UPS 2015 Annual Report Download - page 102

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
90
Changes to the Delivery of Active and Postretirement Healthcare Benefits
Prior to ratification, the NMA Group and Non-NMA Group employees received their healthcare benefits through UPS-sponsored
active and postretirement health and welfare benefit plans. Effective June 1, 2014, we ceased providing healthcare benefits to active
NMA Group employees through these UPS-sponsored benefit plans, and the responsibility for providing healthcare benefits for active
employees was assumed by three separate multiemployer healthcare funds (the “Funds”). The responsibility for providing healthcare
benefits for the active Non-NMA Group employees was also assumed by the Funds on various dates up to January 1, 2015, depending
on the ratification date of the applicable collective bargaining agreement. We will make contributions to the Funds based on
negotiated fixed hourly or monthly contribution rates for the duration of the NMA and other applicable collective bargaining
agreements.
Additionally, the Funds assumed the obligation to provide postretirement healthcare benefits to the employees in the NMA
Group who retire on or after January 1, 2014. The postretirement healthcare benefit obligation for the employees in the Non-NMA
Group was assumed by the Funds for employees retiring on or after January 1, 2014 or January 1, 2015, depending on the applicable
collective bargaining agreement. In exchange for the assumption of the obligation to provide postretirement healthcare benefits to the
NMA Group and Non-NMA Group, we transferred cash totaling $2.271 billion to the Funds in the second quarter of 2014. UPS-
sponsored health and welfare benefit plans retained responsibility for providing postretirement healthcare coverage for employees in
the NMA Group who retired from UPS prior to January 1, 2014, and for employees in the Non-NMA Group who retired from UPS
prior to the January 1, 2014 or January 1, 2015 effective date in the applicable collective bargaining agreement.
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). 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 AOCI of $13 million upon ratification.