A story in the latest Financial Times discusses the status of large corporation's defined benefit (DB) plans. The main thrust of the story was to describe how much better these programs are performing due mainly to higher interest rates which permitted changes in strategies to allow for higher investment returns. The story says that the plans are funded at the highest rations since the Lehman Brothers collapse in 2008. So, why is this good news for UPS DB participants? Well, there's an excellent chance that we'll be given 3 options for how to handle our DB going forward. Here's the deal. In order to offload defined benefit liability (think Central States Pension fund as an example), many large companies are offering either lump sum payouts or are purchasing annuities on behalf of these pensioners. If one is not comfortable with these options, they can simply remain static in the program. The point is, there is a good chance that UPS folks might be able to choose between the 3 at some near juncture. I suggest this because large companies like Pepsi, GM, Verizon, Sears and JC Penney are examples of corporations who have engaged in this practice. By doing annuity conversions, GM and Verizon knocked 20% off their long-term liabilities. Lump sum distributions resulted in Sears cutting obligations by 20% while Pepsi and JC Penney shaved 5-10% off future costs. So, it would seem pretty clear that UPS is taking a hard look at this and I suspect something will occur in 2014. BTW, presently UPS sits at a 78.1% DB funding ratio (FDX is the exact same number). For comparative purposes, here are the ratios for 7 other large corporations: Boeing 74%, GE 70.6%, AT&T 76.5%, Exxon 63.4%, Lockheed Martin 67.2% , Pfizer 71.8% and the best of the bunch, Johnson and Johnson 80.3%. So, we sit at the very top which is comforting. I truly suspect that the DB will be coming soon since we've already been an early mover in this concept.
If your prediction does come down the pike I would not be surprised if they end the healthcare insurance and go to a monthly stipend amount. IBM announced it shortly after ACA was in effect that retirees would be on this type of program. Would not be surprised if this happens. Retirees are the last link in food chain