UPS to Freeze Pension Plans for Nonunion Staffers -- 2nd Update

By Paul Ziobro and Vipal Monga Features Dow Jones Newswires

United Parcel Service Inc. is planning to freeze pension plans for about 70,000 nonunion employees, seeking to contain the burden of a retirement fund with a nearly $10 billion deficit.

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The package carrier would be the latest major U.S. corporation taking steps to corral rising pension obligations. The collective deficit in the S&P 1500 pension plans totaled $408 billion at the end of last year, according to consulting firm Mercer.

UPS has more than 434,000 workers world-wide, with more than 80% in the U.S. Most of them are unionized. The company is expected to outline changes to nonunion staff as soon as Tuesday, people familiar with the matter said.

A UPS spokesman declined to comment. The company closed the pension plan to new hires in July 2016 and offered buyouts to former workers last year. Freezing a pension plans means that some of the benefits stop accruing for some or all plan participants.

Such an action would put UPS in line with a wide swath of Corporate America. In 2014, 37% of Fortune 500 companies with defined benefit plans had frozen them in some way, compared with 35% with open plans, according to the consultancy Willis Towers Watson. As recently as 2010, half of large companies with defined benefit plans were open.

Atlanta-based UPS is trying to make a dent in a U.S. pension deficit that reached $9.85 billion at the end of 2016, according to its annual report. The plan, with $41.07 billion in obligations, was 76% funded at that point, down from nearly 90% at the end of 2013.

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UPS's pension struggles mirror broader funding problems among companies that offer retirement benefits. The median S&P 1500 pension plan's funded status was 76% at the end of 2016, according to a Citigroup Global Markets Inc. report.

Companies are required by law to close those gaps over time, but the deficits have persisted, even though S&P 1500 firms collectively have contributed more than $550 billion into the plans from 2008 to 2016.

The continuing cash drain is encouraging more executives to look for ways to stem the bleeding. "This costs a lot of cash, and the cash hasn't resulted in a better funded status," said Jason Richards, pension risk consultant at Willis Towers Watson.

Companies that freeze their pensions can later offer lump-sum payouts to active employees and potentially spin them off entirely to third parties, he explained. Those options aren't available to plans that continue to accrue obligations to workers.

General Motors Co., Verizon Communications Inc. and others have sold large pension obligations to insurers in recent years, as part of a multistep process that included freezing pension plans. Earlier this week, financial-services firm The Hartford offloaded $1.6 billion of its pension to Prudential Financial Inc.

Last year, UPS offered buyouts to all former UPS employees who were vested in the pension plan. Around 22,000 accepted the deal, accelerating $685 million in pension benefits that were due last year.

The latest move by UPS could prove to be a key element in coming negotiation with the powerful International Brotherhood of Teamsters union, which represents 268,000 UPS drivers and other workers. The national master agreement expires July 31, 2018, and talks on renewals are expected to begin later this year.

Vipal Monga contributed to this article.

Write to Paul Ziobro at Paul.Ziobro@wsj.com and Vipal Monga at vipal.monga@wsj.com

(END) Dow Jones Newswires

June 27, 2017 13:39 ET (17:39 GMT)