UPS to Freeze Pension Plans for Nonunion Employees

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John Sommers/Transport Topics

UPS Inc. will freeze its pension program for 70,000 nonunion employees in five years and replace it with 401(k) accounts, the nation’s largest package delivery company announced June 27. UPS, which said the move is a reaction to rising pension deficit, joins other large corporations that have phased out traditional retirement plans.

Rising pension costs, the volatility in future funding and changing demographics — mainly the fact that people are living longer — triggered the move, said the company that ranks No. 1 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers.

As of the end of 2016, UPS’ pension deficit in the United States totaled $9.9 billion. It owed $41.1 billion to retirees and current employees who are enrolled in the pension plans but had enough to fund only 76% of what it owes.

In recent years, large employers increasingly have chosen to pass on more of the risk of ensuring retirement funding to employees. As more employees are steered to replacement plans, such as 401(k), they bear the responsibility of investment decisions and the risk of financial market volatility.



UPS has about 350,000 employees in the United States, about 78,000 of whom are not members of unions. About 70,000 of the nonunion employees — many of them managers or supervisors — are enrolled in the “defined benefit” pension plan, or its traditional plan, in which the company specifies the amount to be paid to an employee upon retirement and manages investment plans with the goal of having sufficient funds.

In June 2016, the traditional plan was discontinued for new employees, UPS spokesman Steve Gaut said.

On Jan. 1, 2023, UPS will stop funding the traditional program even for those who currently are enrolled in it. That means any UPS employee in the program who will retire after that date will receive a monthly retirement sum that comes from a mix of the traditional plan and the replacement 401(k) plan.

In the 401(k) plan, UPS places 5% to 8% of employees’ compensation — depending on their years served in the company — into their 401(k) accounts. And employees must manage investment plans, such as how much of the money to allocate to stocks versus bonds.

The change doesn’t affect its 272,000 union employees in the United States. But their contracts expire in July 2018, and negotiations almost certainly will include the issue of retirement funding plans.

“It’s premature to be talking about contract bargaining,” Gaut said.

UPS also will offer a savings-match program for affected employees, he said. Employees can opt to contribute their money, and UPS will match 50 cents on the dollar up to 6% of their pay.