FedEx to Close Pension Plan to New Employees

FedEx will stop offering its defined benefit pension plan to new employees beginning in 2020, and will put them in an expanded 401(k), according to news reports. The move was announced to employees in a company memo, The Wall Street Journal said.

Under the new plan, to be launched in 2021, the company will match contributions up to 8% of employee salaries if employees contribute 6% of their salary. The current 401(k) matches up to 3.5% of salaries.

Companies usually close their defined benefit plan to save money. FedEx said this was not the reason the company made the move. They said the action was designed to become more competitive in the market place with a stronger voluntary retirement savings offering.

“We have a number of cost initiatives in place … but this is not one of them,” Patrick Fitzgerald, FedEx’s head of marketing and communications told the Daily Memphian. “Only 22% of Fortune 50 companies continue to offer pensions, and 11% of transportation companies offer a pension plan to new employees,” he said. The move is “not about any cost savings for the company. It’s really more about evolution of our benefits and being competitive as an employer.”

For more stories like this, sign up for the CIO Alert newsletter. 

The decision doesn’t affect the current employees’ pensions unless they decide to stop accruing benefits in the portable pension plan and instead choose the new 401(k) plan. It also won’t affect company retirees.

FedEx contributed $1 billion to its US pensions plans, according to its most recent annual report. In May 2018, the company signed an agreement with Metropolitan Life to purchase a group annuity contract representing the transfer of $6 billion of pension obligations for approximately 41,000 retirees and beneficiaries.

The changes will apply to US workers hired beginning Jan. 1 2020 at FedEx’s operating units, including FedEx Express, FedEx Freight, and FedEx Services.

The decision to close the pension to new workers comes on the heels of a New York Times report that said FedEx paid $0 in taxes during 2018, thanks to the Tax Cuts and Jobs Act of 2017. The company didn’t take kindly to the report saying it “is a deliberate distortion” of the company’s actions, and that “FedEx has paid federal income tax every year, including fiscal year 2018.”

The report bothered FedEx Chairman and CEO Frederick Smith so much that he challenged New York Times publisher A.G. Sulzberger, and the newspaper’s business section editor, to a public debate about “federal tax policy and the relative societal benefits of business investments.” The New York Times said it stands by its reporting.

New General Electric CIO Freezes Pension Fund

BMW to Freeze US Pension Program, Shunt Workers into DC Plan

Tags: 401(k), Fedex, Pension, The New York Times

As part of its plan to add real assets investments into its portfolio, the Los Angeles County Employees’ Retirement Association (LACERA) is exploring ways to build its infrastructure program through direct investments, co-investments, separately managed accounts, and club investments to gain exposure. The proposed infrastructure strategies, developed with its consultant Albourne America, also include a direct infrastructure investment in local Los Angeles companies.

This strategy option includes engaging in local co-investment opportunities and using a separate account manager to access direct but non-controlling stakes. The $56.3 billion retirement system adopted a 2%, or $1.1 billion, allocation towards the real asset class last year.

Through a direct infrastructure program, LACERA is seeking to generate risk-adjusted returns in line with non-local investments, while simultaneously benefitting the local community and reducing the management and performance fees usually tied with a general partnership.

A few past Los Angeles-based projects would have been a potential candidate for an investment, such as the Los Angeles International Airport’s Consolidated Rent-a-Car facility and Automated People Mover, which were developed as public-private partnerships.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

At its November 20 board meeting, board members raised a few concerns about such a program, including the potential of local infrastructure entities encountering a conflict between fiduciary duties of seeking returns and public concerns about increasing rates. Another concern was that the public might question the authenticity of fairness of an auction if LACERA wins a local bid, as well as reputational risk from flaws in its invested projects, for example, poor drinking water quality from a water supply it has invested in.

The team intends to build upon its experience gained from co-investment programs in private equity and direct exposure in real estate through separate account managers. All of the direct investment structure types it considered were placed in two categories: capital provider and deal generator.

Capital provider structures include discretionary and non-discretionary co-investments with general partners, separately managed accounts, and direct co-investments. Deal generator structures included club deals, joint venture with operating partners, separately managed accounts through operating partners, and direct (pure) investments.

LACERA’s analysis of these types of investments included research on other pension plans using the “collaborative model,” such as the California State Teachers’ Retirement System (CalSTRS), and the “Canadian model.”

Ideally, the pension will allocate between $700 million and $1.2 billion to infrastructure private fund commitments in 2020 and 2021. It was not made clear through its reports how much it would spend on direct investments.

Tags: Infrastructure, Los Angeles, Los Angeles County Employees Retirement Association (LACERA), Real Assets, Real Estate