Lockheed Martin 2015 Annual Report Download - page 101

The net periodic benefit cost recognized each year included the following (in millions):
Qualified Defined
Benefit Pension Plans (a)
Retiree Medical and
Life Insurance Plans
2015 2014 2013 2015 2014 2013
Service cost $ 875 $ 903 $ 1,142 $21 $22 $27
Interest cost 1,791 1,912 1,800 110 123 116
Expected return on plan assets (2,734) (2,693) (2,485) (147) (146) (145)
Recognized net actuarial losses 1,599 1,173 1,410 43 23 44
Amortization of net prior service (credit) cost (389) (151) 81 44 (17)
Total net periodic benefit cost $ 1,142 $ 1,144 $ 1,948 $31 $26 $25
(a) Total net periodic benefit cost associated with our qualified defined benefit plans represents pension expense calculated in accordance
with GAAP (FAS pension expense). We are required to calculate pension expense in accordance with both GAAP and CAS rules,
each of which results in a different calculated amount of pension expense. The CAS pension cost is recovered through the pricing of
our products and services on U.S. Government contracts and, therefore, is recognized in net sales and cost of sales for products and
services. We include the difference between FAS pension expense and CAS pension cost, referred to as the FAS/CAS pension
adjustment, as a component of other unallocated, net on our Statements of Earnings. The FAS/CAS pension adjustment, which was
income of $471 million in 2015; income of $376 million in 2014; and expense of $482 million in 2013, effectively adjusts the amount
of CAS pension cost in the business segment operating profit so that pension expense recorded on our Statements of Earnings is equal
to FAS pension expense.
The following table provides a reconciliation of benefit obligations, plan assets and unfunded status related to our
qualified defined benefit pension plans and our retiree medical and life insurance plans (in millions):
Qualified Defined Benefit
Pension Plans
Retiree Medical and
Life Insurance Plans
2015 2014 2015 2014
Change in benefit obligation
Beginning balance $ 45,882 $ 42,161 $ 3,034 $ 2,823
Service cost 875 903 21 22
Interest cost 1,791 1,912 110 123
Benefits paid (a) (2,055) (2,399) (307) (352)
Actuarial losses (gains) (1,988) 4,493 (170) (40)
New longevity assumptions (834) 3,390 (77) 266
Plan amendments and acquisitions (b) 31 (4,578) 157 5
Medicare Part D subsidy ——14 26
Participants’ contributions ——101 161
Ending balance $ 43,702 $ 45,882 $ 2,883 $ 3,034
Change in plan assets
Beginning balance at fair value $ 34,673 $ 33,010 $ 1,932 $ 1,921
Actual return on plan assets (527) 2,062 (27) 126
Benefits paid (a) (2,055) (2,399) (307) (352)
Company contributions 52,000 100 50
Medicare Part D subsidy ——14 26
Participants’ contributions ——101 161
Ending balance at fair value $ 32,096 $ 34,673 $ 1,813 $ 1,932
Unfunded status of the plans $ (11,606) $(11,209) $(1,070) $ (1,102)
(a) Benefits paid in 2014 for qualified defined benefit pension plans include $427 million in the form of lump-sum settlement payments to
former employees who had not commenced receiving their vested benefit payments. The corresponding benefit obligation that was
released was $529 million. The settlement payments had no impact on our 2014 FAS pension expense and CAS pension cost.
(b) The June 2014 plan amendment which resulted in freezing the pay-based component of the formula used to determine retirement
benefits under the affected plans reduced our qualified defined benefit pension obligations by $4.6 billion, which resulted in a
corresponding reduction, net of tax, in the accumulated other comprehensive loss (AOCL) component of stockholders’ equity. This
amount is being recognized as a reduction of net periodic benefit cost (i.e., amortization of net prior service credit) over the estimated
remaining service period of the covered employees, which is approximately 10 years and began in the third quarter of 2014. The
November 2015 acquisition of Sikorsky increased our qualified defined benefit pension obligations by about $30 million.
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