United Parcel Service to freeze pension programme for 70,000 non-union employees in 5 years

United Parcel Service, the largest package delivery company in the US, yesterday said that it will freeze its pension programme for 70,000 non-union employees in five years and replace it with 401,000 accounts. The move comes as a reaction to rising pension deficit. With the move, UPS joins other large corporations that had phased out traditional retirement plans.

The company added that increasing pension costs, the volatility in future funding and changing demographics - mainly the fact that people were living longer - triggered the move.

As at the end of 2016, the pension deficit of UPS in the US totaled $9.9 billion. The company owed $41.1 billion to retirees and current employees who were enrolled in the pension plans, but had enough to fund only 76 per cent of what it owed.

Recent years have seen large employers increasingly choose to pass on more of the risk of ensuring retirement funding to employees. As more employees were steered to replacement plans, such as 401,000, they bore the responsibility of investment decisions and the risk of financial market volatility.

UPS had around 350,000 employees in the US, including about 78,000 who were not union members. Around 70,000 of the non-union employees, many of them managers or supervisors, were currently enrolled in the "defined benefit" pension plan, or its traditional plan in which the company specified the amount to be paid to an employee upon retirement and managed investment plans with the goal of having sufficient funds.

An increasing number of US corporations were freezing pension benefits or transitioning to 401,000 retirement plans. By November 2016, 38 companies in the Fortune 100 rankings had frozen their defined benefit plans, according to consulting firm, Willis Towers Watson. When pensions were frozen, a number of benefits in those plans stopped accruing. Also, seven other companies had entirely terminated their pensions.

For new hires, 73 per cent of the Fortune 100 only offered defined contribution plans such as 401000s. and on the basis of Willis Towers Watson's data, benefit plans accounted for 71 per cent in 2000.