Information About the FedEx Freight Pension Plan. FedEx Freight Pension Plan

Transcription

1 FedEx Retirement Service Center P.O. Box 980 Deerfield, IL Information About the September 2012 This notice includes information on the following: Important Message About Your Annual Pension Plan Statement... 2 Annual Funding Notice Q&A... 3 Please take a few minutes to read the Q&A. The Q&A may help you to better understand the Notice and why it is being mailed to you. Annual Funding Notice... 5 Included with this mailing is the Annual Funding Notice (Notice) for the (Pension Plan) for the plan year ending May 31, FedEx is legally required to mail the Notice to all participants in the Pension Plan. If you have questions about any of the information described in this notice, please call the FedEx Retirement Service Center at , Monday Friday, 8 a.m. to 5 p.m., Central time. Hearing impaired employees may call

2 Important Message About Your Annual Pension Plan Statement If you do not receive an annual Pension Plan statement, you may request a calculation of your Pension Plan benefits. Please call the FedEx Retirement Service Center at , Monday Friday, 8 a.m. to 5 p.m., Central time. Hearing impaired employees may call Additionally, most active participants may log on to the website MyPension.fedex.com and navigate to the heading My Statements. From there you will see displayed: Your most recent quarterly and annual statements for benefits accrued under the Portable Pension Account formula, if applicable; and/or Your certified statement for benefits accrued under the Traditional Pension Benefit formula, if applicable. Note: You do not need to type www in front of MyPension.fedex.com. The address is entered immediately after To access the website, you will need a Personal Identification Number (PIN) and your Social Security number. If you have forgotten your PIN, you can request one by accessing the website and clicking on the link near the top of the screen. Your PIN will be mailed to your home address within five business days. ANNUAL FUNDING NOTICE Included with this mailing is the Annual Funding Notice (Notice) for the (Pension Plan) for the plan year ending May 31, FedEx is legally required to mail the Notice to all participants in the Pension Plan. A set of Questions & Answers (Q&A) follows below to help you understand the reason why FedEx is sending the Notice to you and to explain some of the more important provisions of the Notice. The Notice includes: Information about the funding of benefits in the Pension Plan, including information about the Pension Plan assets and investment policies. A summary of how many participants are in the Pension Plan. A description of what would happen if the Pension Plan were terminated or could not meet its financial obligations at some point in the future, even if the employer has no intention of terminating the pension plan*. An overview of the role of the Pension Benefit Guaranty Corporation (PBGC). Administrative facts about the Pension Plan, including who to contact if you want additional information about the Pension Plan. * The Notice contains specific information about the plan termination process and your benefits guaranteed by the PBGC in the event the Pension Plan were to terminate with insufficient assets. Although FedEx does not have any plans to terminate the Pension Plan, all Annual Funding Notices are required to include this information. Please take a few minutes to read the Q&A included on the following pages. The Q&A may help you better understand the Notice and why it is being mailed to you. 2

3 Q&A General What is the Notice and why am I receiving it? The Notice is a requirement under the Pension Protection Act of The purpose of the Notice is to provide plan participants with important information on the Pension Plan s ability to meet its funding obligations. The enclosed Notice for the Pension Plan meets this requirement. The content and form of the Notice is based on a sample document and guidelines provided to companies by the Department of Labor (DOL). Specific information must be included and customization is limited. As a result, the information in the Notice is required to be stated in a somewhat technical fashion. This Q&A is designed to provide answers to questions you may have about the Notice. Do I need to do anything? No. You do not need to take any action as a result of receiving the Notice. The Notice has been sent to you for informational purposes and to comply with federal regulations. Who will receive this Notice? This Notice is being provided to: Pension Plan participants (active and terminated), retirees, beneficiaries and alternate payees as of June 1, What is a defined benefit pension plan? A defined benefit pension plan provides you a specified retirement benefit based on a formula. FedEx funds the Pension Plan, and you assume none of the risk of choosing an investment strategy. FedEx manages every aspect of the Pension Plan for you and at no cost to you. The assets of a defined benefit plan are held collectively, rather than in individual employee accounts. Pension plan assets, including any earnings on these assets, are held in trust and cannot be used by the company for any other purpose than to pay benefits and reasonable pension plan expenses once they are deposited in the trust. The trust is kept separate from a company s business assets and is secure from the company s creditors. The employer is responsible for funding the plan as required, even during periods when the company fails to earn a profit. What is the Pension Benefit Guaranty Corporation (PBGC)? FedEx pays annual insurance premiums to the PBGC, a federal insurance agency. If FedEx were to go bankrupt and the Pension Plan terminates without enough money to pay all vested benefits, the PBGC will step in to pay Pension Plan benefits up to a maximum amount prescribed for the year in which the Pension Plan terminates. The Notice in this booklet gives you more information about how the PBGC helps protect your vested, accrued Pension Plan benefit. Why is there information in the Notice about terminating the Pension Plan? FedEx does not have any plans to terminate the Pension Plan. The language in the Notice is required to be included to make sure you have information regarding the plan termination process, should a termination ever happen. All companies that sponsor pension plans are required to provide this information. The Notice contains information about how to request a copy of the Pension Plan Annual Report (i.e., Form 5500). What is the Form 5500? Each year, pension plans are required to file a Form 5500 Annual Return / Report of Employee Benefit Plan, which reports the pension plan s financial condition, investments and resuts of operations. Please note that the Form 5500 for the Plan Year ending May 31, 2012 (the Plan Year to which the included Notice applies), will be filed in March 2013 in accordance with the Internal Revenue Service (IRS) due date. Any information contained in this Notice that applies to plan years ending before May 31, 2012, will correspond with prior filings of the Form 5500, which are available upon request. Q&A Plan Funding Has the Pension Plan met the legal funding requirements? FedEx has met, and plans to continue to meet, all federal minimum funding requirements. What is plan funding? Plan funding refers to the amount of assets that a company has put aside to pay pension benefits. Our Pension Plan s assets include all contributions FedEx makes to the Pension Plan and any investment gains and/or losses. Each year a valuation of the Pension Plan s assets and liabilities is carried out by an actuary to ensure that the Pension Plan fund will meet future payment obligations. Based on the results, FedEx makes any necessary contributions as required by law. Contributions are made to a trust fund that is used to fund benefits accrued under the Pension Plan. At times, FedEx has made contributions in excess of what the law requires. This excess amount is called a credit; over the years, FedEx has accumulated credits called a credit balance. The extent to which the Pension Plan is funded is shown as a percentage on a specific date, called the valuation date. This percentage is called the funding target attainment percentage or FTAP. What are Pension Plan assets? Pension Plan assets include all contributions FedEx makes to the Pension Plan and any investment gains and/or losses. What are Pension Plan liabilities? Pension Plan liabilities are the total value of the benefits that all plan participants have earned to date under the Pension Plan benefit formula(s). What is a valuation date? The valuation date is tied to the plan year for the Pension Plan. Because the Pension Plan s plan year is based on the Company s fiscal year (June 1 May 31), the valuation date for FedEx is June 1. 3

4 Simply stated, the FTAP shows how well the Pension Plan is funded at the beginning of the plan year on June 1, Generally, the higher the percentage, the better funded the plan. The assets used in the calculation of the FTAP are required under the law to be reduced by any contributions in excess of the legal minimum that is, the assets used in the calculation of the FTAP have been reduced by the credit balance mentioned above. In the Notice, we also have shown the funded percentage before credit balance subtraction, because these credit balances do not affect the amount of assets available to pay plan benefits. How is the Pension Plan s funded status determined? The funded status or FTAP is determined by dividing the plan s net assets by plan liabilities on the valuation date. As noted above, while pension plans are permitted to maintain credit balances for funding purposes; such credits must be excluded from the net assets when calculating a plan s FTAP. Plan liabilities are the total present value of the benefits that all plan participants have accrued under the Pension Plan benefit formula. What does it mean if a pension plan is underfunded? A pension plan is considered underfunded if the current actuarial value of the plan s net assets is less than 100% of the current value of plan liabilities. Solely for the purpose of this calculation, the net assets are reduced by any credit balance FedEx has accumulated even though all plan assets are available to pay benefits. What s the difference between failing to meet federal minimum funding requirements and being underfunded? A plan is underfunded if its liabilities are greater than its net assets. Being underfunded does not mean a pension plan failed to meet its minimum funding requirements. Each year a valuation of our Pension Plan s assets and liabilities is performed by an actuary to ensure the Pension Plan fund will meet future payment obligations. One of the results provided in the valuation is a minimum contribution that FedEx is required to make to the Pension Plan in a given plan year. If FedEx makes the required minimum contribution to the Pension Plan, then it has met the federal minimum funding requirements. In past years, FedEx has not only met the federal minimum funding requirements, but has contributed more to the Pension Plan than is required. Even if a plan sponsor makes the minimum required contributions to its pension plan each year, the FTAP discussed above can still be less than 100% causing the plan to be underfunded. It is important to note that even though the Pension Plan is not 100% funded at the valuation date, the Pension Plan remains adequately funded to provide Pension Plan participants their benefit as they come due. Current benefit payments are nominal compared to total Pension Plan assets. Benefit payments for the year immediately prior to June 1, 2012, were less than 3% of Pension Plan assets. Under what circumstances could the funded status of the Pension Plan change? According to the Pension Protection Act, FedEx is required to continue to follow specific rules each year on how much to contribute to the Pension Plan. The funding requirements for the Pension Plan change each year based on the performance of the Pension Plan s investments, changes in interest rates used to calculate the Pension Plan liabilities and the changing make-up of our employee population. FedEx works carefully with our actuaries to keep apprised of the funded status of the Pension Plan and to take the necessary steps to make sure the Pension Plan is adequately funded. If the interest rates used to calculate plan liabilities increase, or if the Pension Plan s investment returns increase, the Pension Plan s funded status, based on the calculation rules, could improve. Please keep in mind if the Pension Plan s investments are negatively affected by economic headwinds, or if plan liabilities increase due to lower interest rates, the Pension Plan s funded status could decline and FedEx could be required to make larger contributions to the Pension Plan under IRS rules. A recent provision passed as part of the Moving Ahead for Progress in the 21 st Century Act is expected to have a positive impact on the funded status of FedEx s pension plans for the plan year beginning June 1, 2012, and ending May 31, Again, FedEx has met, and plans to continue to meet, all federal minimum funding requirements. Does my Pension Plan benefit vary due to plan investments? No. The benefit you accrue under our Pension Plan will not vary based on investment performance. What is the difference between market value of assets and actuarial value of assets? Market value of assets is the value of the Pension Plan s assets based on market conditions at a specific point in time. The actuarial value of assets may represent an average value over time and usually is different from the market value of assets. The actuarial value of assets is used by the actuary for determining the funding valuation of the Pension Plan. Q&A Where to Find More Information Where can I find more information about the Pension Plan? For more information, you may refer to the Your Retirement Benefits (YRB) book, which is the summary plan description for the Pension Plan. Active employees may access the YRB on the intranet, keyword YRB. You may also contact the FedEx Retirement Service Center (RSC) at Hearing impaired employees may call Representatives are available Monday Friday, 8 a.m. 5 p.m., Central time. Where can I find more information about the PBGC? For information about the PBGC, log on to or call the PBGC toll-free at Hearing impaired employees may call the federal relay service toll-free at and ask to be connected to

5 ANNUAL FUNDING NOTICE Introduction This Notice includes important funding information about your Pension Plan. This Notice also provides a summary of federal rules governing the termination of single-employer defined benefit pension plans and of benefit payments guaranteed by the Pension Benefit Guaranty Corporation (PBGC), a federal agency. This Notice is for the plan year beginning June 1, 2011, and ending May 31, 2012 ( Plan Year ). Funding Target Attainment Percentage The funding target attainment percentage of a plan is a measure of how well the plan is funded on a particular date. This percentage for a plan year is obtained by dividing the plan s net pension plan assets by pension plan liabilities on the valuation date. In general, the higher the percentage, the better funded the plan. The Pension Plan s funding target attainment percentage for the Plan Year and two preceding plan years is shown in the chart below, along with a statement of the value of the Pension Plan s assets and liabilities for the same period Valuation Date June 1, 2011 June 1, 2010 June 1, Pension Plan Assets a. Total Pension Plan Assets $391,989,388 $300,747,549 $234,538,862 b. Funding Standard Carryover Balance (Credit Balance) $46,844,769 $39,588,244 $33,975,493 c. Prefunding Balance $0 $0 $0 d. Net Pension Plan Assets (a) (b) (c) = (d) $345,144,619 $261,159,305 $200,563, Pension Plan Liabilities $390,601,491 $304,857,871 $211,976, At-Risk Liabilities Not Applicable Not Applicable Not Applicable 5. Funded Percentage Before Credit Balance Subtraction (2a)/(3) % 98.65% % 6. Funding Target Attainment Percentage (2d)/(3) 88.36% 85.66% 94.62% As explained below, the credit balance may be applied in future years toward the contributions required by law. Because it can be used in this way, it is subtracted from Pension Plan assets in determining the funding target attainment percentage. But the existence of the credit balance does not affect the amount of assets available to pay Pension Plan benefits at the valuation date. Credit Balances Credit balances were subtracted from the Pension Plan s assets before calculating the funding target attainment percentage in the chart above. While pension plans are permitted to maintain credit balances (called funding standard carryover balance or prefunding balance ) for funding purposes, such credits may not be taken into account when calculating a plan s funding target attainment percentage. A plan might have a credit balance, for example, if in a prior year an employer made contributions at a level in excess of the minimum level required by law. Generally, the excess payments are counted as credits and may be applied in future years toward the minimum level of contributions a plan sponsor is required by law to make to the plan in those years. The plan sponsor may at its discretion voluntarily forfeit part or all of the credit balances to increase the value of the net Pension Plan assets and the Pension Plan s funding target attainment percentage. Fair Market Value of Assets Asset values in the prior chart in the Funding Target Attainment Percentage section are actuarial values, which are permitted to differ from fair market values. Market values tend to show a clearer picture of a plan s funded status as of a given point in time. However, because market values can fluctuate daily based on factors in the marketplace, such as changes in the stock market, pension law allows plans to use actuarial values for funding purposes. While actuarial values fluctuate less than market values, they are estimates. As of May 31, 2012, the fair market value of the Pension Plan s assets, without subtracting the credit balance, was $ 447,521,220. On this same date, the Pension Plan s estimated liabilities were $ 544,344,597. Participant Information The total number of participants in the Pension Plan as of the Pension Plan s valuation date was 41,762. Of this number, 29,853 were active participants, 1,157 were retired or separated from service and receiving benefits, and 10,752 were retired or separated from service and entitled to future benefits. 5

6 ANNUAL FUNDING NOTICE Funding & Investment Policies The law requires that every pension plan have a procedure for establishing a funding policy to carry out the plan objectives. A funding policy relates to the level of contributions needed to pay for promised benefits. The funding policy of the Pension Plan is to contribute no less than the minimum amount required by law and no more than the maximum deductible amount. Voluntary contributions (in excess of minimum required contributions) at amounts approximating the annual benefits earned during the year are considered on an annual basis. Additional contributions up to the maximum deductible amount may be made based on the funded status of the Pension Plan. Once money is contributed to the Pension Plan, the money is invested by plan officials, called fiduciaries. Specific investments are made in accordance with the Pension Plan s investment policy. Generally speaking, an investment policy is a written statement that provides the fiduciaries who are responsible for plan investments with guidelines or general instructions concerning various types or categories of investment management decisions. The investment strategy for pension plan assets is to utilize a diversified mix of global public and private equity portfolios, together with fixed-income portfolios, to earn a long-term investment return that meets our pension plan obligations. Our pension plan assets are invested primarily in listed securities, and our pension plans hold only a minimal investment in FedEx common stock that is entirely at the discretion of third-party pension fund investment managers. Our largest holding classes are Corporate Fixed Income Securities, U.S. Large Cap Equities, which is indexed to the S&P 500 Index, and Government Fixed Income Securities. Accordingly, we do not have any significant concentrations of risk. Active management strategies are utilized within the plan in an effort to realize investment returns in excess of market indices. As part of our strategy to manage future pension costs and net funded status volatility, we have transitioned to a liability-driven investment strategy with a greater concentration of fixed-income securities to better align plan assets with liabilities. Our investment strategy also includes the limited use of derivative financial instruments on a discretionary basis to improve investment returns and manage exposure to market risk. In all cases, our investment managers are prohibited from using derivatives for speculative purposes and are not permitted to use derivatives to leverage a portfolio. Excluding employer contributions receivable, the Pension Plan is invested entirely in a Master Trust. Employer contributions receivable as of May 31, 2012, includes a $13,000,000 contribution FedEx made to the Pension Plan on June 15, 2012, for the plan year ending May 31, In accordance with the Pension Plan s investment policy, the assets held in the Master Trust were allocated among the following categories of investments, as of the end of the Plan Year. These allocations are approximate, unaudited percentages of total Master Trust assets and are based on the most recent information available from the trustee as of May 31, Because the percentages are unaudited, they are subject to change before the next annual report (Form 5500) is filed in March Asset Allocations Percentage a. Total noninterest-bearing cash less than 1% b. Receivables: 1. Employer contributions 2. Participant contributions 3. Other 2% c. General investments: 1. Interest-bearing cash 4% 2. U.S. Government securities 24% 3. Corporate debt instruments (other than employer securities): Preferred 27% All other less than 1% 4. Corporate stocks (other than employer securities): Preferred less than 1% Common 16% 5. Partnership/joint venture interests 2% 6. Real estate (other than employer real property) 7. Loans (other than to participants) 8. Participant loans 9. Value of interest in common/collective trusts 25% 10. Value of interest in pooled separate accounts 11. Value of interest in master trust investment accounts 12. Value of interest in investment entities 2% 13. Value of interest in registered investment companies (e.g., mutual funds) 14. Value of funds held in insurance co. general account (unallocated contracts) 15. Employer-related investments: Employer securities Employer real property 16. Buildings and other property used in plan operation 17. Other 1% d. Liabilities: 1. Benefit claims payable 2. Operating payables 3. Acquisition indebtedness 4. Other liabilities -3% Right to Request a Copy of the Annual Report A pension plan is required to file with the US Department of Labor an annual report (i.e., Form 5500) containing financial and other information about the plan. Copies of the annual report are available from the US Department of Labor, Employee Benefits Security Administration s Public Disclosure Room at 200 Constitution Avenue, NW, Room N-1513, Washington, DC 20210, or by calling Or you may obtain a copy of the Pension Plan s annual report by making a written request to the plan administrator at the following address: FedEx Retirement Service Center P.O. Box 980 Deerfield, IL 60015

7 ANNUAL FUNDING NOTICE Summary of Rules Governing Termination of Single- Employer Plans Employers can end a pension plan through a process called plan termination. There are two ways an employer can terminate its pension plan. The employer can end the plan in a standard termination but only after showing the PBGC that the plan has enough money to pay all benefits owed to participants. The plan must either purchase an annuity from an insurance company (which will provide you with lifetime benefits when you retire) or, if your plan allows, issue one lump-sum payment that covers your entire benefit. Before purchasing your annuity, your plan administrator must give you advance notice that identifies the insurance company (or companies) that your employer may select to provide the annuity. The PBGC s guarantee ends when your employer purchases your annuity or gives you the lump-sum payment. If the plan is not fully-funded, the employer may apply for a distress termination if the employer is in financial distress. To do so, however, the employer must prove to a bankruptcy court or to the PBGC that the employer cannot remain in business unless the plan is terminated. If the application is granted, the PBGC will take over the plan as trustee and pay plan benefits, up to the legal limits, using plan assets and PBGC guarantee funds. Under certain circumstances, the PBGC may take action on its own to end a pension plan. Most terminations initiated by the PBGC occur when the PBGC determines that plan termination is needed to protect the interests of plan participants or of the PBGC insurance program. The PBGC can do so if, for example, a plan does not have enough money to pay benefits currently due. Benefit Payments Guaranteed by the PBGC If a single-employer pension plan terminates without enough money to pay all benefits, the PBGC will take over the plan and pay pension benefits through its insurance program. Most participants and beneficiaries receive all of the pension benefits they would have received under their plan, but some people may lose certain benefits that are not guaranteed. The PBGC pays pension benefits up to certain maximum limits. The maximum guaranteed benefit is $4, per month, or $55, per year, payable in the form of a straight life annuity, for a 65-year-old person in a plan that terminates in The maximum benefit may be reduced for an individual who is younger than age 65. The maximum benefit will also be reduced when a benefit is provided to a survivor of a plan participant. The PBGC guarantees basic benefits earned before a plan is terminated, which includes: pension benefits at normal retirement age. most early retirement benefits. annuity benefits for survivors of plan participants. disability benefits for a disability that occurred before the date the plan terminated. The PBGC does not guarantee certain types of benefits: The PBGC does not guarantee benefits for which you do not have a vested right when a plan terminates, usually because you have not worked enough years for the company. The PBGC does not guarantee benefits for which you have not met all age, service or other requirements at the time the plan terminates. Benefit increases and new benefits that have been in place for less than one year are not guaranteed. Those that have been in place for less than five years are only partly guaranteed. Early retirement payments that are greater than payments at normal retirement age may not be guaranteed. For example, a supplemental benefit that stops when you become eligible for Social Security may not be guaranteed. Benefits other than pension benefits, such as health insurance, life insurance, death benefits, vacation pay or severance pay, are not guaranteed. The PBGC generally does not pay lump sums exceeding $5,000. Even if certain benefits are not guaranteed, participants and beneficiaries still may receive some of those benefits from the PBGC depending on how much money the terminated plan has and how much the PBGC collects from the employer. Where to Get More Information For more information about this Notice, you may contact the FedEx Retirement Service Center at (TTY/TDD users may call ) or at P. O. Box 980, Deerfield, IL For more information about the PBGC and benefit guarantees, go to PBGC s website, or call PBGC toll-free at (TTY/TDD users may call the federal relay service toll-free at and ask to be connected to ). For identification purposes, the official plan number is 002 and the plan sponsor s employer identification number or EIN is

8 FedEx Corporation 09/12 FREIGHT AFN FedEx Retirement Service Center P.O. Box 980 Deerfield, IL 60015