Thread: A Fund/ B Fund
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Old 06-03-2005, 10:28 AM
  #3  
WatchThis!
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Position: DC-10 F/O
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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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