Retirement Plans

12 Months Ended

May 31, 2023

Retirement Benefits [Abstract]

Retirement Plans

NOTE 13: RETIREMENT PLANS

We sponsor programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined contribution plans, and postretirement healthcare plans.

The accounting guidance related to postretirement benefits requires recognition in the balance sheet of the funded status of defined benefit pension and other postretirement benefit plans, and the recognition in either expense or AOCI of unrecognized gains or losses and prior service costs or credits. We use MTM accounting for the recognition of our actuarial gains and losses related to our defined benefit pension and postretirement healthcare plans as described in Note 1. The funded status is measured as the difference between the fair value of the plan’s assets and the PBO of the plan.

A summary of our retirement plan costs over the past three years is as follows (in millions):

	2023			2022			2021
Defined benefit pension plans	$	236		$	(2	)	$	88
Defined contribution plans		955			824			685
Postretirement healthcare plans		92			89			83
Retirement plans MTM (gain) loss		(650	)		1,578			(1,176	)
	$	633		$	2,489		$	(320	)

The components of the MTM adjustments are as follows (in millions):

	2023			2022			2021
Actual versus expected return on assets	$	2,492		$	5,109		$	(1,712	)
Discount rate change		(3,395	)		(4,486	)		(397	)
Demographic experience:
Current year actuarial loss		142			504			302
Change in future assumptions		110			314			685
Termination of TNT Express Netherlands pension plan		—			224			—
Pension plan amendments, including curtailment gains		1			(87	)		(54	)
Total MTM (gain) loss	$	(650	)	$	1,578		$	(1,176	)

2023

Net of all fees and expenses, the actual rate of return on our U.S. Pension Plan assets was -2.70%, which was lower than our expected rate of return of 6.50%. Negative portfolio returns derived due to losses in both equities and our fixed-income assets due to market volatility and rising interest rates. The weighted-average discount rate for all our pension and postretirement healthcare plans increased from 4.21% at May 31, 2022 to 5.17% at May 31, 2023. The demographic experience in 2023 reflects an update to our short-term cash balance interest crediting assumption.

2022

Net of all fees and expenses, the actual rate of return on our U.S. Pension Plan assets was -10.8%, which was lower than our expected rate of return of 6.50%. Negative portfolio returns derived due to losses in both equities and our fixed-income assets due to market volatility and rising interest rates. The weighted-average discount rate for all our pension and postretirement healthcare plans increased from 3.11% at May 31, 2021 to 4.21% at May 31, 2022. The demographic experience in 2022 reflects an update to our mortality assumption and a current year actuarial loss due to unfavorable experience compared to various demographic assumptions.

2021

Net of all fees and expenses, the actual rate of return on our U.S. Pension Plan assets was 12.90%, which was higher than our expected return of 6.75%. Positive portfolio returns derived from our return-seeking assets were partially offset by losses from our fixed-income assets due to rising long-term interest rates. The weighted-average discount rate for all our pension and postretirement healthcare plans increased from 3.05% at May 31, 2020 to 3.11% at May 31, 2021. The demographic experience in 2021 reflects an update to our mortality and retirement rate assumptions and a current-year actuarial loss due to unfavorable experience compared to various demographic assumptions.

PENSION PLANS. Our largest pension plan covers certain U.S. employees age 21 and over, with at least one year of service. Pension benefits for most employees are accrued under a cash balance formula we call the Portable Pension Account (“PPA”). Under the PPA, the retirement benefit is expressed as a dollar amount in a notional account that grows with annual credits based on pay, age and years of credited service, and interest on the notional account balance. The PPA benefit is payable as a lump sum or an annuity at retirement at the election of the employee. The plan interest credit rate varies from year to year based on a U.S. Treasury index. Prior to 2009, certain employees earned benefits using a traditional pension formula (based on average earnings and years of service). Benefits under this formula were capped on May 31, 2008 for most employees.

We also sponsor or participate in nonqualified benefit plans covering certain of our U.S. employee groups and other pension plans covering certain of our international employees. The international defined benefit pension plans provide benefits primarily based on earnings and years of service and are funded in compliance with local laws and practices. The majority of our international obligations are for defined benefit pension plans in the Netherlands and the United Kingdom.

In 2020, we announced the closing of our U.S.-based defined benefit pension plans to new non-union employees hired on or after January 1, 2020. We introduced an all-401(k) plan retirement benefit structure for eligible employees with a higher company match of up to 8% across all U.S.-based operating companies in 2022. During calendar 2021, current eligible employees under the PPA pension formula were given a one-time option to continue to be eligible for pension compensation credits under the existing PPA formula and remain in the existing 401(k) plan with its company match of up to 3.5%, or to cease receiving compensation credits under the PPA and move to the new 401(k) plan with the higher match of up to 8%. Changes to the new 401(k) plan structure became effective January 1, 2022. See Note 1 for additional information on expected amendments to our pension plan offered to FedEx Express pilots.

POSTRETIREMENT HEALTHCARE PLANS. Certain of our subsidiaries offer medical, dental, and vision coverage to eligible U.S. retirees and their eligible dependents and a small number of international employees. U.S. employees covered by the principal plan become eligible for these benefits at age 55 and older, if they have permanent, continuous service of at least 10 years after attainment of age 45 if hired prior to January 1, 1988, or at least 20 years after attainment of age 35 if hired on or after January 1, 1988. Postretirement healthcare benefits are capped at 150% of the 1993 per capita projected employer cost, which has been reached under most plans, so these benefits are not subject to future inflation.

Effective January 1, 2018, certain of our U.S. postretirement healthcare benefits were converted to a lump-sum benefit in a notional retiree health reimbursement account (HRA) for eligible participants. The HRA is available to reimburse a participant for qualifying healthcare premium costs and limits the company liability to the HRA account balance. The amount of the credit is based on age at January 1, 2018 or upon age at retirement thereafter. In connection with this change, retiree health coverage was closed to most new employees hired on or after January 1, 2018.

PENSION PLAN ASSUMPTIONS. The accounting for pension and postretirement healthcare plans includes numerous assumptions, such as: discount rates; expected long-term investment returns on plan assets; future salary increases; employee turnover; mortality; and retirement ages.

Weighted-average actuarial assumptions used to determine the benefit obligations and net periodic benefit cost of our plans are as follows:

	U.S. Pension Plans									International Pension Plans									Postretirement Healthcare Plans
	2023			2022			2021			2023			2022			2021			2023			2022			2021
Discount rate used to determine benefit    obligation		5.20	%		4.25	%		3.23	%		4.21	%		3.09	%		1.83	%		5.37	%		4.35	%		2.81	%
Discount rate used to determine net periodic    benefit cost		4.25			3.23			3.14			3.09			1.83			1.79			4.35			2.81			2.95
Rate of increase in future compensation    levels used to determine benefit obligation		5.13			5.11			5.06			3.04			2.89			2.83			—			—			—
Rate of increase in future compensation    levels used to determine net periodic    benefit cost		5.11			5.06			5.17			2.89			2.83			2.19			—			—			—
Expected long-term rate of return on assets		6.50			6.50			6.75			2.26			2.39			2.71			—			—			—
Interest crediting rate used to determine    benefit obligation		4.23			4.00			4.00			2.40			3.70			2.50			—			—			—
Interest crediting rate used to determine net    periodic benefit cost		4.00			4.00			4.00			3.70			2.50			2.00			—			—			—

Our U.S. Pension Plan assets are invested primarily in publicly tradable securities, and our pension plans hold only a minimal investment in FedEx common stock that is entirely at the discretion of third-party pension fund investment managers. As part of our strategy to manage pension costs and funded status volatility, we follow a liability-driven investment strategy to better align plan assets with liabilities.

Establishing the expected future rate of investment return on our pension assets is a judgmental matter, which we review on an annual basis and revise as appropriate. Management considers the following factors in determining this assumption:

•the duration of our pension plan liabilities, which drives the investment strategy we can employ with our pension plan assets;

•the types of investment classes in which we invest our pension plan assets and the expected compound geometric return we can reasonably expect those investment classes to earn over time, net of all fees and expenses; and

•the investment returns we can reasonably expect our investment management program to achieve in excess of the returns we could expect if investments were made strictly in indexed funds.

For consolidated pension expense, we assumed a 6.50% expected long-term rate of return on our U.S. Pension Plan assets in 2023 and 2022 and 6.75% in 2021. The historical annual return on our U.S. Pension Plan assets, calculated on a compound geometric basis, was 5.70%, net of all fees and expenses, for the 15-year period ended May 31, 2023.

The investment strategy for our U.S. Pension Plan assets is to utilize a diversified mix of public equities, fixed-income, and alternative investments to earn a long-term investment return that meets our pension plan obligations. Our largest asset classes are Corporate Fixed Income Securities and Government Fixed Income Securities (which are largely benchmarked against the Bloomberg Barclays Long Government, Bloomberg Barclays Long Corporate, or the Bloomberg Barclays 20+ STRIPS indices), and U.S. and non-U.S. Equities (which are mainly benchmarked to the S&P 500 Index and MSCI indices). Accordingly, we do not have any significant concentrations of risk. Active management strategies are utilized within the plan in an effort to realize investment returns in excess of market indices. Our investment strategy also includes the limited use of derivative financial instruments on a discretionary basis to improve investment returns and manage portfolio risk.

The following is a description of the valuation methodologies used for investments measured at fair value:

•Cash and cash equivalents. Level 1 investments include cash, cash equivalents, and foreign currency valued using exchange rates. Level 2 investments include short-term investment funds, which are collective funds priced at a constant value by the administrator of the funds.

•Domestic, international, and global equities. Level 1 investments are valued at the closing price or last trade reported on the major market on which the individual securities are traded.

•Fixed income. We determine the fair value of Level 2 corporate bonds, U.S. and non-U.S. government securities, and other fixed-income securities by using bid evaluation pricing models or quoted prices of securities with similar characteristics.

•Alternative Investments. The valuation of Level 3 investments requires significant judgment due to the absence of quoted market prices, the inherent lack of liquidity, and the long-term nature of such assets. Investments in private equity, debt, real estate, hedge funds, and other private investments are valued at estimated fair value based on quarterly financial information received from the investment advisor and/or general partner. These estimates incorporate factors such as contributions and distributions, market transactions, market comparables, and performance multiples.

The fair values of investments by level and asset category and the weighted-average asset allocations for our U.S. Pension Plans and our most significant international pension plans at the measurement date are presented in the following table (in millions):

	Plan Assets at Measurement Date
	2023
Asset Class (U.S. Plans)	Fair Value			Actual %			Target Range %(1)	Quoted Prices in Active Markets Level 1			Other Observable Inputs Level 2		Unobservable Inputs Level 3
Cash and cash equivalents	$	815			3	%	0 - 5%	$	22		$	793
Equities							30 - 50
U.S. large cap equity(2)		2,928			12				1,268
International equities(2)		2,821			11				1,912
Global equities(2)		1,192			5
U.S. SMID cap equity		768			3				764			4
Fixed-income securities							40 - 60
Corporate		6,403			26							6,403
Government(2)		4,334			17							2,497
Mortgage-backed and other(2)		1,386			6							527
Alternative investments(2)		4,196			17		0 - 15						$	937
Other		(17	)		—				(33	)		16
Total U.S. plan assets	$	24,826			100	%		$	3,933		$	10,240	$	937
Asset Class (International Plans)
Cash and cash equivalents	$	7			2	%		$	7
Equities
International equities
Global equities
Fixed-income securities
Corporate(2)		57		17
Government(2)		178		53					159
Mortgage-backed and other
Other(2)		95		28
Total international plan assets	$	337			100	%		$	166		$	—

(1)Target ranges have not been provided for international plan assets as they are managed at an individual country level.

(2)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy but are included in the total.

	Plan Assets at Measurement Date
	2022
Asset Class (U.S. Plans)	Fair Value			Actual %			Target Range %(1)	Quoted Prices in Active Markets Level 1			Other Observable Inputs Level 2		Unobservable Inputs Level 3
Cash and cash equivalents	$	1,164			4	%	0 - 5%	$	29		$	1,135
Equities							30 - 50
U.S. large cap equity(2)		3,368			13				1,235
International equities(2)		3,445			13				2,551
Global equities(2)		1,245			5
U.S. SMID cap equity		809			3				804			5
Fixed-income securities							40 - 60
Corporate		6,755			26							6,755
Government(2)		4,401			17							2,749
Mortgage-backed and other(2)		1,251			5							381
Alternative investments(2)		3,554			14		0 - 15						$	811
Other		(22	)		—				(24	)		2
Total U.S. plan assets	$	25,970			100	%		$	4,595		$	11,027	$	811
Asset Class (International Plans)
Cash and cash equivalents	$	4			1	%		$	4
Equities
International equities
Global equities
Fixed-income securities
Corporate(2)		62		14
Government(2)		261		60					199
Mortgage-backed and other
Other(2)		107		25
Total international plan assets	$	434			100	%		$	203		$	—

(1)Target ranges have not been provided for international plan assets as they are managed at an individual country level.

(2)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy but are included in the total.

The change in fair value of Level 3 assets that use significant unobservable inputs is shown in the table below (in millions):

	U.S. Pension Plans
	2023		2022
Balance at beginning of year	$	811	$	537
Actual return on plan assets:
Assets held during current year		66		192
Assets sold during the year		28		29
Purchases, sales, and settlements		32		53
Balance at end of year	$	937	$	811

The following tables provide a reconciliation of the changes in the pension and postretirement healthcare plans’ benefit obligations and fair value of assets over the two-year period ended May 31, 2023 and a statement of the funded status as of May 31, 2023 and 2022 (in millions):

	U.S. Pension Plans						International Pension Plans						Postretirement Healthcare Plans
	2023			2022			2023			2022			2023			2022
Accumulated Benefit Obligation (“ABO”)	$	25,825		$	27,916		$	848		$	946
Changes in PBO and Accumulated Postretirement    Benefit Obligation (“APBO”)
PBO/APBO at the beginning of year	$	28,702		$	31,423		$	1,096		$	2,611		$	1,286		$	1,456
Service cost		651			835			44			56			37			48
Interest cost		1,218			1,020			34			32			55			41
Actuarial (gain) loss		(2,882	)		(3,356	)		(121	)		(19	)		(138	)		(192	)
Benefits paid		(1,263	)		(1,180	)		(35	)		(36	)		(107	)		(113	)
Settlements		—			—			(20	)		(1,315	)		—			—
Other		—			(40	)		(8	)		(233	)		36			46
PBO/APBO at the end of year	$	26,426		$	28,702		$	990		$	1,096		$	1,169		$	1,286
Change in Plan Assets
Fair value of plan assets at the beginning of year	$	25,970		$	29,785		$	663		$	2,133		$	—		$	—
Actual return on plan assets		(707	)		(3,168	)		(83	)		(4	)		—			—
Company contributions		826			533			55			135			71			68
Benefits paid		(1,263	)		(1,180	)		(35	)		(36	)		(107	)		(113	)
Settlements		—			—			(20	)		(1,395	)		—			—
Other		—			—			(1	)		(170	)		36			45
Fair value of plan assets at the end of year	$	24,826		$	25,970		$	579		$	663		$	—		$	—
Funded Status of the Plans	$	(1,600	)	$	(2,732	)	$	(411	)	$	(433	)	$	(1,169	)	$	(1,286	)
Amount Recognized in the Balance Sheet at May 31:
Noncurrent asset	$	—		$	—		$	88		$	126		$	—		$	—
Current pension, postretirement healthcare, and    other benefit obligations		(39	)		(20	)		(23	)		(19	)		(84	)		(95	)
Noncurrent pension, postretirement healthcare,    and other benefit obligations		(1,561	)		(2,712	)		(476	)		(540	)		(1,085	)		(1,191	)
Net amount recognized	$	(1,600	)	$	(2,732	)	$	(411	)	$	(433	)	$	(1,169	)	$	(1,286	)
Amounts Recognized in AOCI and not yet reflected    in Net Periodic Benefit Cost:
Prior service credit and other	$	(47	)	$	(54	)	$	4		$	(3	)	$	—		$	—

Our pension plans included the following components at May 31 (in millions):

	PBO		Fair Value of Plan Assets		Funded Status
2023
Qualified	$	26,269	$	24,826	$	(1,443	)
Nonqualified		157		—		(157	)
International Plans		990		579		(411	)
Total	$	27,416	$	25,405	$	(2,011	)
2022
Qualified	$	28,524	$	25,970	$	(2,554	)
Nonqualified		178		—		(178	)
International Plans		1,096		663		(433	)
Total	$	29,798	$	26,633	$	(3,165	)

The table above provides the PBO, fair value of plan assets, and funded status of our pension plans on an aggregated basis. The following tables present our plans on a disaggregated basis to show those plans (as a group) whose assets did not exceed their liabilities. The fair value of plan assets for pension plans with a PBO or ABO in excess of plan assets at May 31 were as follows (in millions):

	PBO Exceeds the Fair Value of Plan Assets
	2023			2022
U.S. Pension Benefits
Fair value of plan assets	$	24,826		$	25,970
PBO		(26,426	)		(28,702	)
Net funded status	$	(1,600	)	$	(2,732	)
International Pension Benefits
Fair value of plan assets	$	223		$	199
PBO		(722	)		(758	)
Net funded status	$	(499	)	$	(559	)

	ABO Exceeds the Fair Value of Plan Assets
	2023			2022
U.S. Pension Benefits
ABO(1)	$	(25,825	)	$	(27,916	)
Fair value of plan assets		24,826			25,970
PBO		(26,426	)		(28,702	)
Net funded status	$	(1,600	)	$	(2,732	)
International Pension Benefits
ABO(1)	$	(562	)	$	(604	)
Fair value of plan assets		201			196
PBO		(700	)		(754	)
Net funded status	$	(499	)	$	(558	)

(1)ABO not used in determination of funded status.

Contributions to our qualified U.S. Pension Plans for the years ended May 31 were as follows (in millions):

	2023		2022
Required	$	—	$	—
Voluntary		800		500
	$	800	$	500

For 2024, no pension contributions are required for our U.S. Pension Plans as they are fully funded under the Employee Retirement Income Security Act. However, we expect to make voluntary contributions of $800 million to these plans in 2024.

Net periodic benefit (income) cost for the years ended May 31 were as follows (in millions):

	U.S. Pension Plans									International Pension Plans									Postretirement Healthcare Plans
	2023			2022			2021			2023			2022			2021			2023			2022			2021
Service cost	$	651		$	835		$	851		$	44		$	56		$	83		$	37		$	48		$	44
Interest cost		1,218			1,020			959			34			32			43			55			41			39
Expected return on plan    assets		(1,688	)		(1,910	)		(1,786	)		(14	)		(26	)		(52	)		—			—			—
Amortization of prior    service credit		(7	)		(7	)		(8	)		(2	)		(2	)		(2	)		—			—			—
Actuarial losses (gains)    and other		(487	)		1,683			(1,288	)		(25	)		87			(13	)		(138	)		(192	)		125
Net periodic benefit (income) cost	$	(313	)	$	1,621		$	(1,272	)	$	37		$	147		$	59		$	(46	)	$	(103	)	$	208

Amounts recognized in other comprehensive income were primarily related to amortization of prior service cost in our U.S. Pension Plans of $7 million in 2023 and $7 million in 2022 ($6 million, net of tax, in 2023 and $6 million, net of tax, in 2022).

Benefit payments, which reflect expected future service, are expected to be paid as follows for the years ending May 31 (in millions):

	U.S. Pension Plans		International Pension Plans		Postretirement Healthcare Plans
2024	$	1,392	$	54	$	84
2025		1,457		47		92
2026		1,544		50		101
2027		1,621		55		110
2028		1,697		60		117
2029-2033		9,471		395		610

These estimates are based on assumptions about future events. Actual benefit payments may vary significantly from these estimates.

Future medical benefit claims costs are estimated to increase at an annual rate of 6.40% during 2024, decreasing to an annual growth rate of 4.0% in 2045 and thereafter.