Why are these changes being made?

As with other changes in your Total Compensation, changes in the pension plan are the result of the recent mergers. The new Pension Value Plan will provide nonrepresented salaried employees the chance to earn benefits using a common approach regardless of where they work in the company.

Read and save this publication for future reference.

The new Boeing pension plan takes effect Jan. 1, 1999. No enrollment is necessary.

Initially, these changes apply to nonrepresented salaried employees at heritage Boeing and McDonnell Douglas. These changes will be extended to Boeing North American in the future. Generally, employees of Boeing subsidiaries won’t be affected by these changes. In addition, employees at certain small Boeing business units and heritage McDonnell Douglas sites might not be affected by all the changes. Changes to plans for represented employees are subject to negotiations with the appropriate labor unions.

Information about the Pension Value Plan can be found online at http://www.boeing.com/compensation/retire/index.htmll General information about Total Compensation at Boeing is available through your local People representative or online at http://www.boeing.com/compensation/

Your Pension is the third in a series of publications that offer employees information regarding Total Compensation programs for the new Boeing. Your pension, Social Security, and personal savings, including the Voluntary Investment Plan, all play an important part in preparing you for retirement.

Heritage Boeing and heritage McDonnell Douglas employees don’t lose what they have already earned under existing plans through Dec. 31, 1998. In fact, your heritage benefits will increase if your base pay increases before you retire or leave the company.

Your heritage benefit will be added to the benefits you start earning under the new plan on Jan. 1, 1999. Combined, the two benefits make up your Pension Value Plan.

Next summer, all nonrepresented salaried employees will receive a statement projecting their personalized pension benefit under the Pension Value Plan. This statement will show the annual pension benefit you can expect to receive if you retire at ages 55, 60, 62 or 65.

If you plan to retire before then, special accommodations can be made to provide you with detailed projections. However, the company won’t be in a position to provide personalized projections for a large number of employees until six months after the new pension plan is implemented.

By using a simpler formula, the new plan is easier to understand, and it’s easier to watch your benefits grow. However, because any discussion of benefits is complex, we’ll begin by introducing some new Pension Value Plan concepts.

The percentage of your annual benefit credit depends on your age at the end of the year.
Age at year-end	Benefit credit percentage for that year
Younger than 30	3%
30-34	4%
35-39	5%
40-44	7%
45-49	9%
50 and older	11%

You will receive at least a minimum monthly benefit amount of $46 multiplied by your number of years of service under the plan. (If you’ve had a break in service, all the time you spent with the company may not necessarily count toward pension benefits.) If the minimum benefit is larger than the Pension Value Plan benefit plus the heritage benefit, the minimum benefit will be paid. If this benefit is paid before age 65, it will be reduced for early retirement.

When you’re vested, you are entitled to the benefits you’ve earned under the Pension Value Plan. You become vested when you complete five years of service or reach age 62 and have one year of service. Any service that counts toward vesting under your heritage retirement benefit also counts under the Pension Value Plan.

If you worked at more than one heritage company, you may be wondering, "How will my service count toward my retirement benefit now that the companies have merged?"

The basic rule depends on whether you were vested in a retirement benefit when you ended your employment with one of the other companies. If you had not earned a vested benefit when you left that company, you are not eligible for a benefit from that company. And none of that service or pay will count toward your new Boeing benefit.

If you earned a vested benefit from the other company plan, you keep that benefit. This vested benefit will be calculated according to your former company’s retirement plan provisions.

For now, most current and future retirees from heritage Boeing and Boeing North American will continue to have access to company-subsidized medical coverage. Most current and future heritage McDonnell Douglas retirees will be able to purchase company-arranged medical coverage.

Employees hired after Jan.1, 1999, will not be eligible for company-subsidized retiree medical coverage. Instead, they will be encouraged to save for retiree medical coverage through the Boeing savings plan or other means.

Boeing plans to continue these retiree medical plans. As always has been the case, the company reserves the right to amend or terminate retiree medical coverage at any time. The company will provide at least six months’ notice of any changes to existing policy.

No decisions have been made as to when current retiree medical plans will be changed to reflect changes being made in medical plans for active employees. When that decision is made, employees and retirees will be notified.

This chart shows how your new benefits and the heritage benefits that you’ve already earned work together under the Pension Value Plan.

Most people learn best by example, so here is a conservative example of how the new pension benefits can grow.

Let’s say that Pat has an accrued benefit of $400 a month from the heritage plan as of Dec. 31, 1998. For simplicity’s sake, let’s say Pat earns $45,000 in eligible pay each year before retirement. (To keep this example simple, it is assumed that Pat doesn’t receive additional pay increases before retirement. Most employees, however, will earn pay increases over this period of time. Therefore, both the new portion of their Pension Value Plan and their heritage portion will grow at an even faster rate.)

In addition, Pat:

• Turns age 43 in 1999 and continues to work for Boeing for at least another 12 years,
• Considers several options: including early retirement at 55 and normal retirement at 65,
• Receives 7 to 11 percent benefit credits based on age at the end of each year,
• Receives 6 percent interest credit each year.

Your yearly statement will show you the dollar value of your pension benefit at the beginning of the year, the benefit credit and interest credit added to the benefit that year, and total year-end value. You’ll be able to see the dollar value of the credits you receive each year and track how they grow over time. The statement will also show any heritage plan benefit that you have.

Your first Pension Value Plan statement will be issued in the first half of 1999 even though you will not yet have earned any pension benefits in the new plan. However, the statement will show the accrued benefit you have earned in your heritage plan and whether it is vested.

You can retire from active Boeing employment when you are:

• Age 55 or older and have at least 10 years of vesting service,
• Age 62 or older with at least one year of vesting service, or
• A heritage McDonnell Douglas employee, at least 50 years old, and have 30 or more years of accumulated benefit service.

The Pension Value Plan works differently than the heritage retirement plans in calculating early retirement benefits. As long as you meet the minimum retirement eligibility requirements for the Pension Value Plan, you can retire and begin to collect benefits. However, your heritage retirement benefit may be reduced for early retirement. That’s because the heritage plan provisions still apply to your heritage benefit.

Under the minimum benefit provision of the new plan, your benefit will be reduced by 4 percent for every year between your age at retirement and age 65.

You will receive whichever calculation gives you the greater benefit.

The Pension Value Plan assumes that if you’re single, you’ll retire under the single life option, and if you’re married you’ll retire under the 50 percent surviving spouse option. But you have other choices available to you: the accelerated income option, life with 10-year certain option, 75 percent surviving spouse option, and 100 percent surviving spouse option. You must be married to choose a surviving spouse option. (Note: If you have other payment options available under a heritage pension plan, those options will continue to be available under the Pension Value Plan.)

Accelerated income option: If you decide to retire before age 62, when reduced Social Security benefits become payable, you might choose the accelerated income option to level out the amount of retirement income you will receive before Social Security begins. Also known as "level income option" or "Social Security adjustment option," this option can be elected along with a surviving spouse option or the life with 10-year certain option.

Life with 10-year certain option: As with the other choices, the life with 10-year certain option guarantees a monthly pension for your entire life. If, however, you die within 10 years after receiving your first pension check, the monthly payment continues for the remainder of the 10 years to your beneficiary.

75 or 100 percent surviving spouse option: For married people who want to leave their spouse a larger pension if they die, this option is a consideration. You may choose a smaller monthly pension with the guarantee that after your death your spouse will receive 75 or 100 percent of your pension for the remainder of his or her life.

If you are vested under the plan when you leave – and you generally are if you’ve worked at the company for five consecutive years or more – your plan value continues to earn interest credits until you begin receiving benefits. The monthly benefit will be reduced if you choose early payment. The amount of the reduction is based upon your age when you begin receiving payments – not on your age when you leave Boeing. This is true whether the benefit is paid through the normal Pension Value Plan formula or the minimum benefit formula.

The earliest you can receive benefits from the new plan is age 55, provided you are vested.

If the benefit is calculated using the normal Pension Value Plan formula, the pension dollar value is divided by a factor ranging from 11 to 15 depending on your age. (At age 55, the factor is 15; by age 65 and older the factor has reached 11.) If you retire at a younger age, this factor is greater to account for the longer time period over which benefits may be paid.

Under the minimum benefit, your benefit will be reduced by 6 percent for every year between your age when payments begin and age 65.

Starting in 1999, you can retire and choose to delay the beginning of your benefit payments. Delaying the start of your benefits allows for larger pension payments because your benefit will increase in value due to interest credits. Once you leave Boeing, you stop earning benefit credits, but continue to earn interest credits until you retire or reach age 65, whichever comes first.

Special benefits are also payable to an employee with 10 years of vesting service who becomes permanently and totally disabled, or to a vested employee’s spouse if the employee dies before retirement. If an employee dies after the Pension Value Plan benefit payments have begun, benefits may continue to be paid to the employee’s spouse or other beneficiary depending on the payment option selected (see page 10).

Timing may not be everything, but it is important if you are considering retiring this year or next. Because of the differences in the heritage plans and introduction of the Pension Value Plan, a day or two difference could affect your heritage benefit and ,therefore, your retirement income. There are some additional changes taking place on Jan. 1, 1999, that will make the benefits calculation process more consistent. The effect is that individuals who retire after Jan. 1 generally will have a higher heritage benefit than if they retired this year.

While your decision on when to retire is a personal one that depends on your circumstances, consider your timing carefully. You might even want to consult with a financial advisor before making your decision.

While the Pension Value Plan is bringing about a number of changes, employees are advised to pay particularly close attention to the following:

If you plan to retire before age 62, you can choose the Accelerated Income Option which, in most instances, will pay a temporary annuity of $700 per month until age 62, when you become eligible for a reduced Social Security benefit. This option enables you to collect a larger than normal portion of your Boeing pension during the time that you have no Social Security income, and a smaller benefit afterward.

The heritage plans now offer a similar option, called a Level Income Option or a Social Security Adjustment Option. The new Accelerated Income Option will differ in two ways:

• It will offer a temporary annuity of $700 per month for most employees who elect the option. By comparison, the amount of the monthly annuity can vary with each heritage plan.
• Under this option, if you elect pension benefits for your surviving spouse and die before age 62, your spouse will receive the $700 per month temporary annuity. Currently, the heritage plans don’t provide this level of benefit .

The following changes might affect the pension benefits of heritage Boeing employees who retire after Jan. 1, 1999.

If you are eligible for the heritage benefit formula based on final average earnings and retire before age 60, you will receive a larger heritage benefit because your benefit will be calculated using a smaller early retirement adjustment. The benefit report that will be mailed to your home in the fall will show what you have earned to date under both the final average earnings and the minimum benefit formulas.

The minimum monthly benefit increases from $40 to $46 per year of service for your entire Boeing career. However, individuals who retire before age 62 generally will not experience an increase. That’s because the changes in the early retirement factors that apply to the minimum benefit will offset the effect of the larger minimum benefit.

The one-year waiting period will be restored to all employees’ heritage benefits as of Jan. 1, 1999. This change increases the heritage benefit for anyone who has less than 22 years of service as of Jan. 1, 1999.

This taxable $2,000 benefit, payable to a named beneficiary upon the Boeing retiree’s death, will be eliminated for anyone who retires after Jan. 1, 1999.

These changes can increase the benefits of heritage McDonnell Douglas employees who retire after Jan. 1, 1999.

If you retire between the ages of 62 and 65 and do not yet have 85 points, you can receive an unreduced heritage benefit. By contrast, if you retire in 1998 before having 85 points or reaching age 65, your benefit might be reduced for early retirement. In addition, if you are at least age 62 with one or more years of service, you will be eligible for early retirement after Jan. 1, 1999.

For those who retire early, the early retirement factors will be 2.5 percent per year under age 62, or 2.5 percent per point under 85 points. These improved factors also will be available to salaried employees with benefits accrued in the MDHC Hourly, MDHC Salaried, Actron, Microdata, or ISG plans.

Benefits adjusted for early payment will be based on age in completed months, not completed years. This means you won’t have to wait until you reach a new age bracket to receive more favorable treatment for your benefit.

Heritage McDonnell Douglas employees who are on the payroll during December 1998 will receive an additional year of credited service. This is the result of switching from accruing benefits on a plan year basis (December to November) to a calendar year basis. If you have less than 85 points, you can earn another point in one month instead of the usual 12.

Anyone whose benefit is paid as a surviving spouse option will have the benefit calculated in a new way. This results in the same or a higher monthly benefit, depending on your age and the age of your spouse.

Boxing legend George Foreman said, "The question isn’t at what age I want to retire, it’s at what income."

Foreman may get credit for this famous quote, but possibly all of us echo his sentiments. A decent living, healthy lifestyle, enjoyable companions, and comfortable pastimes are goals all of us share at all stages of life.

Boeing does its part to provide fair and equitable wages, health and welfare benefits, fully paid pensions, and a savings and investment plan that encourages you to save.

No matter your stage or choice of life – just out of school, children in diapers, kids in college, caring for aging parents, approaching retirement – Boeing has designed its Total Compensation program to help you have the financial resources to meet life’s varied needs.

The Pension Value Plan is designed with a basic monthly benefit for life. When combined with your own personal savings — including your investments in the company-sponsored Voluntary Investment Plan — and Social Security, your pension can help put you and your family on the path toward a comfortable retirement.