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MEMPHIS, Tenn.--FedEx Corp. is expanding its cash balance pension plan to cover all eligible employees and also is beefing up its 401(k) plan.
Nearly four years ago, FedEx adopted a cash balance plan, offering it to employees hired on or after June 1, 2003. At the time, current employees were given a one-time choice of shifting to the cash balance plan or remaining in FedEx's traditional pension plan.
Under the change announced Tuesday, employees who decided to stay in the traditional plan in 2003 will--effective June 1, 2008--earn future pension benefits through the cash balance plan.
Under the cash balance plan, employees receive annual pay-related credits based on points that are a combination of age and service. Those credits range from 5% to 8% of pay. Additionally, employees' account balances are credited with interest based on a U.S. Treasury bill index.
Certain eligible employees age 40 and older moving to the cash balance plans will receive additional pay credits.
Aside from expanding the cash balance plan to all eligible employees, FedEx is improving its 401(k) plan. Effective Jan. 1, 2008, FedEx will match 100% of employees' salary deferrals on the first 1% of pay and 50% of deferrals on the next 5% of pay. Currently, FedEx's matching 401(k) contribution is capped at $500.
Among reasons for the pension plan changes, FedEx said, are employees' desire to make their pension benefits more portable. From the corporate perspective, there also is the need to reduce "unacceptable risk and volatility" caused by new pension funding and accounting rules, said FedEx Executive Vp and CFO Alan Graf Jr. in a statement.
"We believe these changes are the responsible thing to do and will help you prepare for a comfortable retirement, while at the same time protecting the company from significant financial risk," the company told its employees.
FedEx, which last year was ranked No. 70 on the Fortune 100 list of largest corporations with more than $32.2 billion in revenue, is at least the third major company recently to add or expand a cash balance plan.
Earlier, MeadWestvaco Corp., a Richmond, Va.-based packaging and office products manufacturer, and SunTrust Banks Inc., the big Atlanta-based bank, announced conversions of traditional plans to cash balance plans, which are so named because benefits are expressed as a cash lump sum.