Lockheed Martin Corp., Bethesda, Md., will freeze its defined benefit pension plan in early 2016 and start shifting active salaried workers to an enhanced defined contribution program, the company announced Tuesday.
Lockheed had $31.5 billion in U.S. DB assets as of Sept. 30. The U.S. pension fund was closed to new employees in 2006.
Defined contribution assets totaled $27.7 billion as of Sept. 30. The company will contribute up to 10% of an employee’s salary to the enhanced defined contribution plan once the transition is complete.
The two-phase transition to the defined contribution plan is expected to take until January 2020, spokesman Gordon Johndroe said in an e-mail. In the DB plan, pay-based pension benefits will be frozen first, followed by service-based benefits.
Mr. Johndroe said there were many factors considered when making the decision, including tax consequences for possible violations of funding limits or non-discrimination testing rules.
“Most importantly is that eventually we would be required to freeze the pension plan. If we don’t freeze the pension plan by 2020, current regulations would impose a significant tax penalty on our employees and the company. By proactively making this decision now, it gives our employees time to plan for the changes,” he said. “It also allows us to better manage the rising costs of our retirement programs at a more predictable rate and to limit our long-term liabilities.”
Other factors in the decision were changing workforce demographics, increased life expectancy and historically low interest rates that “significantly increased” pension liabilities in 2014, Mr. Johndroe said.
In 2013, Lockheed Martin contributed $2.25 billion in cash to its worldwide defined benefit plans. In January of this year, it announced that it expects to contribute $1 billion in 2014. The full 2014 estimates will be available when the company reports second-quarter earnings on July 22, Mr. Johndroe said.