Correcting report about FedEx's fund
Please allow us to correct the record and challenge the source of the inaccurate and misleading story by Vineeta Anand on May 2 that was headlined "Pension funds: Underfunding improves for S&P 500 firms."
FedEx is disappointed by factual errors in the story, but even more baffled by the questionable journalism that allowed a significant portion of this report to be based on information from a "consultant who did not wish to be identified." Why was there no explanation as to why you chose to hide this source's identity?
FedEx is proud of its open and transparent financial reporting regarding its pension plans, dedicating nearly six pages of our annual report to discussion and analysis of these plans. Despite the documentation in our annual report, the unnamed consultant's information was incorrect as reported by you.
First, you imply that our estimated rate of return assumption of 9.1% is above an SEC-imposed ceiling of 9%. More complete reporting would have noted that our investments have earned 9.4% on a compound basis over the last 15 years, and that our asset mix and long liability duration fully support our assumption.
Secondly, you inaccurately state that our average pension liability duration is 14 years, when in fact it is much longer. We do disclose that the average remaining service life of our employees is 14 years, but that does not equate to the pension plan liability duration. We would have thought your expert would understand the distinction. As for the discount rate used, our Management's Discussion & Analysis describes in detail how we develop that assumption.
Finally, the article states that we earned $11.9 billion on our pension assets. This is simply inaccurate. Total assets in the plan at the end of our last fiscal year were only $7.8 billion. Our asset performance did exceed expectations last year, but the rate of return assumption is a long-term estimate that routinely varies in any given period.
FedEx is committed to adequately fund this substantial employee benefit, and to explain our pension plans' funded status and the cost of providing pension benefits with great clarity to our employees and investors. We would appreciate your correcting the record.
John L. Merino
corporate vice president, chief accounting officer
Editor's note: Regarding the three errors Mr. Merino cites:
• The story referred only to the assumption, not what the actual return was.
• The story incorrectly stated the average pension liability duration is 14 years. Duration and average remaining service life are not the same, as the story had assumed.
• The story incorrectly reported that FedEx earned $11.9 billion on its $7.8 billion in pension assets. The company earned $1.75 billion.