UPS to freeze pensions for 70K nonunion employees

The United Parcel Service on Wednesday told some workers that the company plans to freeze their pensions, joining the ranks of other large employers that are moving away from the defined benefit plans.

UPS is notifying more than 70,000 nonunion workers this week that the change will take place in five years as part of a move to reduce expenses and help curb a long-term funding shortfall. As of December, UPS was about $7 billion short of the $25.3 billion needed to pay future benefits for the workers in that plan, said Steve Gaut, a company spokesman.

The affected workers will stop accruing pension benefits on Jan. 1, 2023. After then, they will only be able to receive the pension benefits they have earned up until that point. UPS will switch to contributing between 5 percent and 8 percent of workers’ salaries into a 401(k) savings account, where workers will be responsible for deciding how the money is invested. Some employees who were hired before 2008 may be eligible for additional contributions, Gaut said.

Pensions, in which employers are responsible for making predetermined payouts to employees after they retire or reach a certain age, have been on the decline over the past several decades. Only 20 percent of Fortune 500 companies offered some sort of pension to new hires in 2015, down from 59 percent in 1998, according to a report from the research firm Willis Towers Watson.

Since the financial crisis, more companies have either closed off plans for new hires or frozen benefits, according to the report. By 2015, some 39 percent of employers had frozen benefits for pension plans, up from 21 percent in 2009.

The changes at UPS apply primarily to employees in managerial or administrative roles and do not affect the 270,000 drivers and other employees covered by the International Brotherhood of Teamsters union. Their retirement benefits are covered by a contract that won’t expire until July of next year.

UPS said it wanted to give workers five years to plan for the changes to their retirement benefits.