WASHINGTON -- For the fourth time this year, regulators have nixed a plan by Lockheed Martin Corp. subsidiaries to use surplus pension assets to finance retiree health-care expenses.
The company's attempts have prompted scrutiny by lawmakers and the Department of Energy, which regulates nuclear weapons facilities such as the ones operated by Lockheed Martin.
On Nov. 4, the Energy Department denied permission to Lockheed Martin Energy Systems Inc., Oak Ridge, Tenn., to siphon $21.2 million from its overfunded defined benefit pension plan to pay medical expenses of its retired workers.
Because Lockheed Martin is a government contractor, the government picks up the tab for retiree medical expenses as part of specific project costs. Using its surplus pension assets to pay for those expenses instead would have freed the company to use the Energy Department money for other uses, such as updating the Oak Ridge nuclear weapons plant.
Lockheed Martin Energy Systems is a subsidiary of Lockheed Martin Corp., the Bethesda, Md.-based defense and energy conglomerate.
"Transferring surplus pension funds is a significant action that should not be undertaken without making sure employees and retirees fully understand why it is being done and why it will not affect retirement income," Energy Secretary Bill Richardson said in a Nov. 4 statement rejecting the company's latest request.
Lockheed Martin Energy's request initially had been approved by the Energy Department at the local level, but was rescinded by Mr. Richardson after the company's employees protested the proposed transfer of pension assets.
Meanwhile, at Lockheed Martin Sandia National Laboratory, which operates a nuclear facility in Albuquerque, N.M., officials had sought permission three times earlier this year for a similar transfer of about $20 million in surplus pension assets. The company was denied permission each time, according to an Energy Department spokeswoman.
Additionally, the company had proposed amending its retiree health plan for the Sandia health plan participants in a manner that was "unacceptable," said Stephen J. Michelsen, director of the Energy Department's office of contract and human resources.
Harkin considers
Lockheed Martin's proposed transfer has caught the attention of Sen. Tom Harkin, D-Iowa, a member of the Senate Health, Education, Labor and Pensions Committee. He intends to look at ways of tightening the law that permits such transfers, to prevent what he calls back-door reversions of pension assets.
Meanwhile, Rep. Earl Pomeroy, D-N.D., who favors extending the law that permits such transfers, admits the Lockheed Martin proposal "raises very troubling questions that we have to explore."
"I think this could become a significant loophole on the effective prohibition against pension reversions if we are not careful," he said.
Although the tax code penalizes companies heavily for withdrawing surplus pension assets, Section 420 of the code lets companies withdraw a portion of the surplus pension assets each year to pay for that year's retiree health-care expenses -- without having to pay any excise taxes.
Law to expire
That 1990 law permits companies to do this, so long as the pension fund's assets do not dip below 125% of current liabilities. That law, originally intended for only five years, was extended in December 1994 and is scheduled to expire at the end of next year.
Lockheed Martin Energy's pension plan had assets of $2.72 billion at the end of July, according to a filing with the Department of Labor. The plan is 141% funded, according to Norm Sparks, director of Lockheed Martin Energy's benefit plans administration.
The Sandia defined benefit plan had assets of $2.46 billion and liabilities of $1.47 billion at the beginning of January 1998, the latest numbers available through the Energy Department.
"We'll work at it again," Lockheed Martin Energy's Mr. Sparks said. For now, though, the company will continue to pay retiree medical expenses.
Problem of perception
Said the Energy Department's Mr. Michelsen: "The issue is, are you taking money that (participants) perceive to be their money? There's a perception that that is not a reasonable thing to do, and without more thought or study, we didn't think it was a reasonable thing to do."
Prompted by Lockheed Martin's various requests to transfer some of its surplus pension assets to pay for retiree health-care costs, the Energy Department is studying the issue, Mr. Michelsen said.
Only one other Energy Department contractor, the University of California, Oakland, has an overfunded pension plan and would qualify to make such transfers.
The university operates the Lawrence Berkeley National Laboratory, the Lawrence Livermore National Laboratory and the Los Alamos National Laboratory. Its pension fund has assets of $38 billion and accrued liabilities of $22.2 billion.
Stringent requirement
But the university has hesitated to use such a tactic because of the stringent requirement under the law that employers maintain the same level of health-care benefits for retirees for five years, said Judith Boyette, associate vice president of human resources and benefits.
"Right now we don't have any plans to reduce medical benefits, but we are keeping our options open because medical costs are beginning to rise," she said.
