10-K: KBR Amends Benefit Restoration Plan, Updates Investment Options

KBR has amended its Benefit Restoration Plan to change investment earnings credited to participant accounts, effective January 1, 2024.

Summary

• KBR has amended its Benefit Restoration Plan, effective January 1, 2024, to change how investment earnings are credited to participant accounts.
• The amendment deletes and replaces sections of Article II and Article IV of the plan, specifically regarding account definitions and allocations.
• The plan now allows the Compensation Committee to designate hypothetical investment options for crediting earnings or losses to participant accounts.
• Participants can request their accounts be allocated among these deemed investment options, and if no election is made, the Committee will select a single fund.
• For amounts credited before January 1, 2024, participants can choose to continue receiving interest at the Moody's Average Corporate Bond Yield Rate, with a minimum of 6% and a maximum of 10% per annum.
• If a participant chooses a deemed investment option for pre-2024 amounts, they will no longer be subject to the minimum and maximum interest rate.
• The amendment also clarifies that interest or earnings on delayed payments due to Section 409A will be paid with the final payment, including a prorated portion of annual interest or earnings.
• The Compensation Committee retains the power to modify, amend, suspend, or terminate the plan, with certain amendments allowed by the CEO for compliance or administrative purposes.
• The interest rate for amounts credited before January 1, 2024, and not subject to a deemed investment election, will not be reduced below 6% per annum after termination of service.
• The plan also specifies that earnings or interest will be credited at least annually on amounts allocated to participant accounts, with the Committee designating hypothetical investment options.

Sentiment

Score: 7

Explanation: The document is neutral to positive, indicating a routine update to a benefit plan with some added flexibility for participants. There are no significant negative implications.

Positives

• Participants gain more control over their investment options within the plan.
• The plan provides a guaranteed minimum interest rate for pre-2024 amounts if participants do not choose a deemed investment option.
• The amendment clarifies the handling of delayed payments, ensuring participants receive all due earnings.
• The Compensation Committee retains flexibility to adjust investment options and plan administration.

Negatives

• Participants who choose a deemed investment option for pre-2024 amounts lose the guaranteed minimum and maximum interest rate.
• If participants do not make an election, the Committee will choose a single fund, which may not align with individual preferences.

Risks

• Participants may not fully understand the implications of choosing a deemed investment option versus the guaranteed interest rate.
• Changes in investment options by the Committee could impact participant returns.
• The plan's complexity may lead to confusion or errors in participant elections.

Future Outlook

The plan will continue to be administered by the Compensation Committee, which will designate investment options and may make further changes as needed.

Management Comments

• The Compensation Committee has the power and right from time to time to modify, amend, supplement, suspend or terminate the Plan.
• Amendments to the Plan that are required to comply with applicable law or that facilitate Plan administration without increasing benefits under the Plan to any Participants may be made by the Chief Executive Officer (the CEO), or his designee.

Industry Context

This amendment reflects a trend in corporate benefit plans to offer more participant-directed investment options while also managing risk and compliance with regulations.

Comparison to Industry Standards

• Many companies offer deferred compensation plans with a range of investment options, similar to KBR's move to allow participant-directed allocations.
• The use of a benchmark like Moody's Average Corporate Bond Yield Rate for a guaranteed interest rate is a common practice in deferred compensation plans.
• The minimum and maximum interest rate range of 6% to 10% is within the typical range for such plans, although some may offer higher or lower rates depending on market conditions.
• The flexibility given to the Compensation Committee to change investment options is also a common feature, allowing companies to adapt to market changes and regulatory requirements.
• The handling of delayed payments due to Section 409A is a standard practice in deferred compensation plans to ensure compliance with tax regulations.

Stakeholder Impact

• Shareholders may see a slight impact on company expenses due to changes in plan administration.
• Employees will have more control over their deferred compensation investments.
• Employees will have to make decisions about their investment options.

Next Steps

• Participants will need to review the new investment options and make elections if they choose to do so.
• The Compensation Committee will continue to monitor and manage the plan.
• The company will communicate any further changes or updates to the plan to participants.

Key Dates

Keywords

Benefit Restoration Plan, Investment Options, Deferred Compensation, Compensation Committee, Moody's Average Corporate Bond Yield Rate, Section 409A, Employee Benefits, Retirement Plan, KBR, Grandfathered Plan Account