Boeing will make cash contributions each pay period to employees’ retirement savings through a new defined contribution component of the 401(k) plan beginning January 1, 2016. All benefits earned in the current traditional pension plan before the transition will be paid to employees in retirement, and the company will continue to match employee savings in an existing 401(k) plan.
The employees include managers and executives, who participate in the main Boeing and subsidiary DB pension plans. Retirees already receiving pension benefits are not affected by this change.
Notice of the impending change is the latest in a series of steps the company has taken to address the challenges created by DB pension plans. For example, all nonunion employees hired since 2009 and new hires of 28 unions have been moved to DC plans, which Boeing says helps it better predict and manage financial risks, while still providing its employees a retirement benefit.
Members of Boeing’s biggest union, the International Association of Machinists and Aerospace Workers (IAM) District 751 in Seattle and IAM District 837 in St. Louis, saw similar changes in contract extensions ratified this year. Last year, members of Society of Professional Engineering Employees in Aerospace IFPTE Local 2001 reluctantly agreed to a new contract that eliminated the DB plan.
The new benefit will supplement employees’ DB pensions earned through December 31, 2015. All pension benefits earned through the end of 2015 are the employees’ to keep. The credit-based portion of employees’ DB pension will grow with interest credits until employees begin receiving their pension benefit.
Features of the transition plan include:
- A three-year transition benefit to employees' 401(k) accounts equal to 9% of their eligible income in 2016, 8% of income in 2017 and 7% of income in 2018. (Eligible income includes base salary, incentive pay and shift differential, if applicable.)
- Pay-period contributions to 401(k) accounts of 3% to 5% of eligible income, depending on age, beginning in 2019.
- Access to free, personal retirement counseling services for up to two years.
- Access to seminars and online retirement planning modeling tools to help employees reach retirement goals.
Upon initiating retirement, employees will receive the combined value of their company-funded defined pension benefit and new defined contribution benefit, along with existing 401(k) voluntary retirement savings, the company's matching contributions to those savings, as well as Social Security benefits, when eligible.
The company expects the changes to have an immaterial impact on 2014 core (non-GAAP) earnings. GAAP earnings for 2014 will also include a non-cash pension curtailment charge of approximately $110 million that will be recorded in the first quarter. The $110 million charge is in addition to previously announced $140 million and $80 million non-cash charges also being recorded in the first quarter for changes to retirement plans under the contract agreements with the IAM 751 and IAM 837 unions.
Boeing had two goals in the transition: “to continue providing an attractive, market-leading retirement benefit contributing to employees' retirement security, while also assuring our competitiveness by curbing the unsustainable growth of our long-term pension liability,” Tony Parasida, senior vice president of human resources and administration, said in a statement.
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