Say goodbye to another big company's traditional pension plan.
The Boeing Co. told 68,000 non-union workers including its top executives Thursday that it will freeze in place its conventional defined benefit pension plan beginning in 2016 and switch to a defined contribution plan.
The aerospace's company's switch to a defined contribution plan follows a nationwide corporate trend in which companies are shifting the risk and the opportunities involved in creating a steady stream of retirement income from themselves to their employees.
The plan formally announced this week is similar to one accepted by the company's largest union, the International Association of Machinists and Aerospace Workers, in a highly controversial vote early this year. By accepting the contract that changed their pension plans, union members ensured that Boeing will build its new 777X and its composite wings in the Puget Sound area.
Boeing's move won't affect pensions already being drawn by retired workers or the benefits already earned by current employees. It will freeze those benefit amounts earned through the end of 2015.
Employees who have already earned benefits under the existing defined benefit plan will receive that frozen benefit amounts upon retirement plus any amounts generated by the new defined contribution plan that will replace it. The company will also continue offering a 401(k) savings plan with company matching.
Instead of guaranteeing employees a fixed monthly retirement paycheck based on their years of service, Boeing will contribute a fixed amount to the new retirement plan each year. A retiree's benefit earned will depend how well the investments made under the plan fare just as they do in a 401(k) plan. Employees will have a choice of investments for their company contributions.
The shift from a defined benefit to a defined contribution plan is advantageous to companies like Boeing because they won't have to make more contributions to the retirement fund to assure retirees of a pre-defined benefit if investment income sours or if retired employees begin living longer.
In a fast-growing investment environment, employees could likewise benefit if their retirement investments grow faster than normal.
Boeing said it plans to offer employees financial counseling about how to invest the funds in their retirement accounts.
The shift to the defined contribution arrangement has been coming for years. Since 2009, new Boeing employees have been covered by a defined contribution plan instead of a defined benefit plan.
A defined contribution plan has been on Boeing's union contract wish list for more than a decade as it proposed contracts to its union workers. Until the recent vote, however, the Machinists Union had resisted agreeing to the shift.
Only when Boeing threatened to build the 777X in another state did union members agree to a contract that included the defined contribution plan. Union members first rejected that contract, but reconsidered and approved a slightly enhanced 10-year deal after the company began accepting plant proposals from other states.
The 777X is an upgraded version of the company's best-selling twin-engine, long-range airliner equipped with new composite wings and more fuel-efficient engines.
Boeing said it expects to take $110 million non-cash charge in the first quarter for the pension change.
The charge is in addition to charges of $140 million and $80 million for making similar changes to labor agreements with union machinists in the Seattle area and in St. Louis.