As a result of the 2008 financial crisis the federal government passed the Employee Retirement Income Security Act (ERISA), which ensures that employee benefit plans are established or maintained in a fair and financially sound manner. In addition, employers have an obligation to provide promised benefits and satisfy ERISA’s requirements for managing and administering private retirement and welfare plans. Consequently legacy A&D companies have a fiduciary responsibility to make significant contributions to employee’s pension funds. Pension fund contributions have a significant impact on the retirement plan component of Fringe. Utilizing ARDAK’s Contract Exploitation System (ACES), provides significant visibility competitor’s pension fund strategy allows ARDAK’s clients to maintain a significant competitive advantage.
Analysis was performed utilizing ARDAK’s Contract Exploitation System (ACES); proprietary Rate Derivation (RD) methodology and public domain financial data. Wrap rates were developed for each of competitor, with Low Level Decompositions (LLD)’s performed to determine the retirement contribution to fringe. The retirement contribution to fringe was then factored by the estimated retirement funding profiles to predict the retirement contribution to fringe’s effect on future wrap rates.
Key factors in the analysis include:
Key assumptions in the analysis include:
Historical analysis of General Dynamics’ retirement plan and financials shows that retirement contributions have been gradually increasing subsequent to the plan suffering approximately 35% loss in value between 2007 and 2008 attributable to the reduction in equity values associated with the 2008 financial crisis. Consequently, pension harmonization payments have been necessary to conform to funding requirements specified by the Pension Protection Act of 2006 (PPA). Most recently, contributions demonstrate moderate increase.
Utilizing the ARDAK’s Contract Exploitation System (ACES) aforementioned data as a base, ARDAK has performed an analysis of the potential effect of future retirement obligations and contributions on the overall GD AIS wrap rate as a result of the 2008 Financial Crisis. The analysis of GD’s retirement contribution was based upon the following factors:
The baseline retirement fringe was determined through ARDAK’s Contract Exploitation System (ACES) Wrap Rate Analysis Low Level Decomposition. The Direct Labor Rate increase was accepted from the 2012 GD 10-K. The rate of retirement plan value increase was accepted from the 2012 GD 10-K. The rate of retirement plan obligation increase was calculated based on the previous four years’ rate of obligation increase.
Utilizing these factors, the following GD AIS pension states are predicted: