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Special RTX Employee Post: RTX Pension

Writer's picture: Joe BoughanJoe Boughan

The merger of United Technologies (UTC) and Raytheon Company to form Raytheon Technologies (RTX) significantly altered the retirement landscape for many long-term Raytheon employees. A key change involved the transition from a traditional defined benefit pension plan to a cash balance plan, often paired with a 401(k) which is available to everyone, even those not included in the pension plan. This shift presents both challenges and opportunities for retirement planning, requiring a thorough understanding of the differences between these plans and a proactive approach to securing a comfortable retirement.


The Legacy Defined Benefit Plan: A Secure Foundation

Before the merger, many Raytheon employees enjoyed the security of a defined benefit pension plan. This plan guaranteed a specific monthly income upon retirement, calculated using a formula based on years of service and the employee's highest average earnings over a defined period (typically the five highest-earning years). This provided a predictable and reliable income stream, offering significant financial security.

  • Guaranteed Income: The plan's core strength was its guaranteed monthly payments upon retirement, shielding employees from market fluctuations and investment risks. This predictability was invaluable for long-term financial planning.

  • Simplicity and Transparency: The straightforward calculation method made it easy for employees to understand their future retirement income, fostering a sense of security and control.

  • Employer-Sponsored Security: The employer bore the investment risk and guaranteed the promised payments, relieving employees of the burden of managing investments.


However, this system wasn't without limitations. The benefits were indirectly tied to the company's financial health, and changes in the company's structure or performance could theoretically impact the final pension amount, although this was rarely a significant concern. The plan's structure also lacked flexibility to adapt to changing economic realities or individual employee circumstances.


The Shift to Cash Balance Plans: Understanding the New Landscape

Following the merger, Raytheon employees saw their defined benefit plans replaced with cash balance plans. These plans operate differently from traditional defined benefit plans, introducing new elements to consider:

  • Account Balance: A cash balance plan functions like a personal retirement account, with contributions from both the employer accumulating in a hypothetical account. The account balance grows at a predetermined interest rate, often fixed or tied to a specific index.

  • Investment Risk Mitigation: While the account balance is subject to the fixed interest rate which is lower than what the historic market averages in the stock market may offer, it's less susceptible to the volatility of the stock market compared to a purely defined contribution plan like a 401(k).

  • Portability: Cash balance plans are generally portable, meaning employees can often take their accumulated balance with them if they change employers, or potentially even roll the balance into an IRA to have more control over how it is invested. This offers greater flexibility compared to traditional defined benefit plans.


However, cash balance plans also present some drawbacks:

  • Interest Rate Sensitivity: The growth of the account balance is directly tied to the fixed interest rate. A lower interest rate will result in slower growth, potentially impacting the final retirement benefit.

  • Less Predictability: While more predictable than a 401(k), the final retirement benefit isn't as precisely defined as with a traditional defined benefit plan. The final amount depends on the interest rate, company contribution amount, length of service in the plan, and the length of time the account grows.

  • Potential for Lower Benefits to Employees in this account: Depending on the fixed interest rate, the returns might be lower than those achievable through investments in a 401(k) (depending on your risk tolerance) and the contributions the account may be lower compared to the previous defined benefit plan for employees close to retirement.


Integrating Cash Balance Plans with 401(k)s: A Hybrid Approach

Many RTX employees now find themselves with a hybrid retirement system, combining a cash balance plan with a 401(k) or similar defined contribution plan. This combination presents both advantages and complexities:

  • Diversification: The combination offers diversification, spreading retirement savings across different investment vehicles and reducing reliance on a single plan's performance.

  • Increased Control: The 401(k) component allows for greater control over investment choices, potentially leading to higher returns if managed effectively.

  • Increased Responsibility: The hybrid system places more responsibility on the employee to manage their investments and plan for retirement effectively. This requires a higher level of financial literacy and proactive engagement. One thing to consider is to look at your holistic portfolio of pension and 401(k) benefits as one large "portfolio" as opposed to two separate accounts. For example, since the pension investments are conservative, and employee that invests their portfolio in the 401(k) account may have more conservative allocation plan than they need if they evaluated the portfolio as one big, combined retirement portfolio, but everyone is different, so each situation must be evaluated carefully with a personalized plan that accounts for all of the most relevant personal and financial factors.


Strategies for Success in the New System

Successfully navigating the transition to a cash balance plan and a 401(k) requires a proactive and informed approach:

  • Understand Your Plans: Thoroughly understand the rules, contribution limits, and investment options of both your cash balance plan and your 401(k).

  • Seek Professional Advice: Consulting a financial advisor can provide personalized guidance on investment strategies, risk management, and retirement planning.

  • Maximize Contributions: Contribute the maximum amount allowed to both your cash balance plan and your 401(k) to maximize your retirement savings.

  • Diversify Your Investments: Diversify your 401(k) investments across different asset classes to reduce risk and potentially enhance returns.

  • Regularly Review Your Portfolio: Regularly review and adjust your 401(k) investments to ensure they align with your retirement goals and risk tolerance.


Conclusion: Adapting to a Changing Retirement Landscape

The shift from defined benefit to cash balance plans, coupled with 401(k)s, marks a significant change in the retirement landscape for many RTX employees. This transition requires a more active and informed approach to retirement planning. By understanding the nuances of each plan, seeking professional guidance, and implementing effective strategies, employees can successfully navigate this change and secure a comfortable retirement. Proactive planning, informed decision-making, and diligent effort are crucial for achieving financial security in this new environment.


If you are interested in exploring how we work with our clients, some of whom are other RTX or Raytheon employees, please check out our video describing a few thoughts on how we work with clients first, and if it makes sense, feel free to use it to schedule a call with us.





The foregoing content reflects the opinions of Parkmount Financial Partners LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any  security, or the implementation of any strategy or strategies. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful or that markets will act as they have in the past. 

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