Count FedEx among the major companies continuing the shift from a pension plan to a 401k for employee retirement plans.
The Memphis-based shipping and delivery giant told its 425,000 employees on Monday that anyone hired from 2020 on will only be eligible to participate in its 401k and not its pension plan, as the company looks to limit its future pension liability (although FedEx executives have said the move was not a cost-cutting initiative but rather an evolution of its employee benefits to intended to attract and retain talent).
“While we’re closing the U.S. pension plans to employees hired or rehired on or after Jan. 1, 2020, we’re increasing the company’s 401k match, which will begin to take effect Jan. 1, 2021. Current employees will also have the option to remain in the pension plan or switch to the new 401k plan,” FedEx said in a statement provided to 401k Specialist.
The new 401k plan will have an 8% match if employees contribute 6% of their salary as of 2021. FedEx’s current 401k plan has a 3.5% match with a 6% contribution, but the pension plan is included. The changes do not affect FedEx retirees.
“FedEx is evolving our U.S. retirement benefits program to ensure that our retirement benefits remain competitive, while at the same time continuing to provide employees an opportunity to plan for their future,” the statement concluded.
In a memo to employees, first reported Monday by The Wall Street Journal, FedEx human resources executive Judy Edge said, “As we continue to evolve FedEx retirement benefits to remain competitive, we recognize that more and more people understand the value of a 401k structure.”
FedEx had previously frozen its traditional pension plan back in 2008, and began accruing all future benefits under a portable pension account.
Under FedEx’s current pension plan, employees receive compensation credits based on a percentage of their previous year’s eligible earnings. The accrual percentage depends on age and years of service, according to an article published this week in Memphis newspaper the Commercial Appeal.
FedEx refutes NYT article on tax bill
FedEx was also in the news earlier this week after The New York Times published an article Sunday about how the company completely eliminated its 2018 tax bill. FedEx’s tax rate fell from 34% resulting in $1.5 billion owed in fiscal year 2017 to under 0% in 2018, as a result of President Donald Trump’s corporate tax cuts, the Times reported.
But the Times said FedEx did not increase investment in new equipment and other assets in the fiscal year that followed, as FedEx’s founder and CEO Frederick Smith said they would in lobbying for the Tax Cuts and Jobs Act (TCJA).
FedEx released a statement refuting the article on Sunday, which noted the company made large contributions to its employee pension plans. That was among factors which temporarily lowered FedEx’s federal income tax.
The statement said FedEx made extensive investments in its team members and global network to better serve customers following passage of the TCJA.
“These investments included a voluntary contribution of $1.5 billion to the FedEx pension plan to ensure it remains a well-funded retirement program, more than $200 million in increased team member compensation—about two-thirds of which went to hourly team members—and more than $3 billion to significantly expand and modernize our Memphis and Indianapolis hubs through 2025,” the statement said.
Interestingly, the statement concluded with a public challenge to the Times from Smith:
“I hereby challenge A.G. Sulzberger, publisher of the New York Times and the business section editor to a public debate in Washington, D.C. with me and the FedEx corporate vice president of tax. The focus of the debate should be federal tax policy and the relative societal benefits of business investments and the enormous intended benefits to the United States economy, especially lower and middle class wage earners.”