Boeing Co. will freeze the traditional defined-benefit pensions of some 68,000 non-union salaried staff – including managers and executives, all the way to the top – starting in 2016, the company said Thursday.
Just as it did with the 33,000-member Machinists union in January as part of the deal to build the 777X jet in Washington state, Boeing will replace the old pension plan with a new defined-contribution retirement savings account to which the company will contribute a set amount each year.
The change means that, for their years of employment after 2015, employees won’t receive a fixed monthly pension benefit in their retirement but will tap into this new savings account, which they will own.
The value of that individual account will depend on how the market performs between 2016 and the employee’s retirement date.
The traditional pension plan will still pay a fixed amount upon retirement based on the number of years the employee accrued before company contributions stop on Dec. 31, 2015.
Tony Parasida, Boeing’s senior vice president of human resources, said the aim is to assure “our competitiveness by curbing the unsustainable growth of our long-term pension liability.”
Boeing has paid just over $10 billion into its pension funds in the past four years, including $3.45 billion last year.
Even with the change, Parasida said, Boeing employees will still have an “attractive, market-leading retirement benefit.”
The company already made this shift from defined-benefit pensions in 2009 for new hires among non-union workers.
And 28 of Boeing’s unions have ratified deals with the same provision, including the local International Association of Machinists District 751 on Jan 3. Last month, District 837 in St. Louis did the same.
That leaves members of the white-collar union at Boeing – the Society of Professional Engineering Employees in Aerospace, or SPEEA – as the last major employee group to retain a traditional pension.
In last year’s contract negotiations with Boeing, SPEEA agreed to switch new hires from the traditional pension to a defined-contribution plan, but retained the current pension for existing employees.
Union leaders expect Boeing to push hard for an end to that pension in the next negotiations, which will be in 2016.
“I think the handwriting is on the wall,” SPEEA Executive Director Ray Goforth said in a recent interview, referring to efforts by the company to get rid of the traditional pension.
“It’ll be up to the members to decide how hard they are willing to fight to keep it, if it’s even strategically possible,” he said.
Salaried Boeing staff won’t need to contribute to the new plan that replaces their traditional pension.
The company will make cash contributions to it each pay period.
During a three-year transition period, Boeing in 2016 will pay 9 percent of a salaried employee’s total salary; in 2017, 8 percent; and in 2018, 7 percent.
In subsequent years, the annual company contribution will vary between 3 percent and 5 percent of total income, depending on age. The contributions will be higher in that range as an employee approaches retirement.
The change will leave current employees with three components to their retirement savings in addition to Social Security:
- Whatever value their existing traditional pension plan has accrued before 2016 will be available upon retirement as a fixed monthly payment.
- Boeing’s existing 401(k) plan, known as the Voluntary Investment Plan, will continue, providing a company match of roughly 6 percent of salary for employee contributions.
- The new retirement savings plan, funded solely by company contributions.
Retirees already receiving pension benefits are not affected by the change.
Boeing’s pension move was expected.
After management insisted the Machinists give up their traditional pensions, the fact that executives and other non-union employees retained them became contentious.
Speaking after Boeing released its annual results in January, CEO Jim McNerney said, “Dealing with that in a fair and equitable way is something that we’re mindful of, but stay tuned.”
McNerney’s personal defined-benefit pension, which will pay out more than $3.6 million a year, will also be frozen as of the end of 2015.
But McNerney, who will be 65 in August, may retire before then.