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POSTRETIREMENT BENEFIT PLANS | 9 Months Ended
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Sep. 26, 2021
Retirement Benefits [Abstract] |
POSTRETIREMENT BENEFIT PLANS | POSTRETIREMENT BENEFIT PLANS FAS Expense (Income) Our pretax FAS expense (income) related to our qualified defined benefit pension plans and retiree medical and life insurance plans consisted of the following (in millions):
|  | Quarters Ended | Nine Months Ended
|  | September 26, 2021 |  | September 27, 2020 | September 26, 2021 |  | September 27, 2020
Qualified defined benefit pension plans |  |  |  |  |  |  |  |  |  |  |
Operating: |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 26 |  |  |  | $ | 25 |  |  | $ | 80 |  |  |  | $ | 76 |  |
Non-operating: |  |  |  |  |  |  |  |  |  |  |
Interest cost |  | 302 |  |  |  | 385 |  |  | 923 |  |  |  | 1,154 |  |
Expected return on plan assets |  | (517) |  |  |  | (566) |  |  | (1,655) |  |  |  | (1,698) |  |
Recognized net actuarial losses |  | 210 |  |  |  | 213 |  |  | 714 |  |  |  | 637 |  |
Amortization of prior service credits |  | (88) |  |  |  | (86) |  |  | (262) |  |  |  | (257) |  |
Pension settlement charge |  | 1,665 |  |  |  | — |  |  | 1,665 |  |  |  | — |  |
Non-service FAS pension expense (income) |  | 1,572 |  |  |  | (54) |  |  | 1,385 |  |  |  | (164) |  |
Total FAS pension expense (income) |  | $ | 1,598 |  |  |  | $ | (29) |  |  | $ | 1,465 |  |  |  | $ | (88) |  |
Retiree medical and life insurance plans |  |  |  |  |  |  |  |  |  |  |
Operating: |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 3 |  |  |  | $ | 3 |  |  | $ | 10 |  |  |  | $ | 10 |  |
Non-operating: |  |  |  |  |  |  |  |  |  |  |
Interest cost |  | 13 |  |  |  | 18 |  |  | 39 |  |  |  | 53 |  |
Expected return on plan assets |  | (35) |  |  |  | (32) |  |  | (105) |  |  |  | (96) |  |
Recognized net actuarial gains |  | — |  |  |  | (1) |  |  | — |  |  |  | (3) |  |
Amortization of prior service costs |  | 9 |  |  |  | 10 |  |  | 27 |  |  |  | 29 |  |
Non-service FAS retiree medical and life (income) |  | (13) |  |  |  | (5) |  |  | (39) |  |  |  | (17) |  |
Total FAS retiree medical and life (income) |  | $ | (10) |  |  |  | $ | (2) |  |  | $ | (29) |  |  |  | $ | (7) |  |
We record the service cost component of FAS pension expense (income) as part of cost of sales; non-service cost components of our qualified defined benefit pension plans as part of non-service FAS pension (expense) income; and non-service income for our retiree medical and life insurance plans as part of other non-operating income (expense), net in the consolidated statements of earnings. The recognized net actuarial losses and amortization of prior service credits or costs in the table above, along with similar costs related to our other postretirement benefit plans ($6 million and $13 million for the quarter and nine months ended September 26, 2021 and $4 million and $14 million for the quarter and nine months ended September 27, 2020) were reclassified from Accumulated Other Comprehensive Loss (AOCL) and recorded as a component of net periodic benefit cost (income) for the periods presented. These costs totaled $137 million ($107 million, net of tax) and $492 million ($387 million, net of tax) during the quarter and nine months ended September 26, 2021, and $140 million ($110 million, net of tax) and $420 million ($330 million, net of tax) during the quarter and nine months ended September 27, 2020 and were recorded on our consolidated statements of comprehensive income as an increase to other comprehensive income. Purchase of Group Annuity Contracts and Pension Remeasurement On August 3, 2021, we purchased group annuity contracts to transfer $4.9 billion of gross defined benefit pension obligations and related plan assets to an insurance company for approximately 18,000 U.S. retirees and beneficiaries. The group annuity contracts were purchased using assets from Lockheed Martin’s master retirement trust and no additional funding contribution was required by us. This transaction has no impact on the amount, timing, or form of the monthly retirement benefit payments to the affected retirees and beneficiaries. In connection with this transaction, we recognized a noncash pension settlement charge of $1.7 billion ($1.3 billion, or $4.72 per share, after tax) for the affected plans in the quarter ended September 26, 2021, which represents the accelerated recognition of actuarial losses that were included in the AOCL account within stockholders’ equity. As a result of this transaction, we were required to remeasure the benefit obligations and plan assets for the affected defined benefit pension plans as of the August 3, 2021 close date. The remeasurement reflects the use of updated actuarial assumptions as of the remeasurement date, primarily the discount rate and actual return on plan assets. The following table provides a reconciliation of the benefit obligations, plan assets and net unfunded status related to all of our qualified defined benefit pension plans, inclusive of the plans affected by the interim remeasurement and plans that were not, for the nine months ended September 26, 2021 (in millions):
Change in benefit obligation |  |  |  |  |  |
Beginning balance at December 31, 2020 |  | $ | 51,352 |  |  |  |  |
Service cost |  | 80 |  |  |  |  |
Interest cost |  | 923 |  |  |  |  |
Benefits paid |  | (1,611) |  |  |  |  |
Settlements(a) |  | (4,885) |  |  |  |  |
Change in benefit obligation due to remeasurement(b) |  | (1,253) |  |  |  |  |
Ending balance at September 26, 2021 |  | $ | 44,606 |  |  |  |  |
Change in plan assets |  |  |  |  |  |
Beginning balance at December 31, 2020 |  | $ | 38,481 |  |  |  |  |
Expected return on plan assets(c) |  | 1,655 |  |  |  |  |
Incremental return on plan assets recognized in remeasurement(c) |  | 1,618 |  |  |  |  |
Benefits paid |  | (1,611) |  |  |  |  |
Settlements(a) |  | (4,885) |  |  |  |  |
Company contributions |  | — |  |  |  |  |
Ending balance at September 26, 2021 |  | $ | 35,258 |  |  |  |  |
Net Unfunded status of the plans(d) |  | $ | (9,348) |  |  |  |  |
(a)Represents the transfer of gross defined benefit pension obligations and related plan assets to an insurance company pursuant to the group annuity contracts purchased on August 3, 2021. (b)Primarily reflects an increase in the discount rate from 2.50% at December 31, 2020 to 2.75% at the remeasurement date. (c)The expected return on plan assets represents approximately 4.00% for the period January 1, 2021 through August 3, 2021 (the proportional effect, or approximately seven twelfths, of our previously expected 7.00% annual long-term rate of return on plan assets assumption). The incremental return on plan assets recognized in remeasurement represents the difference between our actual return on plan assets of approximately 8.00% and our expected return of approximately 4.00% for the period January 1, 2021 through August 3, 2021. (d)For plans where the benefit obligation is in excess of plan assets, we report the net obligation (which was $9,351 million as of September 26, 2021) as part of accrued pension liabilities on our consolidated balance sheet. Conversely, for plans where the assets exceed the benefit obligation, we include the net asset (which was $3 million as of September 26, 2021) as part of other noncurrent assets on our consolidated balance sheet. The net unfunded status of the plans of $9,348 million in the table above represents the net total of these two amounts. In connection with the plan remeasurements, we lowered our expected long-term rate of return on plan assets from 7.00% to 6.50%, which reflects recent changes in our asset allocation targets. The plan remeasurement resulted in a decrease of $2.9 billion to our net unfunded pension obligations (which includes the change in benefit obligation due to remeasurement of $1.3 billion and the incremental return on plan assets recognized in remeasurement of $1.6 billion in the table above) with a corresponding increase of $2.3 billion after taxes in stockholders’ equity. The change in stockholders’ equity reflects the decrease in deferred actuarial losses, which will be recognized as an increase in net FAS pension income (or a decrease in net FAS pension expense) over the estimated remaining life expectancy of the covered employees beginning in the third quarter of 2021. However, deferred net actuarial gains or losses in stockholders’ equity are adjusted annually when the funded status of our postretirement benefit plans are measured, which will result in additional changes to our FAS pension income or expense in future periods. The purchase of the group annuity contracts and the pension remeasurement did not have an impact on our CAS pension cost and did not significantly impact our total FAS pension expense or net FAS/CAS pension adjustment for the quarter ended September 26, 2021 or expected full year 2021, except for the noncash pension settlement charge. The increase in the discount rate, incremental return on plan assets, and settlement charge reduced FAS pension expense in future periods, which was offset by the impact of the lower expected long-term rate of return on plan assets. Funding Requirements The required funding of our qualified defined benefit pension plans is determined in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended, along with consideration of CAS and Internal Revenue Code rules. We made no contributions to our qualified defined benefit pension plans during the quarters and nine months ended September 26, 2021 and September 27, 2020.

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