By Paul Ziobro
FedEx Corp. is closing its pension plan to new U.S. hires starting next year, joining the ranks of large U.S. companies phasing out guaranteed retirement benefits.
The shipping giant instead will launch a new 401(k) plan at the start of 2021 with a higher company match. Under the new plan, FedEx will contribute up to 8% of employee salaries, if employees contribute 6% of their salary.
FedEx is part of a shrinking group of U.S. companies still allowing employees to accrue traditional pension payments. Its chief rival, United Parcel Service Inc., closed its pension plan to new workers in 2016, and FedEx said in a memo to employees Monday that just 22% of Fortune 50 companies and 11% of transportation companies offer pensions to new hires.
"As we continue to evolve FedEx retirement benefits to remain competitive, we recognize that more and more people understand the value of a 401(k) structure," FedEx human resources executive Judy Edge said in the memo.
New hires will be eligible to participate in the current 401(k) plan, which matches up to 3.5% of salaries, until the new plan launches. Existing workers will have the option of continuing under the pension plan and existing 401(k) or transition to the 401(k) plan with the higher match.
FedEx said that the changes were made to give employees more control over their savings and that 401(k) plans with higher matches make the company more competitive.
The majority of the 100 largest corporate pension plan sponsors have implemented some sort of freeze, meaning that either existing employees aren't accruing benefits or the plans are closed to new employees, said Zorast Wadia, principal and consulting actuary with Milliman. Less than half allow new employees to enroll in defined-benefit plans, Mr. Wadia said.
A year after closing its pension to new hires, UPS in 2017 said it would freeze pension plans for 70,000 of its nonunion workers beginning in 2023, meaning they no longer accrue additional benefits for future service. The company will instead make contributions to employee 401(k) accounts.
FedEx in May 2018 said it reached a deal with MetLife Inc. under which the insurer would take responsibility for about $6 billion of pension payments to about 41,000 retirees and beneficiaries.
FedEx had a pension deficit of nearly $4 billion and obligations of $28.9 billion at the end of its fiscal year ended May 31, 2019.
--Heather Gillers contributed to this article.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
November 18, 2019 16:43 ET (21:43 GMT)Copyright (c) 2019 Dow Jones & Company, Inc.