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When considering retirement or a job change from FedEx, it is imperative to learn about your eligibility for a lump-sum payment offered by your retirement plan.
When deciding whether or not to take a lump-sum payment, it is essential to plan out the allocation of proceeds you will receive. For those working at FedEx, this money may comprise a significant portion of the financial assets in their possession and may be the only private source of their retirement income. With that under consideration, it may be in your best interest to seek assistance with different retirement options and electing the one best suited for your needs.
The insurance association LIMRA conducted a study of employees retiring, changing jobs, or leaving the workforce with eligibility for a lump-sum payment from their pension plan. The study's purpose was to assist pension companies with developing products and services that help employees preserve their pension benefits. The study includes information on 1,763 employees eligible for a lump-sum payment from their employer's retirement plan: 684 employees who had retired in the past three years, and 1,079 employees who had changed jobs or left the workforce in the past three years.
Size and Growth of the Market
Employees who are eligible for a lump-sum payment from their FedEx-sponsored retirement plan include those who are:
- retiring
- disabled
- changing jobs or leaving the workforce
- losing their job due to layoffs or corporate downsizing
- participating in a pension plan that is being terminated
- beneficiaries of a deceased participant in a pension plan
In 1996, employer-sponsored pension plans made up a total of $336 billion in benefit payments – an increase of 6 percent from 1995 and 31 percent from 1991. Of that amount, an estimated 28 percent ($94 billion) was in lump-sum payments. This amount does not include more than $20 billion that plan participants choose to leave in their plans.
The U.S. Department of Labor found that from January 1993 to September 1994, 940 workers aged 40 and older received a lump-sum payment. Subsequent analysis indicates that this study underestimates the number of people receiving a payment and that it does not include those who were offered a payment but left the money in the plan. It does show that a large number of workers representing billions of dollars have the task of deciding what to do with this money.
The number of employees faced with this decision, as well as the amount of money involved, is not only large but increasing rapidly. Three factors contributing to this rapid increase are:
- the growth of defined contribution plans, particularly 401(k) plans.
- the growth of participant account balances in defined contribution plans.
- the increasing number of persons reaching retirement age early in the next century.
Need for Assistance
As an employee of FedEx, choosing the right pension option can be one of the most important financial decisions you will make. Those eligible for a lump sum payment will have countless options. Their choices will include at least one or more of the following options:
- take the money in one lump-sum cash payment
- leave the money in the previous employer's plan
- transfer the money directly to an IRA
- take a cash payment and transfer it to an IRA within 60 days
- take the money in installments or purchase an immediate annuity
Each option has advantages and disadvantages. The options have differing effects on household income, tax liabilities, and preserving pension benefits. Not all options create the same estate value or survivor benefits for beneficiaries. Some options create maximum current income but not estate value. Other options create no current income but preserve estate value and spousal benefits.
Employees are strongly discouraged from taking a cash distribution. If they do, they will have to pay Federal and State taxes and if under 59 1/2, may incur a 10 percent penalty. The employee has 60 days to place this money into an IRA or qualified pension plan to avoid income and penalty taxes. However, the employee will not receive the 20 percent refund until income taxes are filed for that year; and, to avoid the taxes and penalty on the amount withheld, the individual must put, within the same 60 days, the equivalent of the 20 percent withheld into an IRA or qualified pension plan. The 10 percent penalty is not imposed if the employee died, became disabled, reached age 59½, or reached 55 in the year his or her employment was terminated. If the employee has a loan from the plan, it will have to repaid.
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Size of Payment
For retirees, the average lump-sum payment offered is $119,200. In addition, nearly 15 percent of retirees have lump-sum payments valued at $250,000 or more. When eligible for a lump-sum payment, the most popular option chosen is to transfer the money to an IRA – 2 in 5 employees choose this option. Approximately 1 in 5 employees leave the money in the employer's pension plan. Another popular option is to take the money in installments or as a series of annuity payments. A cash payment is popular among job changers. Of those taking a cash payment, 45 percent saved some or all of the money.
Where Do Retirees Invest or Save the Money?
For those transferring the money to an IRA or taking a cash payment, the majority invest the money in mutual funds. Other savings and investment products include money market funds, savings accounts, annuities, stocks, and bonds. The competition for these investment dollars is high. No one company has a dominant market share. The five companies with the largest market share have a combined market share of less than 25 percent.
Those placing the money in an IRA show no clear preference for the type of company chosen to service the account. Banks and credit unions are the most popular among retirees, with 27 percent opening their IRA with this type of institution. Mutual fund companies are more popular with job changes – 1 in 3 employees who experienced a job change placed their IRA with a mutual fund company.
Leaving the money in the FedEx-provided pension plan is the easiest option for an employee to choose. Other reasons include:
- The plan offers good service.
- They want to avoid taxes and penalties.
- The plan has good investment performance.
- They liked the investment choices.
- They would have a larger amount of money.
Sources of Assistance
FedEx plays a critical role of providing information to employees on their options. Over 90 percent of employees felt they received adequate information from their employer. This information includes employer-written materials, employer seminars, and face-to-face meetings with the employer's staff. Another useful source of information mentioned frequently is commercially available written material from bookstores.
Most do not seek the advice of a professional. They rely on either their own analysis or the help of family and friends. If retirees choose to contact a professional, they typically choose a financial planner or independent investment advisor.
Conclusion
Pension companies and employers are only in the early stages of understanding the needs of employees eligible for a lump-sum payment from their pension plan and designing products and services to help these employees. They can play a vital role in assisting employees in preserving their retirement benefits. Pension companies need to be more proactive in providing plan sponsors with necessary tools. One example is a service plan where the company assumes many of the administrative procedures performed by the employer. This service offers the employer the pension company's expertise in advising employers and cost savings. It offers employees access to a full time retirement specialist who works daily with employees in similar situations. In addition, the employer can tailor the services to meet the special needs of its employees.
Notes
- Woods, John R., 'Pension Benefits Among the Aged: Conflicting Measures, Unequal Distributions,' Social Security Bulletin, Volume 59, No. 3, Fall 1996
- LIMRA estimates approximately 23 percent of persons eligible for a lump-sum distribution leave this money in the employer's plan.
- Retirement Benefits of American Workers: New Findings from the September 1994 Current Population Survey, U.S. Department of Labor Pension and Welfare Benefits Administration Office of Research and Economic Analysis, September 1995.
- Participants in 457 plans are not allowed to transfer their distribution to an IRA, and cash distributions are only allowed after retirement.
- Stable value investments – a type of investment that is only offered within pension plans. Stable value investments – also commonly referred to as guaranteed interest contracts (GICs) – are a popular investment option for participants in defined contribution plans. A stable value investment option offers a return of money invested at a predetermined interest rate.
What are the implications of the Funding Target Attainment Percentage for FedEx Corporation employees, and how does it impact the security of the pension benefits offered by FedEx Corporation? This question seeks to explore the nuances of the funding target attainment percentage as reported in the annual funding notice, examining how this metric not only reflects the financial health of FedEx Corporation's pension plan but also how it affects employee confidence in future benefit payments and retirement planning.
Funding Target Attainment Percentage: The Funding Target Attainment Percentage for FedEx Corporation indicates the degree to which the pension plan is funded. A percentage of 101.33% for 2022 suggests that the plan has sufficient assets to cover its liabilities, providing security for employees' pension benefits. This high percentage likely increases employee confidence in the stability and reliability of their future pension payouts, essential for long-term retirement planning.
How does the merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan influence the benefits currently available to FedEx Corporation employees? This question aims to delve into the practical changes that may arise due to this merger, assessing whether it aligns with employee expectations regarding their pension benefits and how the transition process is managed by FedEx Corporation.
Merger of Pension Plans: The merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan appears to have been strategically managed to maintain benefit stability. Despite increasing liabilities by 5.3%, the merger was structured to ensure no negative impact on the benefit amounts payable to participants from either plan, preserving the expected pension benefits for all affected FedEx Corporation employees.
In terms of investment strategies, what measures does FedEx Corporation implement to ensure that its pension plan investments align with the long-term liabilities expected to be paid out to retirees? This question encourages an exploration of the investment policies in place, examining the asset allocations and risk management strategies that FedEx Corporation employs to ensure sustainable funding for its pension obligations, which could potentially include detailed analyses of stocks, debts, and alternative investments.
Investment Strategies: FedEx Corporation employs a diversified investment strategy across equities, fixed income, and alternative investments, aiming to meet long-term pension liabilities. This approach, which includes both active management strategies and the limited use of derivatives, is designed to generate returns that exceed market indices, thus ensuring adequate funding of pension obligations.
What options do employees of FedEx Corporation have for accessing their pension plan statements, and how frequently are these statements generated? The focus here is to understand the communication strategies employed by FedEx Corporation regarding pension benefit statements, including technological access points and the importance of these documents for employee financial planning.
Pension Plan Statements: FedEx Corporation provides annual pension plan statements through their Retirement Service Center, available electronically each fall. Employees can access their statements online or request them if notifications are not received, ensuring transparency and aiding in personal financial planning.
How are contributions to the FedEx Corporation Employees’ Pension Plan determined, and what role do excess contributions play in the plan's overall funding strategy? This question aims to educate employees about how the company balances mandatory contribution levels with potential excess contributions, exploring how these factors interact to influence the plan's solvency and employee benefits.
Contributions to the Pension Plan: Contributions to the FedEx Corporation Employees' Pension Plan are calculated to meet at least the minimum legal requirement and potentially include voluntary excess contributions. These excess contributions can help manage the plan's funding level and ensure its solvency, benefiting overall pension security for employees.
What types of benefits are guaranteed under the Pension Benefit Guaranty Corporation (PBGC) for FedEx Corporation employees, and what limitations exist that employees should be aware of? By focusing on the guaranteed benefits, this question prompts a discussion on the security of specific benefits provided by FedEx Corporation and highlights limitations, allowing employees to understand their rights fully.
PBGC Guarantee: The Pension Benefit Guaranty Corporation guarantees certain types of benefits for FedEx Corporation employees, such as pension benefits at normal retirement age and most early retirement benefits. However, there are limitations, such as exclusions for benefits without vested rights and recently increased benefits, which employees should be aware of to fully understand their pension security.
In what ways does the FedEx Corporation plan to adjust its pension funding strategy in light of changing federal laws that impact pension obligations? Employees are encouraged to consider how legislative changes influence corporate policies surrounding retirement benefits and the proactive strategies FedEx Corporation might take to remain compliant while ensuring the security of employee pensions.
Adjustments to Funding Strategy: FedEx Corporation is likely to adjust its pension funding strategy in response to legislative changes affecting pension obligations, such as those introduced by recent acts adjusting how pension liabilities are calculated. This proactive approach aims to ensure compliance with new laws while continuing to secure the financial health of the pension plan.
What are the steps that FedEx Corporation employees must take if they are considering retirement, particularly in how to navigate the pension plan and gain access to their benefits? This question aims to provide clarity on the retirement process, ensuring that employees are equipped with the necessary information regarding required documentation, timelines, and points of contact within FedEx Corporation.
Steps for Retirement Planning: Employees considering retirement should contact the FedEx Retirement Service Center to navigate their pension plan benefits. This process involves understanding necessary documentation, timelines, and available support, facilitating a smooth transition into retirement.
How does FedEx Corporation plan to manage potential funding shortfalls in the pension plan, and what mechanisms are in place for notifying plan participants should such an event occur? Employees would need to understand the proactive measures put in place by FedEx Corporation to address funding-related challenges while also knowing what this means for their benefits.
Managing Funding Shortfalls: In the event of potential funding shortfalls, FedEx Corporation has policies in place to manage such situations, including strategic contributions to mitigate shortfalls. The company maintains transparency with plan participants about funding levels and any significant changes affecting the pension plan.
For those seeking more information about their pensions and retirement options, how can FedEx Corporation employees contact relevant departments, and what resources are available for assistance? This question provides an opportunity for employees to familiarize themselves with contact points such as the FedEx Retirement Service Center, emphasizing the importance of open communication channels for addressing inquiries related to their pensions. Feel free to consult the provided document for more in-depth exploration of these topics.
Contacting for Pension Information: FedEx Corporation employees seeking more information about their pensions or retirement options can contact the FedEx Retirement Service Center. This center provides essential resources and support, ensuring employees have access to all necessary information regarding their retirement planning.
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