Wednesday, November 20, 2019

FedEx defended its $0 income tax in 2018 by touting its 'best-funded' pension plan. Now, that pension is set to get slashed.

New FedEx hires won't get a pension.
Justin Sullivan/Getty Images
  • New FedEx hires won't get a pension plan, the package giant's 425,000 employees learned on Monday.
  • That realization comes a day after The New York Times published a scalding report on the zero dollars FedEx paid in taxes in 2018, to which the CEO and founder Fred Smith responded by proposing "a public debate" with the Times publisher and its business editor.
  • Meanwhile, FedEx originally defended its $0 tax bill, in part because of its "voluntary contribution of $1.5 billion" to its pension fund.
  • Visit Business Insider's homepage for more stories.
A scalding New York Times report revealed on Sunday that FedEx slashed its federal income tax bill to $0 in 2018.
One defense from the package giant on the ultra-low tax bill: Money saved from not paying taxes went right to employees. In January 2018, FedEx announced the company was using the tax cuts signed into law by President Donald Trump to funnel $3.2 billion into wage increases, bonuses, and its pension fund, as well as increased investments into its Memphis SuperHub.
Of that investment, FedEx said $1.5 billion would go to its pension fund "to ensure it remains one of the best funded retirement programs in the country."
That pension, though, will no longer be enjoyed by new hires at FedEx. On Monday, FedEx's head of HR told its 425,000 employees that those hired on or after January 1, 2020 would not receive a pension, a company spokesperson told Business Insider.
Instead, FedEx will increase its 401(k) match on Jan. 1, 2021. Current employees can stay in the pension program or switch to the new 401(k) plan.
"FedEx is evolving our U.S. retirement benefits program to ensure that our retirement benefits remain competitive, while at the same time continuing to provide employees an opportunity to plan for their future," a FedEx spokesperson told Business Insider in a statement.
FedEx's tax rate fell from 34% in the fiscal year of 2017 to under 0% in 2018 thanks to Pres. Donald Trump's corporate tax cuts, the Times reported.
"FedEx invested billions in capital items eligible for accelerated depreciation and made large contributions to our employee pension plans," FedEx said in a statement in the Times article. "These factors have temporarily lowered our federal income tax, which was the law's intention to help grow GDP, create jobs and increase wages."

FedEx said in a Times article on Sunday its Trump tax cut was used to fund a top-tier pension. The next day, the package giant announced it would curtail that benefit.

In addition to Monday's announcement that it will not fund pensions for new hires, FedEx said in December 2018 that it was launching a buyout program intended to save the company $225 million to $275 million by fiscal year 2020.
Frederick W. Smith, FedEx CEO
Frederick W. Smith, FedEx CEO
Fewer and fewer large employers provide pension funds as Americans increasing come to terms with "a pension crisis." Some 22% of Fortune 50 companies offer pensions to new hires, Edge wrote in the internal memo. And in 2017, FedEx rival UPS announced it would freeze its pension fund for nonunion workers by 2023.
"As we continue to evolve FedEx retirement benefits to remain competitive, we recognize that more and more people understand the value of a 401(k) structure," FedEx human resources executive Judy Edge said in the memo, which was first reported by The Wall Street Journal.
Executives told the Daily Memphian that it's not a cost-saving procedure, but one that's slated to keep FedEx more "competitive." However, as USA Today reported, private employers have largely shifted from pension plans to 401(k) plans because it reduces risks and costs for those companies.
"A pension is a promise to pay monthly benefits for as long as the employee lives after retirement," Alicia Munnell, director of the Center for Retirement Research at Boston College, told USA Today. "For employers, a system where they bear all the costs and all the risks is not appealing."
The move to slash pensions is in line with how corporations across America have managed their spending in recent years. The Department of Labor's Employee Benefits Security Administration says the number of pension plans with defined benefits declined by around 73% from 1986 to 2016.
For decades, corporate profits and employee wages grew at a similar pace. But since 2002 or so, corporate profits have surged past worker compensation. Today, the majority of corporate profits go to investors and chief executives, whose compensation is often based on stocks, or foreign mergers and acquisitions.
"There is this idea that shareholders are the one set of stakeholders that deserve the largest share of a company's profits, rather than balancing the need of other stakeholders like workers or consumers," Jake Rosenfeld of the Washington University in St. Louis told Business Insider last year.
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