UPS Freezes Pension Plan For Workers Who Are Not Unionized

Posted by on Jul 2nd, 2017

United Parcel Service has announced plans to freeze the pension plans of approximately 70,000 of its employees who are not unionized in a bid to reduce the financial burden the firm is facing as its retirement fund has a deficit of $10 billion. The freezing of pension benefits will take place for a period of five years. Those non-unionized workers who will be affected by the move will be transferred to 401(k) accounts where UPS will contribute funds.

United Brotherhood of Teamsters

The freezing of the pension plans for non-unionized workers by UPS comes at a time when the Atlanta, Georgia-based package carrier is investing billions in network expansion efforts following the growth of online shopping which has led to a surge in shipments. Currently, UPS employs over 434,000 people around the world with over 80% of the workforce based in the United States. Most of the employees are unionized and thus will be unaffected by the pension plan freeze.

The move could, however, result in a showdown with United Brotherhood of Teamsters, the body representing approximately 268,000 workers from UPS and which is in plans for new contract negotiations.

Pension obligations

UPS is just the latest corporation in the United States that is trying to reduce its pension obligations which have ballooned after a long period of a low-interest rate environment. Currently, the combined deficit of pension plans among S&P 1500 firms reached $408 billion in 2016. This is according to Mercer, a consulting firm.

And according to Willis Towers Watson, three years ago about 37% of the companies in the Fortune 500 list which had defined benefit plans ended up freezing them compared to about 35% which had open plans. That marked the first year when frozen plans were more than all other kinds of plans including those that had been terminated or closed. Seven years ago, about 50% of major corporations which had defined benefit plans still had them open.

While the problem can be blamed on the low interest rates which have been around for years now, the shipper is partly to blame because of neglecting to add contributions to the plan in order to top up the difference. Despite UPS contributing close to $5 billion between 2012 and last year, in 2012 the package carrier only contributed the bare minimum as required by law. The following year UPS contributed no funds into the plan.