(Bloomberg) -- United Parcel Service Inc. will freeze a pension plan for about 70,000 nonunionU.S. employees because of escalating costs and volatility indetermining future payments, replacing it with a differentretirement benefit.

UPS joins companies including DuPont Co. and Lockheed MartinCorp. in freezing pensions, which means that some or allparticipants may stop accumulating benefits.

UPS’s retirement obligations are on top of a $1 billion jump incapital spending being planned for this year to handle a surge ine-commerce shipments.

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“It’s not a red flag,” said Kevin Sterling, a Seaport GlobalHoldings analyst. “Combine how much money they are spending onautomation and on planes, along with discount rates being low maybeforever, and they said ‘we have to cap this or we’ll continue tosee funding shortfalls.’”

UPS’s pension plans in the U.S. had a $9.85 billion shortfall atthe end of last year, meaning they were about 76 percent funded,according to regulatory filings.

The shift won’t occur until Jan. 1, 2023, giving affectedworkers more than five years to prepare, Atlanta-based UPS saidTuesday. Most of the employees, which account for about 16 percentof the workforce, are in administrative or managementpositions.

New plan

After accruals to the existing defined benefit retirement planstop in 2023, UPS will begin a contribution program that will placebetween 5 percent and 8 percent of a worker’s eligible salary intoa 401(k), depending on seniority. Some workers also will get atransition benefit.

Current retirees aren’t affected, said Steve Gaut, a companyspokesman. UPS declined to comment on the cost of the changes butsaid the amount is reflected in its existing 2017 financialtargets.

“It’s something that’s been contemplated for quite some time,studied in some detail,” Gaut said in an interview. “This justmakes it more predictable for the company.”

Last year, about 22,000 former UPS employees accepted one-timelump sums of their vested pension benefit under a buyout offer,accelerating payments of $685 million, the company said.

About 39 percent of Fortune 500 companies with pensions hadfrozen them by the end of 2015, an increase from 21 percent in2009, according to a study from Willis Towers Watson Plc. The plansbecame more expensive to maintain after interest rates fell duringthe financial crisis.

Firms including FedEx Corp. and Delta Air Lines Inc. issued debtthis year to help fund retirement programs. Still, the 100 largestcorporate defined-benefit pension plans faced a total shortfall of$279 billion at the end of May, according to actuarial firmMilliman.

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