FedEx Corp. adopts mark-to-market pension accounting

FedEx Corp. has adopted mark-to-market pension accounting for its defined benefit pension and other postretirement plans. The company said that this accounting change “will have no effect on employees’ pension benefits or the funding requirements for any FedEx pension plans or FedEx cash flows”, but it will “make FedEx’s operating performance easier to understand and more transparent by immediately recognizing actuarial gains and losses in the fourth quarter of the fiscal year rather than amortizing them over many years”.

Mark-to-market accounting has been adopted by many large U.S. corporations, and is considered the preferred accounting method because it provides a more current picture of pension plan performance.

“Adopting the mark-to-market approach will align our accounting to provide greater transparency by removing certain legacy pension costs from segment operating results and recognizing them in a year-end adjustment,” said Alan B. Graf, Jr., executive vice president and chief financial officer of FedEx Corp. “This change has no operational or cash-flow impact and, importantly, does not affect benefits for plan participants. In addition, the funded status of our principal plan remains very strong.”

The company said it will record an estimated $2.2 billion non-cash, pretax charge for the fourth quarter of fiscal 2015 in connection with the changes in its pension accounting methods.

FedEx will continue to record service cost, interest cost and expected return on pension assets at the business segments which will be included in the company’s annual earnings forecast. The annual adjustment will reflect actual return on pension plan assets, changes in discount rates and differences from other actuarial assumptions. The balance-sheet funded status of retirement plans is not affected by this change.

Financial results from prior periods have been recast to include the impact of these changes in all periods.