Lockheed Martin Pension Lump Sum vs. Annuity: A Guide for LM Employees (2026)

Lockheed Martin operates one of the largest private-sector defined-benefit pension programs in the United States, covering hundreds of thousands of current and former employees across its defense, space, aeronautics, rotary and mission systems businesses. If you are evaluating whether to take your LM pension benefit as a lump sum or a lifetime monthly annuity, your decision involves features that are genuinely unusual: a $5,000/month cap on lump-sum eligibility that disqualifies many senior employees from the lump-sum option entirely; two separate pension risk transfers to Athene Annuity and Life Company totaling approximately $9.2 billion (in 2021 and 2022) that ended PBGC protection for roughly 31,600 participants; and an active class-action lawsuit filed in 2024 challenging those transfers. This guide explains what plan applies to you, whether you are even eligible for a lump sum, how the Athene transfers affect your risk exposure, and how to approach the decision in the current 2026 rate environment.

Lockheed Martin's pension plan structure and the two-phase freeze

Lockheed Martin's defined-benefit pension program grew primarily through the 1995 merger of Lockheed Corporation and Martin Marietta, and expanded further with acquisitions including Loral Corporation's defense electronics divisions (1996), Sikorsky Aircraft from United Technologies (2015), and others. Each major acquisition brought legacy pension obligations, many of which were eventually merged into or mirrored the structure of the two primary plans:

• Lockheed Martin Corporation Salaried Employee Retirement Program (SERP): Covers most salaried non-bargained employees. A traditional defined-benefit plan using a final-average-pay formula.
• Lockheed Martin Aerospace Hourly Pension Plan: Covers bargained hourly employees at certain facilities.

Lockheed Martin has frozen its pension accruals in two stages:¹

1. Earnings component froze January 1, 2016. The salary figure used in the benefit formula was frozen as of December 31, 2015. If your final pay was higher than your December 2015 pay, the increase above that frozen amount does not increase your pension benefit.
2. Credited service component froze January 1, 2020. No additional years of credited service accrued after December 31, 2019. Service continues to count for vesting, early retirement eligibility, and retiree medical eligibility — but the pension benefit formula stopped growing.

The practical implication: an LM employee hired in 2000 and still working today has a pension calculated on their December 2015 salary and their credited service as of December 2019, regardless of subsequent pay increases or additional years worked. This is why many newer or higher-earning LM employees find that their pension benefit is smaller relative to their current compensation than they expected — the two-phase freeze has largely decoupled the pension from recent earnings and tenure.

The critical eligibility rule: the $5,000/month lump-sum cap

Unlike many corporate pension plans that allow any vested participant to elect a lump sum at retirement, Lockheed Martin's plan imposes a strict eligibility ceiling: if your accrued monthly pension benefit exceeds $5,000/month, you are not permitted to elect a lump-sum distribution under the current plan rules.²

This threshold is not inflation-indexed. For long-service LM employees — particularly those with pre-2016 salaries in the $150,000–$300,000+ range and 20+ years of credited service — a monthly benefit in excess of $5,000 is common. Many senior engineers, program managers, and executives find that their benefit exceeds the cap, leaving the monthly annuity as the only option at retirement.

For participants whose benefit is at or below $5,000/month, the lump-sum election remains available at retirement (subject to the plan's distribution rules and the Athene transfer discussion below). For those above the cap, this guide's lump-sum analysis does not apply to the current retirement decision — though the PBGC cap exposure and survivorship election sections below remain directly relevant.

If you are uncertain whether your benefit exceeds $5,000/month, request an annuity benefit estimate from the LM Employee Service Center (866-562-2363) or through the LMPeople HR portal. Do this before spending time modeling a lump-sum election that may not be available to you.

How Lockheed Martin calculates your lump sum: §417(e) segment rates

For participants eligible for the lump-sum option (benefit at or below $5,000/month), the lump-sum amount is calculated as the present value of your accrued monthly benefit, discounted using the IRS §417(e)(3)(D) minimum present value segment rates.³ These are the same three-segment rates used by most major corporate pension plans.

The key mechanics:

• Higher IRS segment rates → smaller lump-sum offer. Lower rates → larger offer.
• The IRS publishes these rates monthly. Your plan specifies a "look-back month" — typically several months prior to your retirement date — to determine which month's rates apply to your offer. The specific look-back month for LM's plan is disclosed in the plan's Summary Plan Description; ask LM's benefits administrator for your plan's current look-back structure.
• As of early 2026, IRS §417(e) segment rates are at elevated levels compared to 2020–2021: January 2026 rates were approximately 4.03%, 5.20%, and 6.12% for Segments 1, 2, and 3 respectively.³ April 2026 rates shifted to approximately 4.75%, 5.25%, and 5.84%.³ These rates are roughly 2–3 percentage points above the 2020–2021 low, meaning current lump-sum offers are materially smaller than they would have been three to four years ago.

For a $4,000/month LM pension for a 62-year-old, the lump-sum present value at current 2026 segment rates would be approximately $575,000–$625,000, compared to roughly $800,000–$870,000 at 2021's near-zero rates — a $200,000–$300,000 difference on the same accrued benefit. Use our lump-sum vs. annuity calculator and interest rate timing guide to model your specific numbers.

The Athene pension risk transfers: what they mean for ~31,600 LM participants

Between 2021 and 2022, Lockheed Martin completed two separate group annuity purchases transferring pension obligations to Athene Annuity and Life Company:⁴

When Lockheed Martin transferred these obligations to Athene:

• PBGC protection ended for the transferred participants. A pension risk transfer (PRT) is structured as a group annuity purchase: LM pays Athene a lump sum in exchange for Athene assuming the obligation to pay the affected retirees their monthly benefits for life. Once the transfer is complete, those participants are no longer in a plan covered by PBGC. LM's obligation to them — and PBGC's backstop — ends.⁴
• State insurance guaranty associations are now the backstop. If Athene were to become insolvent, the affected participants would rely on the state insurance guaranty association in the state where they reside — not PBGC. State guaranty associations provide varying levels of protection. Most states cover a lifetime present value of $250,000–$500,000 per person, though the specifics depend on the state. This is structurally different from PBGC's $7,789.77/month guarantee, which covers an ongoing monthly payment stream rather than a lifetime present value.⁴
• How to tell if you were included: Participants included in the 2021 or 2022 transfer began receiving pension payment correspondence from Athene (rather than from LM or its prior administrator) after the effective date. If you receive pension payments from Athene Annuity and Life Company, your benefit is in one of these two transferred groups.

The 2024 class-action lawsuit

In March 2024, a group of former Lockheed Martin employees filed a class-action lawsuit in the U.S. District Court for the District of Maryland challenging the two Athene pension risk transfers.⁵ The plaintiffs allege that the transfers violated ERISA fiduciary duties by selecting Athene — a private equity-backed insurer — over financially stronger alternatives, depriving participants of PBGC's protection. As of mid-2026, this litigation is ongoing.

The litigation does not restore PBGC coverage for transferred participants, and the outcome (if any) may take years to resolve. What it reflects is a genuine difference of opinion about the risk that state guaranty association protection represents relative to PBGC, particularly for participants with larger benefits. This is a material consideration in the lump-sum vs. annuity decision for participants whose benefits remain in the LM plan but are approaching the $5,000/month threshold: if a future buyout window were ever offered again, taking the lump sum would eliminate both the insurer-credit risk and any uncertainty from the litigation.

PBGC cap exposure for participants remaining in the LM plan

For participants whose benefits were not included in either Athene transfer and remain in the Lockheed Martin plan, PBGC protection continues. The 2026 maximum PBGC guarantee for a 65-year-old straight-life annuitant is $7,789.77/month ($93,477/year).⁶

Given the $5,000/month lump-sum cap, most participants who remain in the LM plan and have benefits above $5,000/month also have benefits that could exceed the PBGC cap if they are senior, long-service employees. The PBGC cap means:

• If your accrued benefit is, say, $9,500/month, only $7,789.77/month is guaranteed by PBGC in a plan termination. The remaining $1,710.23/month depends on LM's plan funding status.
• LM's pension plan is substantially large but has been actively de-risked through the Athene transfers. Check the plan's most recent Form 5500 (available from the DOL ERISA database or LM's benefit plan documents page) for the current funded status.
• Participants with benefits above the PBGC cap who also exceed the $5,000/month lump-sum threshold face a specific predicament: they cannot take the lump sum to eliminate plan risk, and they are not fully protected by PBGC above the cap. This is a reason to closely monitor both LM's plan funded status and any future lump-sum window offers.

The Lockheed Martin Savings Plan and the Rule of 55

LM employees who are at least 55 at the time of separation from service can withdraw from the Lockheed Martin Savings Plan (the 401(k)) without the 10% early withdrawal penalty under IRC §72(t)(2)(A)(v). This exception applies to the qualified plan of the employer from which you separate — it does not transfer to an IRA rollover.⁷

The strategic implications are the same as for any employer: if you are between 55 and 59½ and might need access to retirement funds before 59½, rolling your LM Savings Plan balance to an IRA eliminates this penalty-free access pathway. Keep the Savings Plan assets in the 401(k) to preserve the Rule of 55 exception; roll the pension lump sum (if eligible) to an IRA separately. If you need access to IRA funds before 59½, the §72(t) SEPP election is an alternative — see our 72(t) SEPP guide for the mechanics and commitment trap.

For the LM Savings Plan, contact the LM Savings Plan Information Line at 800-444-4015 or through LMPeople for current balance and distribution options.

RMD and IRMAA risk on a large LM pension rollover

LM management employees with pre-2016 salaries and significant service years often have pensions in the $2,500–$5,000/month range — placing many of them right at the lump-sum eligibility boundary. A lump-sum election in that range produces a rollover IRA of approximately $350,000–$700,000 at current 2026 segment rates. These are meaningful balances with long-run tax management implications.

Required minimum distributions

Under SECURE 2.0, RMDs from a traditional IRA must begin at age 73 for participants born 1951–1959, and at age 75 for participants born 1960 or later.⁸ A $500,000 IRA growing at 6% annually will generate an RMD of approximately $21,000–$23,000 at age 73, growing to $30,000–$40,000+ in the participant's 80s. Stacked on top of Social Security income, this can push ordinary income into higher brackets — and toward IRMAA thresholds.

IRMAA surcharges

Medicare IRMAA surcharges apply when MAGI exceeds $109,000 (single) or $218,000 (MFJ) in 2026 — adding at least $74.90/month per person to Part B premiums in the first tier alone, with higher tiers reaching $443.90/month additional per person.⁸ A retiree taking Social Security plus a growing IRA RMD can cross IRMAA tiers in their 70s even if lifestyle spending remains constant.

The years between LM retirement and RMD onset (ages 73 or 75) represent a planning window for:

• Roth conversions: Convert a portion of the rollover IRA to a Roth IRA each year, staying below IRMAA Tier 1 thresholds. Use our Roth Conversion Optimizer to find the annual amount that maximizes after-tax wealth without triggering IRMAA surcharges.
• QLAC: A Qualified Longevity Annuity Contract can shelter up to $210,000 (2026 limit) from RMD calculations, deferring payments to age 85 and reducing mandatory distributions in your early 70s.⁸
• QCDs after age 70½: Qualified Charitable Distributions satisfy RMDs tax-free up to $111,000/year (2026 limit), relevant for charitably inclined retirees with large IRA balances.⁸

Joint-and-survivor election for LM participants taking the annuity

If you are married and elect the monthly annuity — whether because your benefit exceeds the $5,000/month lump-sum cap or because you chose the annuity — ERISA §205 requires that the default form be a qualified joint-and-survivor annuity (QJSA). The QJSA default provides a reduced monthly payment to you while you live, with at least 50% of that amount continuing to your surviving spouse.⁹

LM typically offers a menu of survivor elections — life-only (highest monthly payment, no survivor benefit), 50% J&S, 75% J&S, and 100% J&S — each carrying progressively lower monthly payments to fund the survivor continuation. For participants with benefits above the PBGC cap, or whose benefit was transferred to Athene, the survivorship election deserves careful attention: the survivor benefit extends the insurer-credit risk exposure to the surviving spouse.

Use our J&S election calculator to model the household NPV of each election across different life expectancy assumptions for both spouses. Our J&S guide explains the actuarial cost drivers and the "pension max" strategy — using a life-only election plus life insurance to replicate the J&S benefit more flexibly — and its substantial risks.

Lump sum vs. annuity: the LM-specific decision framework

For Lockheed Martin pension participants, the decision framework has several features that don't apply at other employers:

1. Are you eligible for the lump sum? If your accrued monthly benefit exceeds $5,000/month, the lump-sum option is currently unavailable. Watch for any future lump-sum buyout windows — LM offered one in September–October 2023 — which may be subject to different terms. If you are approaching the threshold, the pre-retirement timing of your separation date can matter for your eligibility.
2. Was your benefit transferred to Athene? If yes, evaluate Athene's financial strength and your state's guaranty association coverage relative to your monthly benefit. If you are in a state with a lower coverage limit and your benefit exceeds it, the monthly annuity carries tail risk the AT&T plan previously backstopped via PBGC.
3. Does your benefit exceed the PBGC cap ($7,789.77/month)? If your benefit remains in the LM plan and exceeds the cap, the uncovered portion depends on LM's plan solvency. The lump sum (if eligible) captures the full actuarial present value without plan or corporate risk.
4. What does the break-even analysis show? Use our break-even calculator to determine the age at which cumulative annuity payments match the lump-sum balance invested at your expected return. At current 2026 rate levels, lump-sum offers are compressed — meaning break-even ages can be reached sooner than they would at lower discount rates.
5. Do you have other guaranteed income? Social Security, a spouse's pension, or LM Savings Plan income can reduce the longevity-insurance value of the LM annuity. With multiple guaranteed income sources covering living expenses, the case for investing the lump sum in growth assets strengthens.
6. What is the long-run tax picture? Use our IRA RMD calculator to project the mandatory distributions from a rollover IRA. If projected RMDs push you into IRMAA tiers or higher marginal brackets in your 70s, that cost should be weighed against the annuity's more predictable (and bounded) tax profile.

There is no universally correct answer. The $5,000/month cap removes the lump-sum choice for many LM employees entirely; for those eligible, the Athene transfer status, PBGC cap exposure, segment rate environment, and personal longevity/tax situation interact in ways that require individual analysis. A fee-only advisor familiar with LM benefits can model your specific numbers — without the commission conflict that incentivizes wirehouse advisors to push the lump sum in order to generate AUM fees on the IRA rollover.

1. Lockheed Martin, Pension Plan Change Frequently Asked Questions; Pension Plan Change Timeline. Earnings component of the benefit formula froze January 1, 2016; credited service component froze January 1, 2020. Service for vesting, early retirement eligibility, and retiree medical continued to accrue after 2019. Values verified July 2026.
2. Strittmatter Wealth Management Group, Lockheed Martin Pension Payout Calculator; The Retirement Group, Lockheed Martin Pension Window: What You Need to Know. Retirees whose pension payment exceeds $5,000/month are not permitted to choose a lump-sum payout under current LM plan rules. Values verified July 2026.
3. IRS, Minimum Present Value Segment Rates (§417(e)(3)(D)). January 2026 spot segment rates: 4.03% / 5.20% / 6.12%. April 2026 spot segment rates: 4.75% / 5.25% / 5.84%. Lump-sum calculations use rates for a plan-specific look-back month defined in the Summary Plan Description. Values verified July 2026.
4. Lockheed Martin, Press Release: Lockheed Martin Reduces Gross Pension Obligation by $4.3 Billion (June 27, 2022). The 2022 transfer covered ~13,600 participants and beneficiaries; Athene began administering January 1, 2023. The 2021 transfer covered ~18,000 participants. Total: ~$9.2B / ~31,600 participants. PBGC protection ended for transferred participants; state guaranty association protection now applies (coverage typically $250,000–$500,000 per person, state-dependent). Values verified July 2026.
5. ERISA Litigation & Compliance, AT&T and Lockheed Martin Face Class Actions Over Pension Risk Transfers to Athene (March 2024); American Bar Association, AT&T and Lockheed Martin Face Class Actions Over Pension Risk Transfers to Athene. Class action filed March 2024 in U.S. District Court for the District of Maryland. Plaintiffs allege that the transfers to Athene — a private-equity-backed insurer — violated ERISA fiduciary duties by depriving participants of PBGC protection. Litigation ongoing as of July 2026.
6. PBGC, Maximum Monthly Guarantee Tables. 2026 maximum monthly PBGC guarantee for a 65-year-old straight-life annuitant: $7,789.77/month ($93,477/year). Applies to participants remaining in a PBGC-covered plan; does not apply to benefits transferred to Athene via group annuity purchase. Values verified July 2026.
7. IRS, IRC §72(t) Exceptions to Early Distribution Penalty. Under IRC §72(t)(2)(A)(v), distributions after separation from service at age 55+ are not subject to the 10% early penalty when taken from the qualified plan of the employer from which you separated. Rolling to an IRA eliminates this exception for the rolled funds. The Retirement Group, Separation from Service Rule 55: Explained for Lockheed Martin Employees. Values verified July 2026.
8. IRS, IRA Required Minimum Distributions. SECURE 2.0: RMD start age 73 (born 1951–1959), 75 (born 1960+). IRS Notice 2025-67: 2026 QLAC limit $210,000. 2026 QCD limit $111,000. CMS, Medicare Costs at a Glance. 2026 IRMAA Tier 1: $109,000 single / $218,000 MFJ. Values verified July 2026.
9. DOL/ERISA §205, Spousal Benefit Rights Under ERISA. ERISA §205 requires qualified joint-and-survivor annuity as the default for married participants in defined-benefit plans. The surviving spouse must receive at least 50% of the participant's annuity. Waiver requires notarized spousal consent. See also our joint-and-survivor election guide and J&S calculator.

Content verified July 2026. Lockheed Martin pension plan rules are complex and depend on which plan and program covers your benefit, your hire date, service history, whether your benefit exceeds the $5,000/month lump-sum cap, and whether your benefit was included in the 2021 or 2022 Athene group annuity transfer. Confirm your specific benefit, election options, and eligibility directly with the LM Employee Service Center (866-562-2363) or through LMPeople. This page is informational and does not constitute financial, tax, or investment advice.