Lockheed Martin Corporation (NYSE:LMT) announced on Tuesday, July 30th, that it was planning to freeze its current employee pension plan for salaried workers in the U.S., and would be switching impacted employees to a defined contribution program in 2016.

Lockheed Martin logo

This process actually began back in 2006 when Lockheed Martin started to phase out its salaried pension program and the plan was closed to new participants. The major defense contractor reported that 48,000 out of 113,000 employees remain enrolled in the program, as well as another 250,000 retirees and former employees.

Details on new Lockheed Martin retirement benefit plan

According to the statement released by Lockheed earlier today, pay-based benefits will be frozen as of January 1, 2016. Service-based benefits will also be frozen  as of January 1, 2020.

Lockheed Martin Corporation (NYSE:LMT) new retirement plan will offer employees up to 10% of their salary in company contributions to a 401(k) every year.

It should be noted that retirees already collecting benefits under the old program, as well as former employees with a vested benefit, will not be impacted by the change in plans. Moreover, current and former employees will also be keeping the pension benefits they’ve already earned.

Pensions continue to disappear

Today’s announcement makes Lockheed Martin Corporation (NYSE:LMT) just the latest large enterprise to move away from the traditional pension model. Defense contractor and jetliner giant Boeing also revamped its pension plan and replaced it with a 401(k) plan back in March.

Companies have been retreating from defined benefit (pension) plans for decades because of the growing costs of funding the plans. The biggest problem is that workers are living longer. In the U.S., men now aged 65 live an average of five years longer than they did 50 years ago. The skyrocketing costs of defined benefit plans was obscured by rising stock markets for a number of years. But since 2000, the returns from stock markets have been relatively low and the yields on bonds have also declined.

Over the last few years, there’s been a major shift towards defined-contribution plans (such as 401(k) plans), where both employers and employees contribute to a plan which the worker can access in retirement, in order to keep costs down

Lockheed Martin Corporation (NYSE:LMT) shares are up 17 cents at $160.90 as of 12:27 PM ET today.