UPS 2014 Annual Report Download - page 64

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
52
Accounting Impact of Health and Welfare Plan Changes
Income Statement Impact:
We recorded a pre-tax charge of $1.066 billion ($665 million after-tax) in the second quarter of 2014 for the health and
welfare plan changes described above. The components of this charge, which was included in "compensation and benefits"
expense in the statement of consolidated income, are as follows:
• Partial Plan Curtailment: We recorded a $112 million pre-tax curtailment loss due to the elimination of future service
benefit accruals. This curtailment loss represents the accelerated recognition of unamortized prior service costs.
• Remeasurement of Postretirement Obligation: We recorded a $746 million pre-tax loss due to the remeasurement of
the postretirement benefit obligations of the affected UPS-sponsored health and welfare benefit plans.
• Settlement: We recorded a $208 million pre-tax settlement loss, which represents the recognition of unamortized
actuarial losses associated with the postretirement obligation for the NMA Group.
We recorded an additional pre-tax charge of $36 million ($22 million after-tax) in the fourth quarter of 2014 upon
ratification of the collective bargaining agreements covering the Non-NMA Group, related to the remeasurement and settlement
of the postretirement benefit obligation associated with those employees.
Balance Sheet and Cash Flow Impact:
During 2014, as part of the health and welfare plan changes described previously, we transferred cash totaling $2.271
billion to the Funds, which was accounted for as a settlement of our postretirement benefit obligations (see note 4 to the audited
consolidated financial statements). We received approximately $854 million of cash tax benefits (through reduced U.S. Federal
and state quarterly income tax payments) in 2014.
For NMA Group employees who retired prior to January 1, 2014 and remained with the UPS-sponsored health and
welfare plans, the changes to the contributions, benefits and cost sharing provisions in these plans resulted in an increase in the
postretirement benefit obligation, and a corresponding decrease in pre-tax accumulated other comprehensive income, of $13
million upon ratification.
Anticipated Benefits of Health and Welfare Plan Changes
We believe we have obtained several benefits as a result of these health and welfare plan changes, including:
• Liability Transfer: We have removed a significant liability from our balance sheet, which helps to reduce
uncertainty around potential changes to healthcare laws and regulations, control the volatility of healthcare
inflation, and removes the risk associated with providing future retiree healthcare.
• Negotiated Healthcare Costs: Using the model of a defined contribution plan allows us to negotiate our
contributions towards healthcare costs going forward, and provides more certainty of costs over the contract
period.
• Minimize Impact of Healthcare Law Changes: Multiemployer plans have several advantages under the
Patient Protection and Affordable Care Act of 2010, including reduced transitional fees and the ability to limit
the impact of future excise taxes.
• Mitigate Demographic Issues: This helps reduce the potential impact of increased early retirements by
employees.
Agreement with the New England Teamsters and Trucking Industry Pension Fund
In the third quarter of 2012, we reached an agreement with the New England Pension Fund, a multiemployer pension
plan in which UPS is a participant, to restructure the pension liabilities for approximately 10,200 UPS employees represented
by the Teamsters. The agreement reflects a decision by the New England Pension Fund's trustees to restructure the fund
through plan amendments to utilize a "two pool approach", which effectively subdivides the plan assets and liabilities between
two groups of beneficiaries. As part of this agreement, UPS agreed to withdraw from the original pool of the New England
Pension Fund of which it had historically been a participant, and reenter the New England Pension Fund's newly-established
pool as a new employer.