NASA owes hefty sum for civilian pensions

One of the biggest checks NASA plans to write this year — up to $600 million — will cover the retirement costs of civilian employees working on the space shuttle.

NASA already reimburses Houston-based United Space Alliance, a joint-venture of Boeing Co. and Lockheed Martin Corp., for running USA's retirement plans, under the terms of its contract with the private contractor.

Now NASA plans to reimburse USA for its defined benefit plan investment losses.

USA is entitled to be reimbursed for estimated plan investment losses of between $500 and $600 million, Bill Hill, NASA's assistant associate administrator for the space shuttle, said in an interview.

USA announced in October that it planned to terminate the defined benefit plan, which Mr. Hill said is about 50% funded. As of April 30, the plan had $664.7 million in assets, according to Kari Fluegal, a spokeswoman for United Space Alliance.

The plan, which had been closed to new employees since 2006, was frozen effective Dec. 31, 2010, according to an Oct. 21 letter to employees from USA management. USA also offers a 401(k) plan.

NASA budget documents presented to Congress show a $550 million deficit in the plan as of Jan. 1, but note that the total payout needed to cover the deficit could go up or down by the time the plan is formally terminated.

If it were not a federal subcontractor, United Space Alliance would have been forced to make up the pension shortfall out of its own coffers.

Solvent companies are not allowed to pass on pension costs to the federal government unless they can show that paying such benefits would cause them to financially fail, said officials of the Pension Benefit Guaranty Corp., who spoke under the condition that their names not be used.

Mr. Hill said the USA pension plan, like many others, suffered major losses during the financial crisis.

“The floor dropped out from under them,” he said.

The decision to terminate the pension plan comes as USA is laying off thousands of its employees as the space shuttle contract with NASA comes to an end. The company, which once had 10,000 employees, is expected to be down to around 3,500 by the end of this year. The last space shuttle is scheduled to lift off on July 8.

Ms. Fluegal, the USA spokeswoman, said a contract with NASA “covers the cost of terminating the plan.”

Originally, the rules that now require NASA to cover the pension shortfall at USA were meant to work the other way.

Government contractors ending their relationship with the federal government have been required since the late 1970s to return their pension plan surpluses to the government.

Mr. Hill said it was not ever anticipated that defined benefit plans would have massive losses. He said NASA was just following the rules in planning to make payments to USA.

“It's just hitting at a bad time,” he said.

The payment won't be made until Congress approves NASA's 2012 fiscal year budget. Mr. Hill said the USA pension plan will not be terminated until NASA receives the money for the payment.

Other federal agencies also could be forced to make payouts if a contractor terminates a defined benefit plan, but it's unclear what the government's ultimate liability would be.

Mr. Hill said USA was the only NASA contractor he knew of that still offered a DB plan.

But the U.S. Department of Energy reimburses 38 contractor-sponsored defined benefit plans with an unfunded liability of $4.4 billion using market value of assets, according to Katinka Podmaniczky, a spokeswoman for the department.

“The majority of contractor plans are funded well in excess of 80%,” she wrote in an e-mailed response to questions.

“The plans remain in excellent condition despite the economic downturn of the past few years, and no terminations are expected or planned.”