Lockheed to revise pensions

Defined-benefit plan, retiree health contributions to be cut

October 07, 2005|By BLOOMBERG NEWS

Lockheed Martin Corp. will no longer offer traditional pensions and post-retirement health care contributions to new salaried employees to cut costs.

New hires as of Jan. 1 will not be eligible for defined-benefit pensions and will instead be provided a defined-contribution plan, Bethesda-based Lockheed said in a note to 85,000 salaried workers yesterday. That will save the company at least $125 million over the next 15 years, said Chief Financial Officer Christopher Kubasik.

Lockheed's contributions to retiree health plans and pensions have almost doubled in the past two years as investment returns haven't kept pace with rising benefit payouts. Fewer than 20 percent of U.S. companies offer defined-benefit pensions, meaning Lockheed, which has the nation's 10th-largest plan, is following a broader trend, Kubasik said.

"The liability for those benefits is really high," said Tony Brizzolara, executive vice president and chief operating officer of Swerdlin & Co., an Atlanta-based pension and benefits consulting company. "If the investments aren't doing well, the bulk of the funding must come from an employer's contribution. Many companies that have defined-benefit plans are trying to get out of them now."

Lockheed's pension expenses, after taking into account government reimbursements related to military contracts, rose to $595 million last year from $300 million in 2003. Costs this year will remain about $600 million, Kubasik said.

"We will be more competitive as a result of reduced costs over the long term," Kubasik, 44, said in a phone interview. "The federal government, the Department of Defense and other agencies will save money from our actions here."

The new pension plan is "not a cutback; it's a replacement," Kubasik said.

The company's current pension plan, with $23 billion invested, stipulates the exact amount of money an employee will receive upon retirement. Under the new program, called a capital-accumulation plan, Lockheed, the largest U.S. defense company, will contribute a certain percentage of the employee's salary on a tax-deferred basis. The amount of money accrued depends on how the investments perform, placing more risk on the employees.

Under its new plan, Lockheed will contribute 3 percent to 6 percent of base salary depending on years of service, Kubasik said. Workers with less than nine years at the company will get 3 percent and veterans of 30 years or more will receive 6 percent.

Lockheed said its current and new employees will continue to be offered company matches on their 401(k) accounts, which are separate from the pension plans.

Lockheed's corporate contributions for retiree health benefits and life insurance rose to $457 million last year from $276 million in 2003, it said in a regulatory filing in February. Its total obligation for those benefits rose to $3.83 billion in 2004 from $3.81 billion in 2003, the filing said.

In March, the company terminated retirement health benefits for new union employees at its fighter-jet plant in Marietta, Ga. Workers went on strike for a week to protest the plan before ultimately ratifying it, said John Crowdis, aerospace coordinator for the International Association of Machinists and Aerospace Workers.

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