What he’s considering after announcing a plan freeze and making
a $2.3 billion contribution as UPS explores LDI.
Reported by Christine Giordano / Art by Tim Bower
In 2017, UPS announced it would freeze benefits to 70,000 non-union active mployees in the management defined
benefit plan by 2023. Its other non-union
and union plans will remain open, so the
change won’t affect its 340,000 union and
non-US employees, worldwide, but the fund
was $7 billion short of the $25.3 billion it
needs to fund non-union benefits.
In February, UPS made a combined
$2.3 billion contribution to both its nonunion
and union pension plans. CIO Brian
Pellegrino, known for delivering strong alpha
and meeting his 8.75% annual expected
return targets for more than six years, is now
exploring ways to apply LDI strategies.
CIO: As you’re heading into LDI
discussions or considerations, what’s
on your mind?
Pellegrino: The announcement to freeze
our retirement plan, which is primarily for
non-union employees, will definitely result in
some modification to our investment strategy
for that plan. We have always considered
ourselves liability-aware rather than liability-driven investors, but we are now considering strategies that would move us closer
to LDI. Since we have a five-year window
before this plan actually freezes, we can
be diligent in evaluating different options
before settling on the strategies that will
eventually be implemented. At this point, we
are not looking at anything that is outside
of what would be considered traditional or
normal in the LDI space.
CIO: What does that mean in terms of
Pellegrino: We will most likely end up with
a strategy that resembles a glide path, either