ONE ASSOCIATION-ONE TEAM

ONE ASSOCIATION ONE TEAM Page 1 As sociation of Ra ytheon Retirees, Inc. ONE ASSOCIATION-ONE TEAM Vo l.13, Issue 1 M ar ch 2 01 3 I N S I D E T H I S I S S U E : F I R S T W O R D S - B o b H a m i l t o n irst Words 1 Dave MacLellan 2 Pension Plans 2 Medical 4 Raytheon Co. Financials 5 Fake IRS Identity 6 Disney Follow-up 7 Just So You Know 10 Member Application 11 Annual Meeting May 9, 2013 Please join us for our Annual Meeting at the Farr Conference Center in the National Heritage Museum in Lexington, Massachusetts, to be held on Thursday, May 9, 2013, from9:30 a.m. to 1 p.m. Your Directors will discuss our organizational status, health insurance and also provide a summary of our latest meeting with Raytheon Company. In addition, our meeting will feature two excellent guest speakers. Chet Michalak, Raytheon Historian and noted speaker will guide us through the history of Raytheon and some of its key programs that made this company great. Chet will also be interested in obtaining oral histories from our Raytheon Retirees and is anxious to meet with all of you. We are awaiting confirmation of our second speaker. As in years past we plan to have a senior Raytheon officer or Program Manager share with us the details of one of our many high profile programs. Once again we will be raffling off a Kindle Fire and we'll be conducting our trivia contest with prizes awarded throughout the meeting. In fact, we booked the room for the entire day again so there will be time for socializing until 4 pm....let us know if you will attend so we will be sure to have enough refreshments for the morning and sandwiches for lunch. Just give us a call at 978-369-8410 or email us at raytheonretirees@verizon.net We look forward to seeing you. We hope you can join us. This edition was printed by the Minuteman Regional High School, Graphics Communications Technology Department, Lexington, MA

Association of Raytheon Retirees, Inc. Page 2 Pension Plan Developments. By Joseph DeAmbrose This Newsletter is dedicated to John David MacLellan, our Treasurer and valued member of our Association. Dave was a retired financial analyst for Raytheon Co. Graduate of Boston College class of 1964 and received his Masters in Taxation from Bentley College. He actively supported U.S. Troops engaged during Operation Enduring Freedom in Afghanistan. Accounting Problems. Pension plan obligations have been an increasing source of anguish to many employers according to recent reports in the financial press, resulting in unusual steps to manage the problem.gm, Ford, and Verizon are among those cited in the reports. The unusual steps include the offer of lump-sum buy outs of retiree pensions, or transferring the employer s obligation for retiree pensions to an insurance company. Here, we make an attempt to describe the problem and the purported solutions. First, there is no indication that Raytheon is considering any similar action with respect to any of its pension plans. From all appearances, Raytheon is in a healthy financial position and able to deal with its pension plan obligations. Nonetheless, keeping track of such developments is one of the basic undertakings of the ARR on behalf of Raytheon retirees. There are a number of factors that affect the calculation of pension plan obligations many of which are beyond an employer s control yet the employer remains responsible for the payment of benefits whatever happens. The consequences of unpredictable factors can adversely affect employer finances causing many employers to terminate pension plans, or reduce or curtail pension benefits. For example, since 2007, new hires are not admitted to Raytheon pension plans. Employers increasingly rely on other types of plans, primarily 401K plans or socalled cash balance plans to provide retirement benefits because obligations to such plans are much more predictable than pension plan obligations. The recent employer initiatives are reportedly related to changes in interest rates and life expectancy factors used in calculating the cost of pension benefits. To illustrate, if an employee were to retire in 2013 with an annual pension of $50,000 a year, the amount of the expected payments would be $1,000,000 if the retiree lives 20 years and $1,100,000 if 22 years. Life expectancies are on the rise. Further, the employer s liability is based on the present value of the estimated future payments, roughly analogous to what the employer would have to put aside in a bank account today earning interest to make the payments when due. The rate of interest is a significant factor in determining the amount re-

ONE ASSOCIATION ONE TEAM Page 3 quired to be put away. The present value of the liability using the 22 year payout period, and a 5% interest rate would be about $658,150. If the rate were 4%, the amount would be about $722,556. The estimate often has to take into account the liability for tens of thousands of employees and retirees using sophisticated actuarial calculations but the basic point is straight forward the employer must make an estimate today of how much will be paid out to retirees in the future and interest rates and life expectancies are material factors in making that estimate and recording the liability. And, interest rates have been plummeting. The interest rates used in calculating pension plan obligations are based on yields on high grade corporate bonds which have been declining just like savings bank deposit rates and CD rates have declined as the presses at the Federal Reserve continue to print bundles of money. Interest rates in general are at historic lows. As interest rates decline, pension liabilities increase. Even with no new pension plan entrants after 2006, Raytheon s gross liability for pension obligations has increased from $ 16.3 billion in 2007 to $ 24.7 billion in 2012 and annual pension expense from $ 666 million to $ 1,093 million. Many factors affect the increase in liabilities but the interest rate factor looms large. As noted above, some pension plans are offering retirees lump-sum payouts. The retiree can take a cash payout in place of monthly pension payments, roll it over to an IRA and make his or her own investment decisions thereafter the plan/employer is off the hook as to the obligation to that retiree. The lump-sum amount is calculated somewhat like the liability amount in the example above a $50,000 a year pension might be traded for a lump-sum payout of $650,000-$700,000 (just an illustration). The interest rate used in the lump-sum calculation is the main driver of the lump-sum amount. The lower the interest rate, the greater the cash lump-sum, and vice versa. Other employers have used pension assets to purchase annuities for retirees from an insurance company, shifting the risk of changing interest rates and life expectancy factors from the plan to the insurer. In 2012, the General Motors Salaried Employees Pension Plan, in addition to offering a lump-sum payout to retired employees (12,500 accepted), bought a group annuity from Prudential for $29.1 billion to cover benefits owed to the remaining salaried retirees. Of course, an increase in interest rates would decrease the amount of plan liabilities. So, it is likely that employers weigh the prospect of increasing interest rates in managing their pension plan obligations and evaluating options like lump-sum payouts and annuities. Government contractors like Raytheon have to deal with cost accounting rules which are likely to limit their discretion in making changes that are taking place elsewhere. An intriguing question for retirees is what to do if offered a lump-sum

Association of Raytheon Retirees, Inc. Page 4 buyout maybe an easy answer for a recent retiree who isn t feeling well, but not necessarily so for anyone else. Hawker-Beechcraft. The corporate successor to Raytheon Aircraft was recently discharged from bankruptcy and two of its pension plans are to be taken over by the Pension Benefit Guaranty Corporation (PBGC). Raytheon sold off the Raytheon Aircraft business years ago along with the pension plan obligations. Presumably, the plans, described in news reports as the Salaried and the Base plans, are not able to fully satisfy their pension obligations to employees and retirees, hence the takeover. The plans are effectively terminated with no future benefit accruals to employees and the benefits accrued may be reduced. Two other plans, apparently union plans, continue in force for the time being. The new company, called Beechcraft Corporation, will apparently only be involved with propeller driven aircraft the business jet business (Hawker aircraft) is gone and it is not clear where it went to. Retiree Medical Developments. Beginning in 2012, employers providing medical benefits to employees are required to include the cost of the medical benefit on the employee s Form W-2 for the year. The requirement appears to extend to medical benefits provided by an employer to retired employees. Most retired employees do not receive a W-2 from Raytheon and there is no requirement to report the cost of the medical benefit on the Form 1099- R retirees receive for pension payments. However, some retirees may receive a Form W-2 if they have received deferred compensation during the year or have exercised stock options after retirement. Even for retirees, those items of compensation are reported on a W-2 and the cost of retiree medical benefits would be shown on that W-2. One retiree participating in the Raytheon retiree medical Plus Plan received a W-2 with the amount of $1,176 shown as the 2012 cost of the plan. The cost required to be shown is the entire cost including any employee/retiree contribution. The annual retiree premium for the Plus Plan in eastern Massachusetts was $660 ($55 a month) in 2012. The math suggests the cost to Raytheon was $516 ($1,176-$660). Raytheon s stated obligation for post 1994 retirees is to pay $516 of the total cost--great to see the numbers come out as they are supposed to. For pre-95 retirees, Raytheon generally pays 50% of the total cost so it would be expected that the retiree premium for this group for 2012 (Plus Plan-eastern Massachusetts) would have been $588 ($1176/2).Note that Raytheon apparently only pays part of the cost for the Plus Plan. Other plans are made available in the enrollment period but retirees electing to participate in these plans pay the full cost.

ONE ASSOCIATION ONE TEAM Page 5 Raytheon Company Financial Highlights By Allen Swenson Financial Highlights -Fourth quarter and Total Year 2012 The Raytheon press release disclosed fourth quarter net sales of $6.4 billion which was up slightly from the prior years fourth quarter. However, for the total year net sales were down 1.5% to $24.4 billion. Both the 4th quarter and the total year showed improvements in projected earnings per share with the total year up 6.2% to the 6.21% per share. William H Swanson Raytheon's Chairman and CEO stated "Customer demand for advanced technologies and affordable solutions drove strong orders for both the fourth quarter and the year resulting in a record funded backlog" The company booked $26.5 billion in orders and resulted in a backlog of $36.2 billion and a funded backlog of $24.1 billion. The company reported strong operating cash flow from continuing operations of $2.0 billion for the year. Also, the company repurchased $1.8 million shares of common stock for $100 million and also retired certain 2014 and 2015 debt maturities with an issuance of $1.1 billion of long term debt. The company's accrued retiree benefit and the long term liabilities increased from $6.8 billion to $7.9 billion. Additional detail will be forthcoming regarding the underfunding and performance of the pension plan assets with the issuance of the Annual Report in May or June. In 2005 Arcadia Publishing printed a short book Images of America: Raytheon Company The First Sixty Years. With text and a LOT of pictures the story of Raytheon through the early 80s is provided. It is particularly interesting reading for those mature enough to remember some of the later participants. ISBN 978-0-7385-3747-4 John Rudy

Association of Raytheon Retirees, Inc. Page 6 Phishing Scam Uses Fake IRS Identity You should be aware that a company or individual masquerading as the U.S. Internal Revenue Service IRS) has been sending out e- mails with the subject line "Income Tax Refund NOT ACCEPTED" and similar titles. This is NOT an official IRS communication, but an attempt to lure the recipient into clicking on a link that will allow the sender to capture e-mail information a process known as "phishing." Although the message looks official, a cursory glance will reveal that it is a poor attempt to gain access to your e-mail. Although written in English, the message is rife with poor grammar and spelling. This includes a misspelling of the IRS as, "Internal Revenue Service." We advise you to NOT click on the embedded link. Instead, immediately send this message to the "trash" and, if possible block the sender from further attempts to reach you. According to the IRS website, "The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of 'electronic communication, such as text messages and social media channels." Article provided by Gray, Gray & Gray, LLP,Westwood, MA Keep the Date :Annual Meeting May 9, at 9:30am The National Heritage Museum is located 1 mile south of Lexington Center at the intersection of Rt. 2A (Marrett Rd.) and Rt. 4 (Massachusetts Ave.). Directions can be obtained from the museum'swebsite at: http:// www.monh.org/ or by calling 781-861-6559. You are welcome to stay and tour the museum after the meeting or socialize with your colleagues.

ONE ASSOCIATION ONE TEAM Page 7 The Sum of All Thrills My Experience at EPCOT By Mel Weinzimer Summary This past February, I had the opportunity to visit Disney World and experience Raytheon s Sum of All Thrills attraction at EPCOT. I had been looking forward to doing this ever since I heard Bob Filosa s talk at a past ARR Annual Meeting about how Raytheon and Disney jointly developed this unique interactive and personalized attraction that is meant to inspire a new generation of mathematicians, scientists and engineers. In this article I ll first describe how the ride operates and then share my own experience. Description The Sum of All Thrills is a unique simulated ride located at the Innovations area of the EPCOT theme park. The rider gets to use creativity and brain power to custom design his own thrill ride using mathematical tools, an innovative touch screen table (workstation) and a robotic simulator. The user first watches a short instructional video on how to use the workstation and interactive tablet to design their own personalized thrill ride. Three vehicle choices appear at each design station: a roller coaster, bobsled or jet. Once you ve chosen your vehicle you use tools such as rulers and speed dials to design a ride. Corkscrews, inversions and steep hills are recommended.

Association of Raytheon Retirees, Inc. Page 8 You can adjust the height of each hill and vehicle speed for each of three segments. The segments are then connected together. Finally, you also have the ability to do a simulated test run to determine your overall speed during the run. If you go too slow or too fast, you can modify the ride by increasing the height of dips or changing the vehicle speed. After you ve finished designing your run, the information is saved on a special card. The card is then swiped at a launch station and the design is immediately uploaded to the simulator. Next you enter the simulator s seating chamber where a 3-D video hood is placed over your head and upper torso. Then the fun begins twists and turns come alive in a first person point of view. The Robotic Simulator in Action The ride is located in the Innoventions East Exhibit Building located near the park entrance. You have to walk through the building to find it. The lines were short and within 5 or 10 minutes I was watching the instructional video along with eight other people. We were then led to individual workstations where

ONE ASSOCIATION ONE TEAM Page 9 we had about five minutes to design our ride. Instructors were there to assist if necessary. I chose the bobsled and being a retiree designed a fairly benign track. I did a test run and found that my sled was going too slow to complete the track. I then adjusted the initial height of the track and increased the initial speed, then did a successful simulated test run and finalized the design. I was then led to my 4-D Robotic Simulator. It had two seats. I was alone so I had the simulator to myself. I was strapped in, the door closed and my anxiety and excitement grew as I waited for the ride to begin. My screen displayed the bobsled track showing each twist, turn and corkscrew as I traversed the track and the robotic simulator adjusted my orientation to replicate my designed ride. The ride was over before I knew it and as I left I thought.. I should have made it steeper and faster! Maybe next time! But the experience doesn t end when you leave the ride. You have the ability to relive it by replaying the screen image of your designed ride. One logs into the www.mathmovesu.com, selects the Sum Of All Thrills and enters the personalized number on the back of the card you received when you created the ride. Then you can relive your adventure again and again. I was then able to show my creation ICY RACER to my wife and grandkids. Next it will be their turn to design their own ride! If you have the chance to visit Disney World, don t miss the opportunity to visit EPCOT and experience THE SUM OF ALL THRILLS for yourself. It s a ride not to be missed. You and your grandkids will love it! Mel Weinzimer waiting to enter the attraction

Association of Raytheon Retirees, Inc. Page 10 Directors Bob Hamilton, President bobnanne@comcast.net Joe DeAmbrose, Clerk deambjl@verizon.net Bill Burditt, wburditt@comcast.net Evans Cheesman Evans.cheeseman@gmail.com Jack O Halloran, Tim72479@aol.com John Rudy jjrudy1@comcast.net Al Swenson, amswen@comcast.net Mel Weinzimer, Membership melweinzimer@yahoo.com We are on the Web raytheonretirees.org Association of Raytheon Retirees, Inc. 336 Baker Avenue, Concord, MA Phone: 978 369 8410 E-mail: raytheonretirees@verizon.net 2013 by ARR. This publication is designed to provide authoritative information regarding the subject matter covered. The Association of Raytheon Retirees (ARR) is not engaged in rendering legal, accounting, tax, or other professional services. If expert assistance is needed the reader is advised to engage the services of a competent professional. Consult with a tax or other professional advisor before making any decisions regarding personal finances.

ONE ASSOCIATION ONE TEAM Page 11 Mail In Membership Application Last Name: First Name: Street 1: Street 2: City: State: Zip: Email: Date of Retirement: Work Location: Age at Retirement: State: Name of Spouse: Home Phone: Comments: Please send completed form and contribution ($15 Annual Dues) to: Association of Raytheon Retirees, Inc. 336 Baker Ave. Concord, MA 01742 Or You can register online at www.raytheonretirees.org Or Email us at raytheonretirees@verizon.net

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