How does a Northrop Grumman-style pension define your benefit?

A defined benefit (DB) pension pays a benefit set by a plan formula, not by a personal account balance. Your "accrued benefit" is what you have earned under that formula so far, generally expressed as the annual annuity it would produce starting at normal retirement age.

Normal retirement age under federal law is the earlier of the age the plan itself sets or the later of age 65 or your fifth anniversary of plan participation. For most participants with five years of service, that means normal retirement age cannot be set past 65.

What happens if you start payments before normal retirement age?

Many DB plans let a participant start payments early, sometimes as young as 55, but the monthly amount is usually reduced to reflect a longer expected payout. Some plans subsidize part or all of that reduction instead of applying the full actuarial cut.

A cash balance plan handles this differently. It tracks a hypothetical account for each participant, crediting a "pay credit" (often a percentage of pay) and an "interest credit" each year, and converts that account balance into an annuity, or pays it out as a lump sum where the plan allows it.

How is a lump sum calculated, and whose rates set it?

Federal law requires that a lump sum paid instead of an annuity equal the present value of that annuity, calculated with the IRS's own minimum present value segment rates and mortality table under Internal Revenue Code section 417(e). These are rates the IRS publishes every month for plans nationwide, not a rate set by any single employer.

The three IRS segment rates cover different stretches of the expected payment stream, roughly the first five years, the next 15 years, and years after that. A plan's own benefit formula, not the segment rates, decides the size of the underlying annuity being converted.

What happens to a DB pension in divorce?

A state court divides a DB pension through a Qualified Domestic Relations Order, or QDRO. The plan administrator must review and "qualify" that order under the plan's own rules before it can pay any portion of the participant's benefit to the former spouse, known as the alternate payee.

Plans generally divide a pension one of two ways. Under a "shared payment" approach, the alternate payee receives a share of each payment once the participant is already receiving benefits. Under a "separate interest" approach, the alternate payee gets an independent right to a set share of the benefit, which can start at a different time and in a different form than the participant chooses.

An alternate payee generally cannot start a separate interest before the participant's "earliest retirement age." Federal law defines that term as the earlier of the date the participant can take a distribution under the plan, or the later of the participant's 50th birthday and the earliest date the participant could start benefits after leaving the company.

Whether an alternate payee can take a lump sum instead of ongoing payments depends on the plan. Some plans offer only one payout option, and an alternate payee is limited to that option, while plans with multiple distribution forms may let the alternate payee pick a form different from the participant's.

What if the pension plan cannot pay what it owes?

If an employer ends an underfunded single-employer DB plan, the Pension Benefit Guaranty Corporation (PBGC) can take over as trustee and keep paying benefits up to a legal limit set each year.

For a plan that ends in 2026, the most PBGC can pay a participant who starts benefits at age 65 is $7,789.77 a month as a straight-life annuity. The joint-and-50%-survivor annuity amount is $7,010.79 a month when both spouses are the same age, and the limit is lower at younger starting ages and higher at older ones.

What types of health plans do employers typically offer today?

An HMO generally covers care only from doctors and hospitals in its own network, except in an emergency, and may require you to live or work in its service area. A PPO contracts with a network of providers and charges less for in-network care, though it still covers out-of-network visits at a higher cost.

An EPO covers only network care except in an emergency, with no out-of-network benefit built in. A POS plan costs less for in-network care and requires a referral from your primary doctor to see a specialist.

A high-deductible health plan (HDHP) carries a higher deductible than a traditional plan, usually paired with a lower monthly premium, and can be combined with a health savings account (HSA) that lets you set aside pre-tax dollars for qualified medical costs.

For 2026, an HDHP must set its deductible at $1,700 or more for self-only coverage, or $3,400 or more for family coverage, and cap out-of-pocket costs at $8,500 for self-only or $17,000 for family coverage. The 2026 HSA contribution limit is $4,400 for self-only coverage and $8,750 for family coverage.

How are health insurance premiums taxed?

When an employer pays part or all of an employee's health insurance premium, federal tax law excludes that contribution from the employee's taxable income under Internal Revenue Code section 106.

A cafeteria plan under Internal Revenue Code section 125 lets you pay your own share of the premium through a salary reduction calculated before taxes, so your own pre-tax premium contribution also stays out of your taxable wages.

What happens to coverage if you leave your job, and what about Medicare later?

COBRA generally lets you keep your employer group health plan for up to 18 months after you leave a job or have your hours cut.

A second event, such as divorce, the covered employee's death, Medicare entitlement, or a dependent child losing eligibility, can extend coverage for other family members to up to 36 months total.

A disability determination from the Social Security Administration can add up to 11 more months onto an 18-month period, for a total of up to 29 months.

Once you are on Medicare, a private Medigap policy can help cover some of what Medicare does not pay. About 13.6 million Medicare beneficiaries held a Medigap policy as of the end of 2023, with an average premium of $217 a month across all plan types that year.

How does Northrop Grumman's cash balance pension work?

Those general rules apply at Northrop Grumman too, where hire date shapes the pension, the match and retiree medical. Northrop Grumman's two largest U.S. pension plans closed to hires on or after July 1, 2008, according to each plan's 2024 Form 5500; a separate Master Inactive plan holds frozen benefits for those earning no new credits.

Those two plans credit pay and interest to a cash balance account, and convert any lump sum under IRS interest and mortality rules in section 417(e), not a company-specific rate. Find out if your pension still earns cash balance credits or sits in the Master Inactive plan.

How do the Savings Plan and retiree medical work?

The Savings Plan's 2025 Form 5500 shows a two-tier match. Pre-4/1/2016 hires get 100% on the first 2%, 50% on the next 2%, and 25% on the next 4%; later hires get 100% on the first 4% plus 50% on the next 4%-6%, by service. Employees hired between July 1, 2008 and April 1, 2016 without pension coverage instead get a Retirement Account Contribution, and matching and RAC contributions generally vest after three years. Confirm which match formula and vesting schedule apply to your hire date.

The Retiree Welfare Benefits Plan's Form 5500 says Company contributions to postretirement medical and life plans were capped as of January 2007, and since August 2014 most retirees 65 and older left the plan; certain retirees can get subsidized coverage through a regional HMO or a private exchange. Find out if your eligibility date falls before or after the 2007 cap and 2014 change.