Updated with correction.
Boeing Co., Chicago, is proposing closing its defined benefit plan to Puget Sound-based new hires in the engineers union and placing them in an “enhanced” 401(k) plan, said Matthew Kempf, benefits director, contract administrator, for the union, the Society of Professional Engineering Employees in Aerospace.
Mr. Kempf said Boeing's proposal would amount to a 40% reduction in benefits from current levels. The union's contract with Boeing expires Oct. 6.
“It's not good. There's no question about that,” Mr. Kempf said in a telephone interview.
Doug Alder, Boeing spokesman, said the proposal is in line with market trends and peer companies and allows Boeing to “better manage retirement plan expenses and reduce financial risk.”
“The proposed retirement benefit for SPEEA-represented new hires is a market leader compared to the plans offered by our aerospace competitors to their new hires and will give our new hires an opportunity to build significant savings for retirement,” Mr. Alder said in an e-mail.
On June 15, the union proposed extending the current contract with minor adjustments. Mr. Kempf said the union's proposal included money necessary for acceptable benefits regardless of retirement plan type, but he said Boeing was committed to offering only a defined contribution plan for new hires.
“If Boeing is not going to match benefit for benefit, we prefer to stick with the defined benefit plan,” Mr. Kempf said.
Compounding matters is that the union has not even received a complete comprehensive proposal from Boeing. “It's difficult to see how terrible it is,” Mr. Kempf said.
Boeing's proposal includes a 3% to 5% age-based automatic company contribution plus the continuation of the company match on employee deferrals to the 401(k) plan totaling a 9% to 11% total contribution from the company each year, Mr. Alder said.
At the beginning of the year, Boeing and the International Association of Machinists and Aerospace Workers agreed on a deal that kept new hires in the pension plan and provided retiree medical costs. Boeing's offer to SPEEA shifts the medical benefit costs to employees. Mr. Kempf said IAM probably took less of an increase in benefits than in previous negotiated contracts, but the contract was agreed upon about 10 months before formal negotiations were set to begin.
All SPEEA members who are Boeing employees are currently part of a DB plan and a 401(k) plan with matching contributions. Mr. Kempf was unsure if Boeing's proposal includes opening a new 401(k) plan.
Boeing's defined contribution plan, the Boeing Company Voluntary Investment Plan, had $33.3 billion in assets as of Dec. 31, according to its most recent 11-K filing. The defined benefit plan, Boeing Co. Employee Retirement Plan, had $13.8 billion in assets as of Jan. 1, 2011, and was 100% funded; Mr. Kempf estimated SPEEA members represent about 50% of the plan's liabilities. All of Boeing's DB plans had a combined $50.8 billion in assets as of Dec. 31, according to its most recent 10-K filing.
Boeing closed its DB plan to all non-union new hires starting in 2009 and has since negotiated DC-only retirement benefits in 23 collective bargaining agreements, including SPEEA-represented engineers in Wichita, Kan., Mr. Alder said.