(Reuters) - Lockheed Martin Corp, Pentagon’s biggest defense supplier, said it will move existing employees to a defined-contribution retirement plan by Jan.1, 2020, becoming the latest company to freeze its expensive defined-benefit pension plan.
The new pension plan will come into effect from Jan. 1, 2016, the maker of the F-35 fighter jet, satellites and coastal warships said on Tuesday.
“This action also allows us to better manage the rising costs of our retirement programs at a more predictable rate and to limit our long-term liabilities,” a Lockheed Martin spokesperson told Reuters.
Lockheed is following the lead of Boeing Co, which in May announced a move to a defined-contribution plan from a defined-benefit plan for 68,000 non-union employees, including its Chief Executive, to reduce costs.
Lockheed said current U.S regulations require the company to freeze the current plan by 2020 or face a significant tax penalty.
Under a defined-benefit pension plan, an employer commits to pay out employees’ pensions at a contracted rate after retirement.
In a defined-contribution plan, an employer contributes at a contracted rate to a pension plan and the investment risk, and thus how big a pension fund grows, rests with the employee.
The company has 113,000 employees with about 48,000 participating in the current defined-benefit plan.
Lockheed employees belonging to the International Association of Machinists and Aerospace Workers (IAM) went on strike at a Mississippi space center in May over pension changes.
Lockheed shares were trading down 1 percent at $158.90 in morning trading on the New York Stock Exchange on Tuesday.
Editing by Saumyadeb Chakrabarty