FedEx will stop offering its defined benefit pension plan to new employees beginning in 2020, and will put them in an expanded 401(k), according to news reports. The move was announced to employees in a company memo, The Wall Street Journal said.
Under the new plan, to be launched in 2021, the company will match contributions up to 8% of employee salaries if employees contribute 6% of their salary. The current 401(k) matches up to 3.5% of salaries.
Companies usually close their defined benefit plan to save money. FedEx said this was not the reason the company made the move. They said the action was designed to become more competitive in the market place with a stronger voluntary retirement savings offering.
“We have a number of cost initiatives in place … but this is not one of them,” Patrick Fitzgerald, FedEx’s head of marketing and communications told the Daily Memphian. “Only 22% of Fortune 50 companies continue to offer pensions, and 11% of transportation companies offer a pension plan to new employees,” he said. The move is “not about any cost savings for the company. It’s really more about evolution of our benefits and being competitive as an employer.”
The decision doesn’t affect the current employees’ pensions unless they decide to stop accruing benefits in the portable pension plan and instead choose the new 401(k) plan. It also won’t affect company retirees.
FedEx contributed $1 billion to its US pensions plans, according to its most recent annual report. In May 2018, the company signed an agreement with Metropolitan Life to purchase a group annuity contract representing the transfer of $6 billion of pension obligations for approximately 41,000 retirees and beneficiaries.
The changes will apply to US workers hired beginning Jan. 1 2020 at FedEx’s operating units, including FedEx Express, FedEx Freight, and FedEx Services.
The decision to close the pension to new workers comes on the heels of a New York Times report that said FedEx paid $0 in taxes during 2018, thanks to the Tax Cuts and Jobs Act of 2017. The company didn’t take kindly to the report saying it “is a deliberate distortion” of the company’s actions, and that “FedEx has paid federal income tax every year, including fiscal year 2018.”
The report bothered FedEx Chairman and CEO Frederick Smith so much that he challenged New York Times publisher A.G. Sulzberger, and the newspaper’s business section editor, to a public debate about “federal tax policy and the relative societal benefits of business investments.” The New York Times said it stands by its reporting.