I think you need to look at the funding requirements for the pension. Currently, our pension is fully funded to meet its future obligations. The company does not put the money into the pension for each person as they retire. That is not how it works by law. Every pilot on the seniority list or who was vested in the pension and left is already counted as part of their future liability.

Again, we have pilots retiring every year, so why hasn't the company been required to make contributions to the pension since before 2020? Because those pilots retiring are not new obligations.

I think we’re getting closer to the real disagreement — and I appreciate the back-and-forth. Let me try to explain the funding side in a simple and respectful way, because I think we’re talking past each other on what “cost” actually means.

I’ll concede that the company does not put new money into the pension every time a pilot retires.

That’s correct, and I agree with you.

However, company contributions have almost nothing to do with the economic cost of the pension.

They are driven by three accounting levers:

1. Discount rate
2. Expected long-term return on assets
3. Service cost

This is where the misunderstanding/miscommunication is happening.

The discount rate is basically the interest rate the actuaries use to convert future pension payments into a “today” number. This is the biggest lever affecting the pension.

• When discount rates go up, liabilities look smaller, so the plan looks fully funded even if nothing changed.
• When discount rates go down, liabilities jump billions, and suddenly the plan needs cash.

This is why FedEx hasn’t contributed since 2020:

Discount rates rose sharply, which made liabilities appear smaller on paper.

It doesn’t mean the pension is “cheap.”

It means interest rates temporarily made the numbers look good.

2021 – 2.92%

2022 – 4.92%

2023 – 5.22%

2024 – 5.74%

These come from the 10-K, “Retirement Plans”. “The discount rate used in valuing the US Pension benefit obligations was 4.92%.”

This was largely a function of the post-COVID inflationary environment and the resultant federal reserve actions.

Next is the Long Term Return on Assets. FedEx assumes the pension investments will earn about 6.5% per year forever.

This assumption directly reduces the required contributions:

• Higher expected return = lower required contributions
• Lower expected return = higher required contributions

Again, this is an accounting lever, not a measure of the plan’s underlying cost.

Then there is Service Cost. Even when the plan is “fully funded,” pilots still earn new pension benefits every year.

This is the Service Cost, and it is a real cost to the company, regardless of contributions.

FedEx’s total U.S. pension service cost is about $768M per year. The pilot portion is about $70–100M per year (estimated).

This cost exists no matter what the discount rate is because it reflects new benefits earned this year.

FedEx isn’t contributing because:

• discount rates are high
• expected returns are high
• the plan is currently above the minimum funding line

That doesn’t mean the pension is free or cheap. It means accounting assumptions temporarily eliminate required contributions.

The long-term economic cost is in the liabilities created each year — not the short-term contributions.

A freeze has nothing to do with the fact that they contributed $0 since 2020.

A freeze is about:

• eliminating future service cost
• stopping the creation of new long-term liabilities
• removing exposure to discount-rate volatility
• avoiding the risk that contributions will spike when rates fall
• removing PBGC premium costs
• eliminating the need to manage a multi-billion-dollar investment fund

Even if contributions are zero today, they can spike to hundreds of millions if rates fall. FedEx hates that volatility.

I’m not arguing that FedEx is broke or that the pension is underfunded.

I’m only saying that contributions are a misleading way to measure the genuine cost of a pension, because they depend heavily on discount-rate assumptions, not actual economics.

If you look at:

• service cost,
• discount-rate sensitivity,
• return assumptions, and
• future liability creation,

…it becomes clear why FedEx, like almost every Fortune 500 company, wants out of the DB business even when contributions are temporarily zero.

Happy to keep discussing this — it’s a complex topic and I’m not trying to be combative at all. Just trying to clarify how the funding side works.

I understand how the funding side works. I am not saying that the pension is cheap. What we do seem to agree on is the Fedex doesn't like the unpredictability of the pension. They are assuming both the longevity and return risk. They would like to get rid of both.

What I am asking is for you to show the amount of money that the company would save each year if a new TA is approved that puts all new hires on a DC plan with cash over cap, or a spill over of CoC into a MBCBP.

I understand that. I am pointing out that the costing of DB plans, whether you are going to keep them, terminate them or do something in-between is way more complex than most people think, and a lot of the times the math is completely outside the control of the plan sponsor.

NotMrNiceGuy has a really good grasp on it. But not to belabor the point, all things being equal, Companies would much rather pay less than more. Over the vast, stable sea that was the US economy from the post WWII era to about 1990, DBs were the way to go because they cost virtually nothing in real terms, and even with minor contributions, it was still way cheaper than stroking a check for an extra 16-18% every other week, which is real money.

Since the 1990s, "free money" has become en vogue, so you have this rapid oscillation in the financial markets. Your "fully funded" plan can swing wildly in the other direction should 0.2% interest become a thing again and it's not a leap to think that the plan sponsor would be on the hook for a 9 figure check, payable immediately. I'm sure they'd like to avoid that, if possible.

You’re asking what the company would save each year if a new TA put all new hires on an 18% DC plan with either cash-over-cap and/or MBCBP spillover instead of the pension.

FedEx does not save money on an annual cash basis by switching new hires to an 18% DC plan. The cost is higher. Based on the pilot group composition (gathered from the dashboard at FDX.ALPA.org) —roughly 46% widebody captains, 44% widebody first officers, and 10% narrowbody captains/first officers across the 777, MD-11, 767, A300, and 757—an 18% DC plan would cost the company approximately $359 million per year. This is based on a payroll of roughly $2.0B for 5,204 pilots By comparison, the annual pilot pension “service cost,” meaning the cost of new pension benefits earned this year, is about $85 million per year. On a year-to-year basis, the 18% DC plan costs FedEx roughly $274 million more per year than continuing the pension accrual.

Where the company would actually see long-term savings—and the reason they prefer DC for future pilots—is in liability elimination. Let’s assume FedEx retires 175 to 200 pilots per year, and let’s also assume each retiree ultimately receives about $120,000 per year from the pension for roughly 19 years. That would imply each retiree represents around $2.28 million in long-term pension obligations. Under those assumptions, each year’s retirement group would create between $399 million (175 × $2.28M) and $456 million (200 × $2.28M) in new long-term liabilities. Extending that over 20 years produces approximately $8 to $9.1 billion in cumulative new pension obligations.

Think of it like this…with a pension, the corporation still has retired pilots on the books. With a DC, the corporation only has to be concerned with presently employed pilots. A pension ties the company to every retiree for decades. A DC plan ties the company only to current employees.

A DC plan does not create any long-term liabilities under these assumptions. The company pays the contribution in the year it is earned, and the obligation ends. The pension, by contrast, produces decades of future payments and exposes the company to investment, interest-rate, and longevity risk.

So the answer is: FedEx does not save money annually by moving new hires to an 18% DC plan—annual cash costs are higher. The potential savings come from stopping the pension from generating hundreds of millions of dollars in assumed long-term liabilities each year. That long-term liability avoidance, not short-term cash savings, is the economic reason the company prefers DC for future hires.

Here is the TL;DR:

Pension cost ≈ $515 million per year (true economic cost)

vs.

18% DC cost = $359 million per year (pure cash cost)

• The DC plan costs more in yearly cash than the pension service cost alone.
• But the pension is far more expensive overall because it creates hundreds of millions in new liabilities every single year.

That is why FedEx wants DC—not because of annual cash savings, but because of liability elimination.

Here is an example of salaries I used to run the DC calculations at 18% cash over cap.

Seat/Fleet Avg Salary

Payroll %

CA

B-767

$465,000

24.82%

CA

B-777

$495,000

15.15%

FO

B-777

$325,000

14.91%

FO

B-767

$295,000

13.09%

CA

A300/310

$445,000

7.76%

CA

MD-10/11

$465,000

7.45%

FO

MD-10/11

$295,000

4.03%

FO

A300/310

$295,000

3.48%

FO

B-757

$260,000

3.34%

CA

B-757

$395,000

5.96%

I’m not saying these are numbers we should negotiate for. These are purely to have some numbers to run some formulations for comparison purposes only.

Here is the crew force I used for payroll assumptions.

767 Fleet

• CA: 973
• FO: 809
• Total: 1,782

777 Fleet

• CA: 558
• FO: 836
• Total: 1,394

MD-10/11 Fleet

• CA: 292
• FO: 249
• Total: 541

A300/310 Fleet

• CA: 318
• FO: 215
• Total: 533

757 Fleet

• CA: 275
• FO: 234
• Total: 509

Total Bidding pilots: 4,759

Total MSL pilots: 5,204

Disclaimer: All the warnings about public math and I am not an expert.

No, I am asking you to tell us how much money the company is going to save, invest back into the company and make a killing as you stated below.



I will agree that the company would like to get rid of the liability risk, however, you seem to be failing to recognize that the company has already accounted for the retirement liabity when the actuaries determine the funding of the pension. Like you agreed, the company doesn't fund the pension on the day the pilot retires. They fund it based on a multitude of factors, including projected maximum benefit, years until that benefit is paid, longevity of benefit payments and projected returns. When a pilot retires, it is not a new liability on the company. The pension was funded all along for that pilot as long as it was funded properly.

You’re treating “the pension was funded all along” as if the company puts aside a fixed dollar amount for each pilot and then has no further exposure. That is not how a corporate DB plan works. A frozen pension still requires assets, but the liability changes every year, because it’s based on:

• changes in discount rate
• changes in mortality assumptions
• changes in actual vs expected investment returns
• changes in workforce size
• changes in retirements relative to projections

A corporate pension is not a savings account; it is a financial liability whose value resets every year under accounting rules.

Even if the pension is “funded,” the company still bears:

· longevity risk,

· interest-rate risk, and

· investment-return risk—the three biggest variables in any DB plan.

That’s what DC eliminates.

Now, to your direct question: How much does the company save?

Not in annual cash. In annual risk and liability exposure.

Here are the real numbers under the assumptions we used:

• 18% DC costs the company ~$359M per year (pure cash outflow)
• Continuing the pension costs the company ~$515M per year, which includes:
  • ~$85M in annual service cost, plus
  • ~$427M in new long-term obligations created each year (based on retirements and payout assumptions)

So the company is not “saving” cash by switching to DC.

They’re avoiding roughly $400–450M per year in new pension liabilities that would otherwise sit on their books for the next 20–30 years.

That’s the difference.

You’re focusing on funding requirements, which can be $0 for years because of discount-rate changes. I’m talking about the economic cost of new obligations, not the IRS minimum contribution.

Even if a pension is 100% funded today,

every new hire generates a new stream of future liabilities that the company must discount, value, invest against, and carry.

DC eliminates that permanently.

So the “savings” you’re demanding in annual cash terms doesn’t exist.

The real savings is the elimination of $400–450M in new liabilities every single year. And the $85 million in service costs. Half a billion dollars in aggregate.

That’s what I meant by “investing back into the company”—they eliminate a half-billion dollars of balance sheet drag per year, which measurably increases shareholder equity and frees up capital for other uses. That’s where they make a killing.

You obviously aren't getting what I am saying.

I have said all along that the company wants to get rid of the RISK. You know, those variables that change every year that determine the funding level of the pension.

You are the one that stated that if the pension was gone, which it wouldn't be, that the company could invest that money back into the company and make a killing. I have asked you how much money would they have to make that killing. You have counted the liabilities twice. Once for the funding of the pension, and then an additional time once pilots retire. That is not how the accounting works. The service cost for Fedex for 2024 for the domestic pension plan for all US employees covered by that plan was less than $500 million. You have made up a number of $85 million for the pilots, that is not broken out anywhere. Then you add another $400 million plus for retirees each year when they are already counted in the pension funding. When they retire, they are still part of the pension obligation. They don't suddenly switch to the Fedex yearly balance sheet. That is not an additional yearly cost to Fedex. The only way a retiree changes the pension funding is when one of the variables changes.

What we can agree on is that the company hates risk. They want to transfer that risk.

Here’s where our wires are crossing, and why we keep talking past each other. I’m not disagreeing with you about risk. We actually do agree there. The disconnect is over what I meant by “liabilities created each year,” and what you mean by “already counted.”

So let me say this as plainly as possible:

I am not saying the company suddenly adds a brand-new liability to the balance sheet the moment a pilot retires. I’m saying the liability for each pilot is remeasured every year and grows as service accumulates. That growth is the economic cost.

That’s what I was referring to. Not a second, separate charge. Not a duplicate number. Not double-counting. Just the normal annual increase in projected benefit obligations as pilots (1) earn another year of credited service and (2) get one year closer to collecting it.

This is the basic flow regardless of whether someone is active or retired:

1. Each year, the pension obligation increases—because of one more year of service accrued, one less year until retirement, changes in discount rates, and updated assumptions.
2. The pension assets may or may not keep pace—depending on investment returns.
3. If assets fall behind liabilities, FedEx must contribute.
4. If assets run ahead, FedEx may not need to contribute for years.
5. None of this makes the liability disappear. The whole obligation remains on the books until the pilot dies.

So when I talk about “$399–$456 million per year,” I’m not creating a second cost. I’m describing the annual growth in the pension obligation under the assumptions we were using. You’re describing the funding rules; I’m describing the economic liability footprint. They’re different lenses.

You’re absolutely right that funding doesn’t spike the moment someone retires. But the obligation value still changes every year and remains subject to discount rates and asset performance. Do you think the annual liability combined with service costs is the same today as it was 10 years ago because the $130,000 is still the top number? No. We pay investment companies enormous sums to manage that $25B. Those costs have only grown since 1999. Even though our A-Plan has remained the same. Those are just one example of inflationary pressures. That’s the risk. And yes — that’s exactly what FedEx wants to shed.

Now, on the “invest back into the company” comment:

When I said that, I wasn’t talking about “annual cash savings.” I was talking about the capital FedEx frees up in the long run by shutting off a liability stream that grows and fluctuates for decades. A DC plan is paid once and done. A DB plan requires the company to track, discount, and carry long-duration obligations until each person dies. When those obligations no longer grow, the company’s balance sheet is cleaner and capital ratios improve. That’s what I meant by investing back into the company — not a pile of annual cash they suddenly save on Day 1.

You and I actually agree on the core point: FedEx wants to eliminate risk — discount-rate risk, longevity risk, and investment-return risk.

We’re simply framing the mechanics differently. You’re talking about the legal funding requirements. I’m talking about the economic effect of obligation growth. Both are true at the same time; they’re just different windows into the same structure.