Frequently Asked Questions

Why Lockheed Martin is Making Changes

1. Why did Lockheed Martin make this change?
While there were many factors that were considered when making this decision, most importantly is that eventually we would be required to freeze the pension plan. If we don’t freeze the pension plan by 2020, current regulations would impose significant tax penalties on our employees and the company. By proactively making this decision now, it gives our employees time to plan for the changes.

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. Increased life expectancy, coupled with historically low interest rates, will significantly increase our pension liability starting this year.

Another factor we considered is the changing demographic of our workforce. Since we closed the pension plan to new participants in 2006, we expect that by 2016, the majority of our employees will not be pension participants. Introducing a unified retirement program ensures that we’re offering consistent and competitive retirement benefits to the majority of Lockheed Martin salaried employees.

2. What’s the reason for the extended timeline for the transition?
The five and a half year transition plan gives our employees time to plan for the changes and ensures that we continue to deliver world-class products and technologies to our customers.

3. How does Lockheed Martin justify this freeze when it is posting record profits?
Based on current regulations, we will be required to make this change in the next few years, or our employees and the company will incur significant tax penalties.

Additionally, taking these actions now will help offset the significant pension cost growth being driven by the increased life expectancy of retirees. Managing the cost growth of our pension fund is important to ensuring we remain a strong and competitive company for the long term.

4. What will Lockheed Martin do with these projected savings?
We do not expect to see any significant cost savings for the company until after 2020. Taking these actions now will help offset the significant pension cost growth being driven by the increased life expectancy of pension plan participants. Managing the cost growth of our pension fund is important to ensuring we remain a strong and competitive company for the long term.

We also plan to invest in new retirement benefits for our employees to ensure we continue to offer our employees a competitive benefits package. Beginning in 2020, we will be able to pass some of the expected savings on to our customers.

5. Do you expect an increase in retirements or departures generally as a result of this change?
No, we don’t expect any significant increase in retirements or departures from the company. We’ve intentionally outlined a lengthy transition period where our employees’ pension benefits will continue to grow. Plus, employees will benefit from an enhanced company contribution. Even after the changes, our retirement program remains competitive in the marketplace.

6. Why did Lockheed Martin decide to introduce a new retirement program?
Lockheed Martin regularly reviews the benefits we offer to keep them competitive and ensure they continue to align with the needs of both our employees and the company. During a recent analysis, it became clear many U.S. employers (including our competitors and other major U.S. companies) are transitioning from traditional pension plans and shifting to 401(k) plans (defined contribution plans). Trends show that 401(k) plans are the plan of choice for companies that wish to provide retirement benefits and offer employees greater opportunities to manage their own retirement funds.

Although we closed the defined benefit pension plan to new participants in 2006, nearly half of our current salaried workforce continues to participate, and our financial liability for this plan continues to increase substantially. The transition to an enhanced defined contribution plan will allow us to better manage our future financial obligations and ensure that we maintain our market competitiveness.

Another important factor is the change to our workforce. Since we closed the pension plan to new participants in 2006, we expect that by 2016 the majority of our employees will not be pension participants. As a result, current regulations will require us to make changes in the pension plan in the next few years or employees and the company will incur significant tax penalties.

We believe our new retirement program will continue to provide competitive benefits for our current employees and our future workforce.

7. What factors did Lockheed Martin take into consideration when designing the new retirement program?
Lockheed Martin’s objective was to design a plan that helps both current and future employees plan for retirement while managing the cost and services to our customers. We considered how current employees view their pension benefit, and decided to take a phased approach, offering a lengthy transition period to allow employees to prepare for the shift.

Planning and saving for your retirement is a shared responsibility. Lockheed Martin wants to make sure that our current and future employees have a consistent and competitive retirement program that will support them during retirement. We are taking steps to encourage each of our employees to actively participate in that program.

8. Is Lockheed Martin making this change for financial reasons?
While there are growing financial concerns about the rising cost of the pension plan, we’re making these changes because we’ll eventually be required to based on current regulations. If we don’t freeze the pension plan by 2020, current regulations would impose significant tax penalties on our employees and the company. By making the changes now, it gives our employees plenty of time to plan for the changes.

10. Why does this change affect only U.S-based employees?
Employees based internationally have different retirement benefits programs, which are subject to country-specific laws and regulations, and assessed against local market practices and conditions. Lockheed Martin regularly assesses all benefit programs, in the U.S. and internationally, to determine what changes may be needed to maintain competitiveness and appropriately manage company costs.

In this case, Lockheed Martin elected to implement the freeze for the U.S. salaried pension plan, which allows us to efficiently manage the rising costs of our retirement programs at a more predictable rate and to limit our long-term liabilities.

11. Several factors were cited when making the decision to freeze the pension plan.  One of those factors related to current regulations.  What current regulations require us to make changes to the pension plan in the next few years?
We are required to regularly review our benefits programs to ensure they meet all regulations. Specifically, in order for a retirement benefit to remain qualified for tax-deferred status, the IRS requires a company to maintain a balance between participants that fall into the highly-compensated category and those that do not, within each plan. Every year the IRS releases their definition of a highly compensated employee, in the most recent tax year it was defined as anyone with a total annual compensation of $115,000 or more.

Since we closed our Salaried Defined Benefit Pension Plan to new participants in 2006, we no longer have entry-level employees entering the plan. That means the percentage of participants in the plan who the IRS considers highly-compensated is increasing each year as our employees advance in their careers. Based on current trends, we project that around the year 2020, our salaried pension plan will no longer meet the IRS requirements for a tax-deferred plan.

We took action now to ensure our plan does not become “non-qualified” for IRS tax-deferred status and to avoid our employees and the company incurring significant tax penalties.

Overview of What’s Happening

12. How does the new program differ from the current program?
Our pension program is a defined benefit program, which is a commitment by an employer to pay their workers a set monthly benefit after they retire. The new program, which is a defined contribution program, offers set contributions over the term of your employment with the company. A defined contribution plan gives you more control over your retirement savings by offering choices including your contribution level and your investment decisions.

In addition to matching contributions and automatic company contributions, Lockheed Martin will provide you with tools and resources to help you maximize the value of your benefits. See the 401(k) Plan section of the FAQs and the Retirement Benefit Changes Brochure available at www.lockheedmartin.com/retirement for more details.

13. I’m not sure which retirement plan I’m in. How do I find out?
If you’re not sure which plan(s) you participate in, please contact the Lockheed Martin Employee Service Center toll-free at 866-562-2363.

14. Who is affected by the retirement program change?
All salaried, U.S.-based employees who participate in the Lockheed Martin Salaried Employees Retirement Program (Pension Plan) as well as the Capital Accumulation Program (CAP) are impacted by this change. Current retirees and terminated vested employees are not affected as their retirement benefits have already been determined based on their service and salary when they left the company.

15. Will the pension plan be frozen for executives?
The pension plan will be frozen for all U.S.-based salaried pension participants, including executives.

16. What financial impact will I see from the change?
The financial impact will vary by individual based on many factors, including: which plans you participate in today, how close you are to retirement, the level of benefits you’ve already earned under the plans, how much you contribute to the 401(k) Plan, as well as many other factors. For Pension Plan participants, you can use the Retirement Income Modeler and Pension Estimating Tool to run various scenarios using your personal information. You can access the tools at LM People>Pay and Benefits>LM Employee Service Center.

If you are currently accruing a benefit under the pension plan, you can find a pension estimate in the history of your Pension Estimating Tool. This estimate was run by Lockheed Martin using certain projection assumptions. You can use this estimate, calculated under the pension formula in existence before the pension change, to compare the impact to your future pension benefit. Please note, this comparison does not take into consideration the value of automatic company contributions you will begin to receive in 2016. To better understand the total impact to your retirement benefits, you can use the Retirement Income Modeler at LM People>Pay and Benefits>LM Employee Service Center.

17. Does this change affect my Social Security benefit?
No. Your Social Security benefit is a function of your contributions into Social Security over the course of your career. The decision to freeze the Lockheed Martin Pension Plan will have no impact on any benefit you are entitled to under your Social Security benefit.

18. Will the company offer an incentivized buyout?
There are no plans to offer any incentivized buyout. We announced this change with a significant amount of notice to allow employees to prepare as much as possible.

19. Does Lockheed Martin intend to maintain the pension plan after the full freeze takes effect in 2020?
Yes, we intend to maintain the pension plan following the freeze.

20. Does this change affect my medical benefits?
The change to the retirement benefits does not affect your medical plan options.

Understanding Your Pension Plan Benefit

21. What is the main difference between the Pension Plan benefit under the current program and the new program?
The primary difference is the formula used to calculate your pension benefit. Generally, your pension benefit is calculated based on your salary and years of service.

As of Jan. 1, 2016, the pay component of your benefit formula will freeze, and as of Jan. 1, 2020, the years of service component of your pension formula will freeze. This means, effective Jan. 1, 2016, the benefit formula will use your final average pay (average of your highest three years of pay earned from 2006 through 2015) as of Jan. 1, 2016, (or the date you leave the company, whichever comes first) to calculate your benefit. At the same time that the pay component of the pension plan is frozen, the Social Security Breakpoint used in the pension formula will also freeze.

Effective Jan. 1, 2020, the benefit formula will use your years of credited service as of Jan. 1, 2020, (or the date you leave the company, whichever comes first) to calculate your benefit. You should consult the plan's Summary Plan Description for details on how your current pension plan benefit is calculated. These documents can be found on LM People>Pay and Benefits>LM Employee Service Center. Some things will remain the same. The Pension Plan benefits you have already earned—and the benefits you will continue to earn through Jan. 1, 2020—will not decrease.

Although the components of the Pension Plan will be frozen, this will not affect your eligibility for early retirement as long as you remain employed by the company.

22. How will the revised Pension Plan affect my pension benefit?
Your pension benefit is based on your years of service and your salary when you retire or leave the company, your age at retirement and the form of payment you elect. When the salary component of the pension calculation freezes on Jan. 1, 2016, your final average pay will be calculated as of that point. However, the years of service component of the calculation will be recognized through Jan. 1, 2020 (or the date you retire or leave the company, if earlier).

This means that as of Jan. 1, 2016, your pension benefit under the modified Pension Plan will provide you with a lower benefit at retirement than the benefit calculated under the current Pension Plan formula. However, you will now receive new automatic company contributions to your Lockheed Martin Retirement Savings Account to help offset this difference beginning in 2016.

To get an idea of what your retirement benefit is likely to be under the revised Pension Plan, you can use the Retirement Income Modeler and Pension Estimating Tool to run various scenarios using your personal information. You can access the tools at LM People>Pay and Benefits>LM Employee Service Center.

23. How is pay defined under the revised Pension Plan?
Under the Pension Plan, pay is defined as your annual base salary rate. Certain adjustments may be made to your pay if applicable, such as including Management Incentive Compensation Plan payments or other bonus payments.

Slightly different definitions of pay may apply for employees with prior plan benefits. For more details, please refer to the plan’s Summary Plan Description found on LM People>Pay and Benefits>LM Employee Service Center.

The Pension Plan uses the highest three years of pay over those within the last 10-year period. During 2014, the plan recognizes pay for the years beginning in 2004 and ending in 2013. As of Jan. 1, 2016, when the pay component of your benefit formula will freeze, the plan will recognize pay for the years beginning in 2006 and ending in 2015.

24. How is my Management Incentive Compensation Plan payment factored into my pension benefit?
Your Management Incentive Compensation Plan payment is credited to pension-eligible pay the year it is earned. Accordingly, Management Incentive Compensation Plan payments paid to employees in 2016 will be credited to 2015 pension eligible pay and will be the final year the Management Incentive Compensation Plan is used in the pension formula.

25. How is my current pension benefit calculated?
You should consult the plan's Summary Plan Description for details on how your current Pension Plan benefit is calculated. Note: If you were hired before a certain date, grandfathered formulas and features may be applicable to your retirement benefit. These details are provided in your plan’s Summary Plan Description. Summary Plan Descriptions can be found on LM People>Pay and Benefits>LM Employee Service Center.

26. Is Lockheed Martin planning to fully freeze the Pension Plan on Jan. 1, 2020?
As with all Lockheed Martin benefits, this information is subject to change due to unexpected circumstances. In the unlikely event that this information should change, all impacted employees will be notified in advance.

27. Will this change affect the pension benefit I’ve already earned?
No, this change will have no impact to your accrued benefit earned to date.

28. Why did the corporation choose a two-step approach to freezing the Pension Plan?
We’re implementing the two-step approach to help employees understand and plan for the changes while managing the escalating pension costs. The introduction of the new retirement benefits will help reduce the impact of the changes.

29. Why did the company choose to extend the years of service and not the salary?
In the pension formula of our Pension Plan, the annual accrual of service is expected to be more valuable for the majority of employees. In designing the transition plan, we wanted to meet business objectives while also providing employees significant notice and allowing them to plan. A phased approach – freezing the less valuable component of the pension plan calculation first – followed by a full freeze in 2020, will provide for a smooth transition.

30. Does freezing the Pension Plan impact early retirement factors or other plan provisions?
Early retirement eligibility and other factors are not changing. Pension Plan benefits are determined by many variables based on service. Credited service, which is used to determine the amount of your benefit, will freeze as of Jan. 1, 2020. However, service used to determine vesting, early retirement eligibility, special layoff provisions and retiree medical eligibility will continue to accrue after 2019. Additional information is included in your plan’s Summary Plan Description found on LM People>Pay and Benefits>LM Employee Service Center.

31. Will my pension benefit be calculated on my pay during the final three years of service or the three years before the freeze?
The Pension Plan uses the highest three years of pay within the last 10-year period. Once the pay component is frozen at the end of 2015, the plan will recognize pay for the years beginning in 2006 and ending in 2015 (or the date you retire or leave the company, whichever comes first).

32. What happens if I leave Lockheed Martin before I reach retirement age?
Your ability to receive a future benefit from the plan, even if you terminate prior to retirement age, will not be impacted as a result of this change. There can be a significant reduction in your benefit if taken earlier than age 65 (assuming you terminated prior to age 55) or if taken earlier than age 60 (assuming you terminated at age 55 or later). For more details, consult the plan's Summary Plan Description found on LM People>Pay and Benefits>LM Employee Service Center.

33. What happens to my pension benefit if I leave Lockheed Martin before the freeze takes full effect, i.e. Jan. 1, 2020?
If you leave before Jan. 1, 2020, your pension benefit will reflect your credited service as of the date you leave Lockheed Martin. The pay used in your pension calculation will be the highest three years out of the last 10-year period, with the end of that 10-year period being Jan. 1, 2016, or the date you leave, whichever is earlier.

34. If I leave Lockheed Martin before the end of the freeze period and return at a later date, what happens to my pension benefit?
As is the case today, if you leave and are rehired you will not be able to earn additional service under the pension formula. When you are rehired, you will earn benefits under the updated defined contribution plan.

35. Does this change affect my non-qualified pension benefit?
Yes. The retirement benefit changes impact Lockheed Martin’s qualified and non-qualified pension plan and benefits accrued in them.

36. If I am a part-time employee in the pension plan, how am I impacted by the changes? Similarly, am I eligible to receive the new defined contribution benefits and how are my earnings used to determine my benefit?
The pension-related impact for part-time employees is no different than full-time employees. The earnings component of the pension plan will freeze as of Jan. 1, 2016, regardless of employment status. And the service component of the pension plan will freeze as of Jan.1, 2020, regardless of employment status.

Generally, you are eligible to participate in the Salaried Savings Plan if you are a non-represented salaried employee and you work at least 20 hours a week (refer to the Summary Plan Description available through LM People > Benefits Overview for more details). The new company contribution, beginning in 2016, will be computed as a percentage of an employee’s weekly base pay.

37. Whom do I contact regarding pension-related questions?
You have a variety of tools and resources available at www.lockheedmartin.com/retirement. From there, you can access Retirement Benefits Education Videos, Learning Webinars and the Retirement Benefits Change Overview Brochure.

For pension-related questions, first view the Retirement Income Modeler and Pension Estimating Tool, which allow you to run various scenarios using your personal information. You can access the tools at LM People>Pay and Benefits>LM Employee Service Center.

If you can’t find the answer to your question online, contact the Lockheed Martin Employee Service Center toll-free at 866-562-2363. You can also use the “Contact Us” or “Click to Chat” features found on the LM Employee Service Center homepage.

Understanding Your New Retirement Benefits

38. How will the retirement program change affect my 401(k) company match?
It will not affect your benefit. You will continue to be eligible to earn up to 4 percent in company matching programs when you contribute 8 percent of your salary.

39. Can you tell me about my new retirement benefits?
For pension participants, during the transition period (2016 through 2019), we will introduce an automatic company contribution to your new Lockheed Martin Retirement Savings Account. Effective Jan. 1, 2016, you will receive an automatic company contribution of 2 percent, which will be posted weekly. Beginning Jan. 1, 2020, the 2 percent contribution will increase to 6 percent to align with the full freeze of the Pension Plan. Lockheed Martin will continue to match up to 50 percent of the first 8 percent of your contributions to the 401(k) Plan.

For CAP participants, starting on Jan. 1, 2016, you will receive an automatic company contribution of 2 percent of your salary into your new Lockheed Martin Retirement Savings Account, which will be posted weekly. Additionally, all CAP participants will receive a company contribution of 4 percent of your salary into your CAP account, regardless of years of service. If you have less than five years of service, this will be an increase. For all others, it will remain the same.

Effective Jan. 1, 2020, both pension and CAP participants will earn benefits under a common retirement program – the Lockheed Martin Retirement Savings Program. You may receive up to 10 percent of your salary in company contributions toward your retirement each year under the Lockheed Martin Retirement Savings Program.

40. Does this change affect my Non-Qualified Salaried Savings Plan (NQSSP) account?
The Pension Plan freeze will not impact the NQSSP.

41. How will the new automatic company contribution be invested?
The contribution will be made weekly in your Lockheed Martin Retirement Savings account and you control the manner in which it is invested. More detailed information will be provided to you well in advance of the first contribution change.

42. Will the new automatic company contributions be added to a new savings account?
The new company contribution will be credited to an eligible employee’s Salaried Savings Plan (SSP) account. In our communications, we refer to this as the Lockheed Martin Retirement Savings Account. The contribution will be made on a weekly basis and reflected separately in your SSP account from your personal contributions and any company matching contributions. Employees will have the opportunity to allocate the new company contributions across the same variety of investment options available in the SSP.

For employees who participate in the Capital Accumulation Plan (CAP), it is expected that the CAP will be combined with the SSP by 2020 and is being referred to as your Retirement Savings Account. We are using this single plan naming convention to more simply describe the future retirement program

43. Why are defined contribution benefits being increased for people in the CAP?
The Capital Accumulation Plan, or CAP, is provided to salaried employees who joined Lockheed Martin after Dec. 31, 2005, and are not eligible for the Pension Plan. Under the CAP, participants receive a contribution based on years of service. Employees with less than five years of service automatically receive 3 percent of salary and those with five or more years of service receive 4 percent. Increasing the defined contribution benefit in 2016 brings CAP participants more closely aligned with the benefits offered to pension participants during the transition.

For CAP participants, starting on Jan. 1, 2016, you will receive an automatic company contribution of 2 percent of your salary into your new Lockheed Martin Retirement Savings Account, which will be posted weekly. Additionally, all CAP participants will receive a company contribution of 4 percent of your salary into your CAP account, regardless of years of service. If you have less than five years of service, this will be an increase. For all others, it will remain the same.

Since we closed the pension plan to new participants in 2006, we expect that by 2016, the majority of our employees will not be pension participants. Introducing a unified retirement program ensures that we’re offering consistent and competitive retirement benefits to the majority of Lockheed Martin salaried employees.

44. Whom do I contact regarding Salaried Savings Plan – 401(k) Plan-related questions?
For 401(k) Plan-related questions, first view the materials found at www.lockheedmartin.com/retirement. From there, you can access Retirement Benefits Education Videos, Learning Webinars and the Retirement Benefits Change Overview Brochure. You should also access the Savings Plan Web Tool found at LM People>Pay and Benefits>LM Employee Service Center. If you can’t find the answer to your question online, please contact the Savings Plan Information Line at 800-444-4015.