FedEx shifts pension obligations by purchasing $6 billion group annuity

The pension risk transfer is the biggest since 2012, when Verizon purchased a $7.5 billion annuity
MAY 09, 2018

FedEx Corp. announced Tuesday that it has entered into an agreement to purchase a group annuity contract with Metropolitan Life Insurance Co. to transfer about $6 billion in U.S. pension plan obligations. The transaction, which is expected to close Thursday according to a FedEx news release, will transfer the benefit obligations of about 41,000 FedEx retirees and beneficiaries in multiple U.S. pension plans. The purchase will be funded from plan assets. It is the largest such transaction in the U.S. since Verizon Communications purchased a group annuity contract from Prudential Insurance Co. of America in 2012 to transfer $7.5 billion in U.S. pension plan obligations "FedEx is committed to maintaining financially secure pension benefits for our retirees and their beneficiaries," Alan B. Graf, Jr., the company's executive vice president and chief financial officer, said in a news release. "This transaction better positions FedEx to manage future pension plan costs, and retirees will receive the same pension benefit from a highly rated insurance company. Transferred pension benefits will be protected by the state guaranty association in the state where the retirees live." The pension derisking move by the shipping giant comes a year after FedEx made $1.3 billion in lump-sum payments, in May 2017, to about 18,300 former employees who were vested in the plans and elected to take an offer made by the company. FedEx has made significant contributions to its U.S. pension plans in the past two years to shore up its funded status, a traditional precursor to pension plan buyouts and lump-sum offers. Read more: Lump-sum payout vs. monthly benefits – which is better? In January, FedEx announced it planned to contribute an additional $1.5 billion to its U.S. pension plans in the third quarter of its fiscal year 2018. That amount was in addition to the $1 billion the company announced in its 10-K filing with the Securities and Exchange Commission in July that it planned to contribute in the fiscal year, which ends May 31. The minimum required contribution for this fiscal year was $700 million. During the fiscal year ended May 31, 2017, FedEx contributed $2 billion to its pension plans. As of May 31, 2017, U.S. pension plan assets totaled $24.93 billion, while projected benefit obligations totaled $27.87 billion, for a funding ratio of 89.5%, an improvement over the previous year's 82.8% funding ratio, according to the 10-K filing. As of that same date, also according to the 10-K filing, the U.S. pension plans' actual allocation was 33% corporate fixed-income securities, 19% government fixed-income securities, 14% international equities, 13% global equities, 10% domestic large-cap equities, 4% domestic smidcap equities, 2% each mortgage-backed securities and alternatives, and the rest in other. FedEx spokesman Jonathan Lyons would not provide further information. Rob Kozlowski is a reporter at InvestmentNews' sister publication, Pensions&Investments.

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