Lockheed Martin Corp., one of the largest private employers in the region, announced yesterday that it will cut its benefit plans to eventually save the company $125 million to $150 million a year.
Employees hired after Jan. 1 will be ineligible for the company's traditional pension plan, which guarantees workers a percentage of their salaries upon retirement, and will not qualify for retiree health care benefits.
New salaried employees will be eligible for the current 401(k) savings plan and a new savings program, similar to a 401(k), and more vacation.
Lockheed's pension plan has become increasingly expensive. After years of not having to put cash into the plan, the company contributed $8 million in 2001 and $500 million this year. While Lockheed, like most government contractors, is able to recover some of the costs from the Pentagon, the payments also made financial planning more difficult.
"It's very difficult to manage," Christopher E. Kubasik, Lockheed's chief financial officer, said in an interview. With a defined-contribution plan like a 401(k), the company knows about how much it will have to pay every year, he said.
Lockheed joins a growing number of corporations that have pushed employees into 401(k) plans as the sluggish stock market made funding traditional pension plans more expensive. In December, International Business Machines Corp. said it would exclude new hires from its pension program, and in July Hewlett-Packard Co. said it would freeze pension and retiree medical benefits for some employees.
"There has been a huge trend over the last decade" away from traditional pension plans, said Charles B. Craver, professor of labor law at George Washington University.
The changes bring Lockheed in line with many information technology companies, a market in which it has grown strongly. "Most new companies, especially in the information technology marketplace, don't even offer defined benefit pension plans like ours," the company said in a memo to employees.
Bethesda-based Lockheed, the maker of the F-16 fighter jet, rockets and satellites, has about 130,000 employees, of which 85,000 are salaried. It has about 15,000 employees in the Washington region, most of whom work on information technology programs and are salaried employees.
Provisions similar to those announced yesterday have been included in recently negotiated bargaining agreements for union members, a Lockheed spokesman said. For example, a March contract that included workers at the company's fighter-jet plant in Marietta, Ga., eliminated retirement health benefits for newly hired union employees.
The changes will make the company more attractive to prospective employees, Kubasik said. "It's a win-win situation."
New employees will be eligible for three weeks of vacation instead of two when they start, he said. And starting next year, employees will immediately be able to sell the Lockheed stock the company provides as part of the 401(k) savings plans, instead of waiting until they are 55 years old.
"Results from our employee surveys indicate that those just starting their careers place greater importance on paid time off and less importance on retirement programs," Lockheed said in the memo to employees.
Noting that the expense of a tuition reimbursement program has doubled since 2003 and will exceed $75 million this year, Lockheed limited future reimbursements to $7,500 a year. It said employees who resign within a year of receiving a reimbursement will be required to pay it back. New employees also will have to pay for health insurance upon retirement. "It's an emerging trend and it's cost control," Kubasik said.
In about 10 years, the changes will save the company $125 million to $150 million a year, Kubasik said. "It will us make us more competitive on a cost basis," he said.
The changes could make retirement planning more risky for Lockheed's new workers, experts said. Under a traditional pension plan, employees are guaranteed a percentage of their salaries regardless of market conditions, they said. If there is not enough in the pension accounts, the corporations must make up the difference. In a defined contribution plan like a 401(k), the company is only responsible for making a defined contribution to employees' retirement plan.
"It's more risky for Lockheed employees," said Kate Bronfenbrenner, director of labor education research at Cornell University. "We all know what has happened with the stock market -- you can lose everything. It means that the employees could end up with nothing at all."