_7850k.pdf

http://cyber.law.harvard.edu/rfi/pre...%20balance.htm

http://biz.yahoo.com/edu/rt/sm_rt8.sm.html

So...any of our illustrious independent contractors want to pipe in here? I'd love to hear how we could each get a better deal like this one going it alone. :rolleyes:

FDXFlag What you are missing is that 7% DC plan you refer to is similar is what the company offered us (The Pilots) in Section 6 openers over 2 years ago. They wanted to give pennies on the dollar for our accrued A plan. Fortunately we turned it down.

The "CASH BALANCE" plan, which is what the company calls it, looks like a B plan but it is not. The 7% funds you refer to do not go into the individuals name. It goes into a Mass "Phantom" account. Very different than our B plan which is in our name.

No matter how you slice it, the NON Union emeployees of FedEx just got screwed.

And what you fail to realize is that A Funds are going away, period. They are either being converted like fedex is doing now or the are being trashed (see United, Delta, USAIR). Why because you can't compete in the global economy with one. How many of those thousand and thousands of Toyota-America new hires are laid off UAW workers. Or how many laid off UAW wished they worked for Toyota.

Did the FEDEX non union employees get screwed? maybe. Do they have a future, alot better than the average Ford employee.

I did not want the companies cash balance plan 2 years ago, I do not want it now. But since our contracts seem to out-last business cycles I would like for us to start talking about freezing, then converting our A Fund. I would rather be in the NW frozen A Plan than USAIR with a defaulted A Plan.

And I am glad they are fixing their bottomline 10 years out because that is when they will have to start paying my A fund.

Gentlemen,

I am not a FDX guy, but I do have some experience with having a pension yanked out from under me. Once you are in the middle of your career it is tough to transition from one plan to another, but not as tough as seeing your plan go away. The problem with defined benefit plans is there are IRS restrictions about how much the company can put into the plan, dependent on whether the plan is properly funded or over funded. In 2000 the DAL pilot retirement trust was over funded by $1B. All during the late 90's DAL did not put a penny into the fund because stock market was doing so well the value of the trust was way over what was required and the IRS would not permit any additional contributions without serious tax ramifications to DAL. When the perfect storm hit in 2001 the market was already tanking and the pax business was stressed to where the companies could not make up the shortages as fast as the government required. That is why the big push to stretch out the time allowed to save the pensions that could be / would be saved.

For the sake of argument let's say to fund a defined benefit fund it would require a 10% contribution annually from the company. If the company would put that same 10% into an account in the pilot's name every year, regardless of whether the market is doing well or not, I think it would be superior to the risk of having a defined benefit plan fail. Additionally I think it would be more fair in that each hour flown by each pilot would be paid at the same rate. With a final average earnings plan (I was supposed to get 60% of my highest 36 months) a pilot who gets hired young and has a long career may be penalized for his longevity. Since the time value of money is so significant I think if I were under 30 it would be way better to have a defined contribution plan.

In the end the best feature of the defined contribution plan would be it belongs to you, and is in your name. It would be portable if anything happened and your company wasn't there any more (never say never). Additionally if you died soon after retirement your family and estate would have much more money than if they had to rely on a reduced survivor benefit. In the end if you could get the company to fork over the same amount of money for a defined contribution plan as they would for a defined benefit plan I would vote to have the money in my own account and in my name.

Thanks for that Yak.....

Yak, great post. I'm in agreement with you. I would rather get a 17% b fund( just throwing a number out there) That would be in my name than keep an A fund that's not guaranteed.

I realize the A plan peril.......i have already lost one from a previous.

I am glad you do not want the company's cash balance plan because that is what they offered us.

I do not want our A plan frozen!!! Freezing the A plan is a screw job. That is what the company just did to all Non Union folks. If the company wants to get rid of our DB plan, They can offer to buy it out!! (or re-balance) There is a major difference between a buyout and a Freeze.

If Age 60 changes(when not if) the Company's pension fund will become overfunded. (at least for 5 years)
There will be Less Pilot's retiring at Assumed age of 60 and for every year a Pilot works past 60 that is one less year the company will have to pay a pension................not to mention said Pilot's Life span will be shorter.

I agree we need to explore options. Problem is we don't open section 6 for another 3 1/2 years. Yes I would like to see a pairing down of the DB plan and increasing the DC plan. For us older guys (with less than 10 to go) It will be imperative that we get full credit for our Vested DB plan. Ten or less years of a higher B plan isn't going to make up the difference. The sky ain't falling yet. Just be glad you have a collective bargained agreement.

Freezing of A plans does not have to be a screw job. It can be a screw Job. Just have to make sure someone with more than 10 years to go is on the negotiating commitee.

I agree section 6 (probably) does not open for 3 years, lets talk about it now so that it becomes one of our core top 3 when it does.

Freezing of an A plan is a screw job. Name one company that "Froze" an A plan where the employees did not get it up the A$$?
Freezing It doesn't fix the issue anyway. The company could still terminate a "Frozen" A plan.
Re-balancing is a more prudent way to go and I am sure our R & I guys are aware of all this and I expect this is the way we will go in 3 1/2 years.
Also Lump sum distributions are another option.

You freeze an A Plan not because of current obligations, as you say it is fully funded right now. You freeze it because you are worried about funding for the guy you hired yesterday, when he retires 30 years from now. This is the same reason a frozen A Plan is less likely to be terminated. Freezing the A Plan actually secures the current obligations.

Name one company. Ask a guy who retired from NW in 2000 if he got screwed, make sure his buddy from USAIR is in the room. Getting screwed is relative (redneck jokes please).

Ask a NWA guy who is planning on retiring in 4 or 5 years how great a frozen A plan is.

You must realize that Pensions are deferred compensation. That is money you already made years before just agreed to as a pension in lieu of a higher hourly rate.................................It is like taking a retro active Pay cut from 15 years ago.

Freezing a pension is still a screw job!

It is all in what you negotiate. I would hope that when frozen, my high 5 is not, that is why I want some one with time left to have some input. If that is the case I would not be screwed.

Lets ask. Any NW guys here, would you rather have the frozen plan or the alternative?