Raytheon Technologies

In April 2020, Raytheon Co. and United Technologies Corp. combined, creating an aerospace and defense company for providing advanced systems and services to commercial, military and government customers worldwide. Not surprisingly, the deal called for merging the three defined contribution plans—UTC’s two plans, which totaled $27 billion, and the $23 billion Raytheon plan—into one mega offering that would work across the entire new company.

The legal, total rewards, and finance teams for what was now Raytheon Technologies, aka RTX, recommended the plans be merged through a two-phase process, says Kenneth Levine, executive director, global benefits strategy and planning at the company’s headquarters in Waltham, Massachusetts. The first step, completed this January, was moving Raytheon to UTC’s recordkeeper, Alight Solutions and trustee State Street Bank; the second step, targeted for January 2023, will be to actually merge the plans and harmonize benefits. The result should be “an innovative, leading-edge … plan with a consistent design for all 185,000 employees,” he says.

The first phase, which also consolidated the investment lineups and best features from both plans, is anticipated to effectively provide participants an additional $32 million in retirement savings this year alone, through lower administration and operating costs, Levine says. Besides that, he notes, Raytheon plan participants should receive another $30 million from a higher-yielding stable value fund, plus opportunities to utilize professional management services at no further cost.

Levine credits Kevin Hanney, senior director, pension investments, also in the Farmington headquarters, “for his vision for the combined plans and leadership in the yearlong preparation for the transition, as well as all the external partners and the hard-working staff at RTX.”

Key to merging the plans, Hanney suggests, was determining commonalities in investing preferences across both sets of employees.

“We were able to establish a harmonized investment policy statement,” he says. “The work that went into that was a detailed analysis of the demographics of both predecessor workforces done in concert with our co-fiduciary on our glide path, AB. Morningstar has since also done its deep-dive analysis of a large portion of the workforce, which was defaulted into its managed account services.”

The plan sponsor focused on creating an investment menu that would maintain financial security for the combined participants, while also providing flexibility for the inevitable times of uncertainty, Hanney says.

The new menu offers 12 investment options. Included, as the qualified default investment alternative, is the AB Lifetime Income Strategy, a proprietary joint project with Raytheon serving as a co-fiduciary for the funds. Duplicate funds between the legacy plans were not an issue, Hanney observes.

The heritage UTC ESP, the much larger of UTC’s plans, included a lineup of custom private-label funds, whereas the legacy Raytheon plan generally did not. The latter did, however, include collective investment trusts.

“In deciding to merge the plans, we concluded that maintaining the custom private-label lineup, but making adjustments to allow for the changes in the demographics, was the right way to go,” Hanney says. “The adjustments were not material; however, we do think it makes sense for us to update our glide path and the composition of our default; that’s why we’re enhancing the default, when the plans merge.”

The combined plan will retain the Lifetime Income Strategy, an in-plan, personalized lifetime income option for participants’ decumulation guaranteed by multiple insurance companies, Levine says.

“[For] retirement income—the financial security [dimension]—it’s important to understand that we have an explicit set of objectives for the plan, and No. 1 is access to a safe and secure … lifetime income strategy,” says Hanney, calling this a “fundamental tenet” of the sponsor’s objectives.

Importantly, the income strategy maintains flexibility to let participants withdraw money, if needed, without fees or penalties, or to allocate differently, as the individual chooses, he adds.

“We can’t tell you exactly what type of uncertainty anyone will face, but we know that virtually every one of us will see something unexpected at some point in life,” Hanney says. “If we haven’t built enough flexibility into it—if we were to choose a default option that involves irreversible, irrevocable decisions—those decisions may turn out to be less than ideal in the future, even if they appear to be the right decision today.”

He adds, “As we designed the custom lifetime income strategy, [along with] everything we’ve done to develop it over the last 10 years, we’ve kept the idea of flexibility and optionality as a fundamental principle in those design decisions.”