Quarterly report pursuant to Section 13 or 15(d)

EMPLOYEE BENEFIT PLANS

v3.22.2.2
EMPLOYEE BENEFIT PLANS
 9 Months Ended
Sep. 30, 2022
Retirement Benefits [Abstract]  
EMPLOYEE BENEFIT PLANS EMPLOYEE BENEFIT PLANS
Company-Sponsored Benefit Plans
Information about the net periodic benefit cost (income) for our company-sponsored pension and postretirement benefit plans for the three and nine months ended September 30, 2022 and 2021 is as follows (in millions):
  U.S. Pension Benefits U.S. Postretirement
Medical Benefits		 International
Pension Benefits
2022 2021 2022 2021 2022 2021
Three Months Ended September 30:
Service cost $ 506  $ 442  $ 7  $ 7  $ 17  $ 19 
Interest cost 488  490  21  21  11  9 
Expected return on assets (820) (825) (1) (1) (19) (17)
Amortization of prior service cost 23  36  —  2  —  — 
Net periodic benefit cost $ 197  $ 143  $ 27  $ 29  $ 9  $ 11 
U.S. Pension Benefits U.S. Postretirement
Medical Benefits		 International
Pension Benefits
2022 2021 2022 2021 2022 2021
Nine Months Ended September 30:
Service cost $ 1,518  $ 1,456  $ 22  $ 21  $ 52  $ 57 
Interest cost 1,463  1,459  62  60  34  29 
Expected return on assets (2,460) (2,502) (3) (4) (59) (51)
Amortization of prior service cost 69  103  —  5  1  1 
Actuarial (gain) loss —  (3,290) —  —  —  — 
Settlement and curtailment (gain) loss —  —  —  —  (33) — 
Net periodic benefit (income) cost $ 590  $ (2,774) $ 81  $ 82  $ (5) $ 36 
The components of net periodic benefit cost (income) other than current service cost are presented within Investment income and other in the statements of consolidated income.
During the nine months ended September 30, 2022, we amended the UPS Canada Ltd. Retirement Plan to cease future benefit accruals effective December 31, 2023. We remeasured plan assets and benefit obligations for this plan, which resulted in a curtailment gain of $33 million ($24 million after tax) during the nine month period. The gain is included in Investment income and other in the statement of consolidated income.
During the nine months ended September 30, 2021, we divested our UPS Freight business, which triggered an interim remeasurement of the plan assets and benefit obligations of the UPS Pension Plan, UPS Retirement Plan and UPS Retired Employee Health Care Plan as of this date. The interim remeasurement resulted in an actuarial gain of $2.1 billion, reflecting updated actuarial assumptions and was recorded in other comprehensive income within the equity section of the consolidated balance sheet. An actuarial gain of $69 million ($52 million after tax) for a prior service credit related to the divested group and a $66 million loss ($50 million after tax) for certain plan amendments to the UPS Pension Plan were immediately recognized within Other expenses in the statement of consolidated income for the nine months ended September 30, 2021.
During the nine months ended September 30, 2021, we remeasured the UPS/IBT Full Time Employee Pension Plan following the enactment into law of the American Rescue Plan Act, which is discussed below. The interim remeasurement resulted in a pre-tax mark-to-market gain of $3.3 billion ($2.5 billion after tax) during the nine month period. The gain was included within Investment income and other in the statement of consolidated income for the nine months ended September 30, 2021.
Contributions to our company-sponsored pension and U.S. postretirement medical benefit plans for the first nine months of 2022 were $1.972 billion and $134 million, respectively. We expect to contribute approximately $43 and $144 million over the remainder of the year to our pension and U.S. postretirement medical benefit plans, respectively.
Multiemployer Benefit Plans
We contribute to a number of multiemployer defined benefit and health and welfare plans under the terms of collective bargaining agreements that cover our union-represented employees. Our current collective bargaining agreements set forth the annual contribution increases allotted to the plans that we participate in, and we are in compliance with these contribution rates. These limitations on annual contribution rates will remain in effect throughout the terms of the existing collective bargaining agreements.
As of September 30, 2022 and December 31, 2021, we had $824 and $830 million, respectively, recorded in Other Non-Current Liabilities in our consolidated balance sheets and $8 million as of September 30, 2022 and December 31, 2021 recorded in Other current liabilities in our consolidated balance sheets associated with our previous withdrawal from the New England Teamsters and Trucking Industry Pension Fund. This liability is payable in equal monthly installments over a remaining term of approximately 40 years. Based on the borrowing rates currently available to us for long-term financing of a similar maturity, the fair value of this withdrawal liability as of September 30, 2022 and December 31, 2021 was $668 and $963 million, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.
UPS was a contributing employer to the Central States Pension Fund (“CSPF”) until 2007 at which time UPS withdrew from the CSPF and paid a $6.1 billion withdrawal liability to satisfy our allocable share of unfunded vested benefits. Under a collective bargaining agreement with the International Brotherhood of Teamsters (“IBT”), UPS agreed to provide coordinating benefits in the UPS/IBT Full Time Employee Pension Plan (“UPS/IBT Plan”) for UPS participants whose last employer was UPS and who had not retired as of January 1, 2008 (“the UPS Transfer Group”) in the event that benefits are lawfully reduced by the CSPF in the future consistent with the terms of our withdrawal agreement with the CSPF. Under this withdrawal agreement, benefits to the UPS Transfer Group cannot be reduced without our consent and can only be reduced in accordance with applicable law. The financial crisis of 2008 created extensive asset losses at the CSPF, contributing to the plan’s projected insolvency, at which time benefits would be reduced to the legally permitted Pension Benefit Guaranty Corporation ("PBGC") limits, triggering the coordination of benefits provision in the collective bargaining agreement.
In 2014, Congress passed the Multiemployer Pension Reform Act (“MPRA”). This change in law for the first time permitted multiemployer pension plans to reduce benefit payments to retirees, subject to specific guidelines in the statute and government approval. In 2015, the CSPF submitted a proposed pension benefit reduction plan to the U.S. Department of the Treasury (“Treasury”). In 2016, Treasury rejected the proposed plan submitted by the CSPF. In light of its financial difficulties, the CSPF had stated that it believed a legislative solution to its funded status would be necessary or that it would become insolvent in 2025, at which time benefits would be reduced to the applicable PBGC benefit levels.
We account for the potential obligation to pay coordinating benefits to the UPS Transfer Group under ASC 715, which requires us to provide a best estimate of various actuarial assumptions, including the eventual outcome of this matter, in measuring our pension benefit obligation at the December 31st measurement date and at interim periods when a significant event occurs. ASC 715 does not permit anticipation of changes in law when developing a best estimate.
At the December 31, 2020 measurement date, we developed our best estimate for the potential obligation to pay coordinating benefits to the UPS Transfer Group using a deterministic cash flow projection that reflected estimated CSPF cash flows and investment earnings, the lack of legislative action having been taken, the expectation of payment of guaranteed benefits by the PBGC and the lack of a benefit reduction plan under MPRA having been filed by the CSPF. As a result, our best estimate at that time of the obligation for coordinating benefits that may have been required to be directly provided by the UPS/IBT Plan to the UPS Transfer Group was $5.5 billion.
In March 2021, the American Rescue Plan Act (“ARPA”) was enacted into law. The ARPA contains provisions that allow for qualifying financially distressed multiemployer pension plans to apply for special financial assistance ("SFA") from the PBGC, which will be funded by Treasury. Following approval of an application, a qualifying multiemployer pension plan will receive a lump sum payment to enable it to continue paying unreduced benefits through 2051. The multiemployer plan is not obligated to repay the SFA. The ARPA is intended to prevent both the PBGC and certain financially distressed multiemployer pension plans, including the CSPF, from becoming insolvent through 2051. The CSPF has submitted an application for SFA to the PBGC. The application remains under review.
The passage of the ARPA and the expected receipt of SFA by the CSPF suspends our obligation to provide additional coordinating benefits to the UPS Transfer Group through 2051. These matters also triggered a plan remeasurement under ASC 715. Accordingly, we remeasured the plan assets and pension benefit obligation of the UPS/IBT Plan as of March 31, 2021 resulting in an actuarial gain of $6.4 billion, reflecting a reduction of the liability for coordinating benefits of $5.1 billion and a gain from other updated actuarial assumptions of $1.3 billion.
The future value of this estimate will continue to be influenced by a number of factors, including interpretations of the ARPA, future legislative actions, actuarial assumptions and the ability of the PBGC to sustain its commitments. Actual events may result in a change in our best estimate of the projected benefit obligation. We will continue to assess the impact of these uncertainties in accordance with ASC 715.
Collective Bargaining Agreements
We have approximately 327,000 employees employed under a national master agreement and various supplemental agreements with local unions affiliated with the IBT. These agreements run through July 31, 2023. We have approximately 3,200 pilots who are employed under a collective bargaining agreement with the Independent Pilots Association ("IPA") that becomes amendable September 1, 2023. In the second quarter of 2022, we reached a tentative agreement on a two-year contract extension with the IPA. On August 12, 2022, the IPA ratified the two-year contract extension. Terms of the agreement become effective September 1, 2023 and continue in effect through September 1, 2025. The economic provisions in the agreement include pay increases and enhanced pension benefits on substantially similar terms.
We have approximately 1,700 airline mechanics who are covered by a collective bargaining agreement with Teamsters Local 2727. On October 17, 2022, the mechanics ratified a contract extension that will make the contract amendable on November 1, 2026. The provisions in the extension agreement include pay increases, with most other terms unchanged. Approximately 3,300 of our auto and maintenance mechanics who are not employed under agreements with the IBT are employed under collective bargaining agreements with the International Association of Machinists and Aerospace Workers (“IAM”). The collective bargaining agreement with the IAM runs through July 31, 2024.