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UPS Pension Article

When Big Brown took on billions of dollars of debt in 2007 to buy some
employees out of a union-run pension plan, it seemed like a good idea.

Then the recession hit, hammering the fund. Recently, the company found
itself dealing with concerns about its riskier debt strategy.

UPS, long a conservative company that eschewed debt and risk, was given
what would amount to a “yellow caution” flag by a credit rating agency in
January. This was after the Sandy Springs-based company had a pension plan fall below the amount it would need to cover its obligations.

Standard & Poor’s Ratings Services said UPS’s credit metrics had
“deteriorated … due to profit pressures related to the global economic
downturn and a large increase in unfunded postretirement obligations.”

S&P kept UPS’s rating at AA- (the equivalent of Moody’s Aa3), which
is still a high grade.

The ratings agency did, however, change UPS’s outlook from “stable” to
“negative,” saying that if UPS doesn’t have enough cash to fund its pension
obligations within 18 to 24 months, the agency would lower UPS’s credit
rating.

The pension funds the retirement benefits of about 400,000 UPS
employees, from management to union rank and file.

Kurt Kuehn, UPS’s chief financial officer, addressed the issue during
the company’s February call with Wall Street analysts about earnings.

“By their calculation, UPS is slightly below their target,” Kuehn said
of the S&P report. “We have 18 to 24 months to close the gap, which I’m
very confident we can do.”

According to an annual report that came out in late February, UPS has
already started to close the gap. At the end of 2009, it had pension
benefit obligations of $17.8 billion and plan assets of $15.4 billion, for
an unfunded balance of $2.4 billion.

At the end of 2008, obligations were $16.3 billion with plan assets of
$12.8 billion, for an unfunded balance of $3.5 billion.

“Every fund hit a speed bump in 2008,” said Andy Dolny, with UPS
investor relations. “The plan lost about 25 percent [of its value] in that
year. Keep in mind the unfunded balance, or liability, is like a mortgage.
It’s not something that’s due now like a credit card bill.”
http://www.flagstoneretirement.com/events/dupont-news

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The company contributed $1.2 billion in January and $2 billion in
December, he said.

As a result of the contributions, each of the company's U.S. defined
benefit pension plans is now more than 100% funded, Mr. Black said. The
amount of the overfunding was unavailable, he said.

The new funding “will substantially reduce contributions in the years
to come,” Kurt P. Kuehn, CFO, treasurer and senior vice president, said
Feb. 1 in a conference call on the company's financial results.

UPS didn't disclose its current pension assets and liabilities.

“UPS like most companies with defined benefit plans will experience
higher pension expense in 2011, as a result of lower discount rates and
the amortization of the 2008 market losses,” Mr. Kuehn said in the
transcript. UPS didn't disclose the expected pension expense for this
year. “The benefits of our recent pension contributions will help offset
the impact but not totally eliminate it,” he added in the transcript.

In December, UPS contributed $2 billion to its pension plans,
financing the funding by selling 10- and 30-year notes, Mr. Black said.

“(G)iven low levels of interest rates, we felt it was
financially prudent to issue debt to prefund our pension plans,”
Mr. Kuehn said in the transcript.

UPS' U.S. plans had $15.3 billion in assets and $17.7 billion in
liabilities, while its non-U.S. plans had $481 million in assets and $575
million in liabilities, all as of Dec. 31, 2009, according to its most
recent 10-K, filed Feb. 26, 2010.
http://www.pionline.com/article/20110207/PRINTSUB/302079999

In 2006, Congress passed the Postal Accountability and Enhancement
Act. This law requires the Postal Service to do something that no
other business or government agency has to do–pre-fund its FUTURE retiree
health care benefits. This is a 75 year liability that has to be
paid in 10 years. The Postal Service makes a payment of
approximately $5.5 billion on September 30 at the end of every fiscal
year to meet this obligation. The Post Office has been paying these
benefits the past four years into a trust fund for employees who have not
even been born yet. This is the burden that is creating the
“financial crisis” for the Post Office. The recession that has
gripped America the past few years has undoubtedly affected the Postal
Service, but even in the worst economic times since the great depression,
the USPS has had a net profit of $611 million dollars.
Unfortunately, the red ink associated with the post office is the
mandated pre-funding since 2006.
http://my.firedoglake.com/kaytillow/2011/09/26/whats-the-real-story-behind-the-postal-crisis/