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Old 06-03-2005, 03:59 AM   #1 (permalink)
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Default A Fund/ B Fund

I know what a 401k is, but I was hoping someone could explain what the A Fund and B Funds are, and the pros and cons about them both.

I here people talking about them all the time, and with the recent United bullsh*t, backing out of their responsibilities, I just really want to know what it is all about, and what I should look for in a future employer.

Thanks
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Old 06-03-2005, 09:26 AM   #2 (permalink)
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Basically, the A-Fund is the pension. This is what you keep hearing that is grossly under funded and being terminated at UAL and US Air. The B-fund is a contribution by the employer directly into the employees 401K or other retirement vehicle. This contribution is predicated on a percentage of an employee’s gross income and invested by the employee. You can take it with you if you leave whereas the pension is gone forever.
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Old 06-03-2005, 10:28 AM   #3 (permalink)
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To add -

Think of the A Fund as an annuity (it is!), It's also referred to as a defined benefit plan. Many years ago, airlines like UAL purchased an annuity from outside vendors for each retiree when they left the service of the company. Problem was, it was much more expensive that way. So, UAL like many airlines brought the DB in house as an ERISA retirement plan - complete with funding requirements, etc.

The latest industry roller coaster left the airline like UAL and USAir without the cash flow to fund the plans AND make payroll, pay for fuel, aircraft leases, etc. So they elected to skip payments to the DB. Of course the A Plan was seen as a creditor in Bankruptcy court, so the way UAL decided to settle the debt was to terminate the plan. Because it was an ERISA retirement plan, UAL paid insurance to the PBGC (around $9 per $1000 of benefit). So the termination of the plan triggered the PBGC having to "pay" on the insurance policy (at a reduced rate of course!).

So in short the A Plan is a benefit based on a careers worth of labor and the cash amount of the benefit is based on how many years you worked, a benefit multiplier, and how much you made (normally indexed to a final period of earnings - i.e. highest 3 years). Yo never know exactly how much it will be until you retire.

The B Plan is a cash benefit based on current earnings. Some companies will contribute a (negotiated) percentage of your monthly pre-tax earnings to the fund, match your contributions, or allow you to contribute on your own as in a 401K.

A-Plan is a future benefit based on years of service (and health of the company). It's the "traditional pension".

B-Fund current cash benefit held in a retirement vehicle that can go with you to another job (rollover) if needed. The B-Plan is commonly referred identified with a 401K but can have other elements.

Hope that helps.

Cheers -
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Old 06-03-2005, 11:19 AM   #4 (permalink)
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Default Thanks

I appreciate all the replies... it sounds like in an ideal world (ie before deregulation and/or 911) the A Fund is the best. But nowdays, the B Fund sounds more stable because if you decide to leave, or the airline goes belly up, you can take it with you.

One last question... what is the difference between a B Fund, and a 401k with employer fund matching?
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Old 06-03-2005, 01:48 PM   #5 (permalink)
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CAL just started the B fund and froze the A fund. Employer is contributing about 7% of gross this year and will increase in steps to 12% within 3 years.
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Old 02-02-2008, 05:33 AM   #6 (permalink)
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Alright, I'm digging this one out. I've read the A-plan/B-plans articles on APC, but I still can't figure out the value of an A-plan. I'm wondering if anyone can make up an example of an A-plan, and how it would pay out based on some different numbers. Also, it seems that in order to figure out an A-plan value/payout, you need more than just the percentage provided on APC. If you could include any realistic caps on years of service, and penalties for retiring early that would be Great! Thanks.
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Old 02-02-2008, 05:52 AM   #7 (permalink)
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One example is the military retirement. It could be called a 2.5% A fund, because multiplying years of service (generally 20) by 2.5% = 50%. This means that for the rest of your life, you'll receive half of what you made during your highest-paid three years on active duty. If you work until 25 years, 25 * 2.5% = 62.5%. For civilian companies there's generally a "fully vested" point where your percentage will not go up anymore no matter how long you work.
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Old 02-02-2008, 06:35 AM   #8 (permalink)
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Quote:
Originally Posted by Bengalsfan View Post
I know what a 401k is, but I was hoping someone could explain what the A Fund and B Funds are, and the pros and cons about them both.

I here people talking about them all the time, and with the recent United bullsh*t, backing out of their responsibilities, I just really want to know what it is all about, and what I should look for in a future employer.

Thanks

I'm at AA. For me the BIG money is the 401K. We get no match by the employer now.
If you are a young guy, say 25 yrs old. I'd get in a 401K right now. Do not delay. 10% of your monthly income.
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Old 02-02-2008, 06:50 AM   #9 (permalink)
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Quote:
Originally Posted by 7576FO View Post
I'm at AA. For me the BIG money is the 401K. We get no match by the employer now.
If you are a young guy, say 25 yrs old. I'd get in a 401K right now. Do not delay. 10% of your monthly income.
I have been doing this for several years...in fact since before I was 25...my major gripe with this one though is that the recent stock problems have slaughtered my 401K....it has dropped below the actual principle amount of investment....I know it will come back in years to come but all that return on investment is now gone...
I have found myslef trying to think of a better way to invest for retirement...nothing yet.
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Old 02-02-2008, 06:51 AM   #10 (permalink)
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Is it possible to do a rollover from your current employers 401k to an IRA? The reason I'm asking is because our investment options are pretty limited and I'd like to have a little more control of my money.
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