Dive Brief:
- United Parcel Service (UPS) will freeze its pension plan for nonunion workers and replace it with a 401k plan, USA Today reports. The switch will affect 70,000 employees over five years.
- UPS, the largest U.S. package delivery, cites rising pension costs, funding volatility and longer life spans as reasons for replacing its traditional pension plan with a 401k. By the end of last year, UPS had a pension deficit of $9.9 billion and owed employees and retirees enrolled in the plan $41.1 billion, but could fund only 76% of the amount it owed, USA Today reports.
- The company is also offering a savings-match program in which employees contribute their own funds that the company will match 50 cents on the dollar up to 6%.
Dive Insight:
UPS is among a growing number of employers who have phased out the traditional pension plan. Along with longevity and rising pension costs, new tax laws, rising interest rates and higher Pension Benefit Guaranty Corporation premiums could force more employers to phase out pension plans. President Trump favors lowering corporate taxes, which, for retirement plan sponsors, means lowering deductions on contributions.
As employers looked to stem the rising cost of pensions and the longer lifetime payouts associated with them, the 401k has become the default retirement savings plan. Early 401k supporters claim that the plan was meant to be a supplement for company pensions, not a replacement. They reportedly regret that the tax-deferred investment plan has become a principal way for U.S. workers to save for retirement. That regret has set off a debate about whether the 401k is the best savings option for workers.
Employees aren't saving as much for retirement as they should, especially boomers, according to some studies. And many don't understand how their 401k plans work as well as they should. As employers swap pensions for 401k plans, they must offer workers training in how to manage their plans and monitor their investments.
