National pension concerns

Several events in the media have focused our attention on pensions and health-care benefits for retirees:

• Stock market decline slashed pension trust-fund assets
  
• Companies in financial distress cut pensions and health care benefits
  
• New IRS rules legitimized practices reducing pension benefits
  

Plan Types
Pension plan designs are sometimes described as “defined-benefit” or “defined-contribution” plans.

Defined-benefit plans provide a known pension amount, and are funded by pension trust funds. The trust funds invest in stocks, bonds and other securities, which must be used to pay pensions to past and future retirees. The employer bears the risk of funding the trusts, but the employer may enjoy accounting advantages if the funds run a surplus. Boeing pension fund surplus grew to many billions of dollars when the markets were up a few years ago. Defined-benefit plans are often protected by union contracts.

At Boeing, the Pension Value Plan (PVP) and Boeing Company Employee Retirement Plan (BCERP) are both defined-benefit plans.

Defined-contribution plans are funded by fixed predictable payments, often supplied by employees as well as employers. All the risk and reward for investment gains and losses is borne by employees and retirees. Familiar examples of defined contribution plans are VIP or other 401(k) plans.

Boeing Pensions
Boeing pension funds are invested in stocks, bonds and other securities. The PVP and BCERP investment patterns are very similar. The dramatic decline in stock market values affected Boeing’s trust funds. The generous surpluses of the late 90s are gone.

Pension administrators assume the investments will grow at a reasonable rate. Employers must fund the trusts when the accounting rules indicate the assets will not grow quickly enough to cover the obligations.

National Concerns
Polaroid, US Airways and Bethlehem Steel have experienced severe pension problems in their bankruptcy proceedings. A Federal agency – the Pension Benefit Guarantee Corporation (PBGC) – covers some of the losses, but not all.

Boeing employee pensions and early retiree medical benefits are covered in the contracts. Since the mid-90s Boeing has not been obligated to make large contributions to the pensions. We expect that contributions will be made in the next few years with growth in the assets of the fund.

The financial security of Boeing employee pension plans depends on continued strength of the American economy, including the financial well-being of Boeing.