Lockheed Martin inks 2 deals for $2.2 billion in pension liabilities

Lockheed Martin Corp., Bethesda, Md., completed pension buyout and pension buy-in transactions totaling $2.2 billion in December through the purchase of two group annuity contracts from insurance companies.

The defense and aerospace company disclosed the transactions Tuesday in an 8-K filing with the SEC.

The first purchase transferred $1.4 billion in U.S. pension plan liabilities related to about 13,500 U.S. retirees and beneficiaries to an undisclosed insurer. The traditional buyout transaction transfers the benefit-paying responsibility to the insurer.

According to a news release Tuesday from MetLife, Lockheed Martin purchased the contract from its subsidiary Metropolitan Tower Life Insurance Co.

The second purchase for $793 million from another undisclosed insurer covers the U.S. pension plan liabilities of about 2,500 retirees and beneficiaries. Lockheed Martin will retain the benefit-paying responsibilities for this population, but will be reimbursed for all future benefit payments covered by the contract. Pension buy-in transactions are very common in the U.K. but a rarity in the U.S.

It is the second time Lockheed Martin has completed pension buyout and buy-in transactions in tandem.

In December 2018, the company completed a traditional buyout transaction, transferring the responsibility to pay benefits for about $1.6 billion in U.S. pension plan liabilities to Prudential Insurance Co. of America, and also a buy-in transaction through the purchase of an $810 million group annuity contract from Athene Annuity & Life Co., which reimburses Lockheed Martin for benefit payments the plan will make to its retirees and beneficiaries.

John Mollard, vice president and treasurer at Lockheed Martin, said in a February 2019 telephone interview that the process began with the company's $5 billion in contributions to its pension plans in 2018.

Motivated by the passage of the Tax Reform and Jobs Act, which dropped the corporate tax rate to 21% from 35%, Mr. Mollard said the company decided to accelerate its contributions to take advantage of the higher tax deduction that was set to expire Sept. 15, 2018.

In that interview, Mr. Mollard said that the company was looking to complete multiple "marketable transactions" to avoid the issue of having only one or two insurance companies with the capacity to complete them.

"We want marketable blocks that we could take as a series of transactions over a 10-year horizon," Mr. Mollard said at the time.

In December 2019, Lockheed Martin purchased a group annuity contract from Metropolitan Tower Life Insurance Co. to transfer $1.9 billion in pension liabilities. That contract transferred the responsibility of paying the benefits of about 20,000 U.S. retirees and beneficiaries to the insurance company.

Separately in the 8-K filing Tuesday, Lockheed Martin disclosed a discretionary pension contribution of $1 billion in the fourth quarter of 2020.

As of Dec. 31, 2019, pension plan assets totaled $35.442 billion, while projected benefit obligations totaled $48.674 billion, for a funding ratio of 72.8%, according to the company's most recent 10-K filing.

Spokesman John C. Torrisi could not immediately provide further information.