UPS on Wednesday told some workers that the company plans to freeze their pensions, joining the ranks of other large employers that are moving away from the defined benefit plans.
is notifying more than 70,000 nonunion workers this week that the change will take place in five years as part of a move to reduce expenses and help curb a long-term funding shortfall. As of December, UPS was about $7 billion short of the $25.3 billion needed to pay future benefits for the workers in that plan, said Steve Gaut, a company spokesman.
The affected workers will stop accruing pension benefits on Jan. 1, 2023. After then, they will only be able to receive the pension benefits they have earned up until that point. UPS will switch to contributing between 5 percent and 8 percent of workers’ salaries into a 401(k) savings account, where workers will be responsible for deciding how the money is invested. Some employees who were hired before 2008 may be eligible for additional contributions, Gaut said.
Pensions, in which employers are responsible for making predetermined payouts to employees after they retire or reach a certain age, have been on the decline over the past several decades. Only 20 percent of Fortune 500 companies offered some sort of pension to new hires in 2015, down from 59 percent in 1998, according to a report from the research firm Willis Towers Watson.
Since the financial crisis, more companies have either closed off plans for new hires or frozen benefits, according to the report. By 2015, 39 percent of employers had frozen benefits for pension plans, up from 21 percent in 2009.
Companies are struggling to afford pension plans as people live longer, which increases the amount of benefits they receive. Funding those benefits has also become more difficult in an era of low bond yields and weaker stock market returns. Because of this, more companies are focusing to defined contribution plans, such as 401(k) accounts, where costs can be more predictable. With these retirement accounts, companies can agree to make a contribution up front that is often based on the worker’s salary and contribution amount.
The changes at UPS apply primarily to employees in managerial or administrative roles and do not affect the roughly 270,000 drivers and other employees covered by the International Brotherhood of Teamsters union. Their retirement benefits are covered by a contract that won’t expire until July of next year. Gaut said it was “premature” to comment on the upcoming negotiations that will affect those workers.
UPS said it wanted to give workers five years to plan for the changes to their retirement benefits. Some employees may choose to save more over the next several years to make up for some of the difference, Gaut said. People who retire before the changes are rolled out in 2023 won’t see a difference in their benefits, he adds.