Northrop Grumman Does Stem to Stern Benefit Program Alterations

May 8, 2003 ( - Northrop Grumman is instituting a broad menu of changes to the benefit programs it provides for the 9,900 salaried workers at its Newport News shipyard including a new way to figure pension payments.

Under the new Northrop pension plan, workers will accumulate credits each month equal to a certain amount of money, depending on their income, their age, and number of years with the company, according to a news report in the Hampton Roads (Virginia) Daily Press.

That amount, called a “pay-based credit,” will be added to the worker’s pension plan each month, according to the overview of the benefits changes provided to the workers. The extra amount added will range between 6% and 9.5% of current employees’ monthly income and will be lower for workers hired after January 1, at amounts ranging from 4.5 % to 8 %. Interest payments will also be added.

According to the Daily Press, Northrop Grumman officials declined to say how much those accounts would earn in interest or how much a typical employee with a certain number of years worked would stand to get as a monthly payment. The company also declined to say whether the payments are to be paid out as a lump sum or in monthly payments.

In the Northrop benefits overview, the company said current workers would be paid whatever is greater between two ways of calculating their retirement benefits: One calculation would add everything accrued under the old plan until January 1, 2004, add a “transition benefit” until 2008, and add their Northrop benefits after that. The other calculation would total the worker’s benefits under the Northrop plan. The company said in the overview that employees would be able to retire earlier under the new Northrop plan – as early as age 55 without penalty in some cases

Under the existing plan, employees who are 62 and retire with 35 years of experience get an annual retirement income equal to 55% of their average salary over their previous five years, the newspaper said. Eligible employees who retire with a $40,000 average income over their last five years, for example, get $22,000 a year in retirement income, or $1,833 a month.

401(k) Plan Changes

As for Northrop’s new 401(k) savings plan, the company’s overview does not say whether the new investment options will be better. But, whether the company match is better depends on the worker, according to the newspaper.

Workers who put in 7% or less of their income do slightly better under the new plan, workers who put in 8% will do exactly the same, and workers who put in more than 8% will emerge slightly worse, according to the figures provided in the overview.

Under the current plan, the first 8% of a worker’s income is matched by the company at $0.50 on the dollar. The next 4% is matched at $0.25 on the dollar. Under the new Northrop plan, the first 2% of a worker’s income is matched dollar for dollar. The next 2% gets a $0.50-on-the dollar match, and the next 4% is matched at $0.25 on the dollar.

As for medical plan co-payments, workers now pay a $15 co-pay for a basic doctor’s visit. The new health plan calls for co-pays ranging from $10 to $40, depending on the type of doctor visit and the plan selected. The new Northrop medical plan will, however, provide more choices of medical plans than what the yard offers now. The overview of the new plans says that three preferred provider organizations and one health maintenance organization will be offered. The yard now only offers the Cigna managed care plan.

The company has scheduled two employee meetings next week to detail the changes to medical, pension, 401(k), dental, vision, life insurance and disability plans. Many of the yard’s salaried workers are wary, waiting with anticipation to hear more details at the May 13 and May 14 meeting. With 15% of the yard’s employees eligible for retirement, the changes in the pension plan could become a big issue.

Northrop Grumman, which through acquisitions has more than doubled in size over the last four years, is working across all of its operations to standardize benefits plans. The company says that the changes, effective January 1, will reduce complications, save money, and make it easier for workers to move between Newport News and other divisions, a key Northrop goal.

“We sponsor more than 350 separate benefits plans, supported by 40 different payroll systems,” Northrop Grumman spokesman Bob Bishop told the Daily Press. “You can see this is not the most efficient way to run a large organization.”

The shipyard’s 8,600 hourly production workers are not affected by the changes. Most are covered by a contract between the yard and the United Steelworkers of America that expires in June 2004.