(Bloomberg) — Boeing Co., the world’s largest planemaker, will freeze pensions for 68,000 nonunion employees and executives, shifting benefit payments to a 401(k)-style plan as it works to cut costs.
The change will take effect Jan. 1, 2016, the Chicago-based company said today in a statement. Employees will be able to keep any accruals already made to their pensions provided in Boeing’s defined benefit plan as the company shifts payments to a defined contribution plan. Employees hired since 2009 and new members of 28 unions are already on this plan.
Boeing is curbing pension expenses that, at $3.45 billion over the last 12 months, are the third-highest among large U.S. corporations, according to data compiled by Bloomberg. General Electric Co.’s $5.05 billion expense was the largest, followed by Exxon Mobil Corp.’s $3.73 billion.
Boeing aims to provide workers with an “attractive” benefit, “while also assuring our competitiveness by curbing the unsustainable growth of our long-term pension liability,” Tony Parasida, the company’s senior vice president of human resources and administration, said in the statement.
Boeing was little changed at $128.86 at the close in New York. The stock has surged 63 percent in the past year.
Companies’ 401(k) plans were originally conceived as a supplement to pensions, which they have mostly replaced over the past three decades. Workers can direct as much as $17,500 of pretax income toward their 401(k)s in 2014. Employees 50 and older can set aside an additional $5,500 of pay.
Combined contributions from workers and employers can add up to $52,000, although companies are under no obligation to participate.
Boeing plans to contribute amounts equaling 9 percent of employees’ eligible income in 2016, 8 percent in 2017, 7 percent in 2018 and 3 percent to 5 percent after that. Retirees already collecting pensions won’t be affected, the company said.
The changes aren’t expected to impact the company’s 2014 core earnings, which exclude pensions, Boeing said. The company’s unadjusted results will include a non-cash pension curtailment charge of about $110 million that will be recorded in the first quarter.
First-quarter results will also include previously announced charges of $140 million and $80 million related to retirement plans struck as part of new contract agreements with two Machinists unions.
The planemaker will end pension accruals in 2016 for its Seattle-area machinists under an eight-year contract extension that workers narrowly approved in January in exchange for a company promise to manufacture the 777X jetliner and its composite wing in Washington. A St. Louis-area union also voted to end pensions Feb. 23.