Originally Posted by
kwri10s
What would be wrong with allowing new hires to choose A, B or a combo. Let them take control of their decisions. If the new hire is young enough, a 20% B fund would look tempting vs an A fund. IF the company really wants to sell more B fund vs A fund, then they could add in a big 401k match for those that elect the B fund retirement plan. It would not be too complicated to throw a mixed choice in where you could choose say a 15% B and a 25% A or whatever.
For that matter, the company would not have to divide the cockpit (good point), they could offer the same choices to all pilots. Of course most currently on property are older and would not forgo an A for a few years of increased B. But there are some young guys here that might make a choice of a combo package.
Some numbers would make you really have to think about it. What about a 25% B with a company match 401K 1 for 1. I know I didn't take into account the IRS limits with my vision.
FDX has enough money to throw at this problem and make it go away. I don't think they would ever throw enough to really solve it, but they could if they wanted to. If they want out of the A fund business, there are ways to get out without going to war with the crew force...but we know the tactic they will take.
Any body who thinks a bigger B fund would be better needs to do some financial calculations. In fact I'll do it for you (collective), and you can check my work by choosing a google search of immediate annuity.
Assume one was hired in his early to mid 40's and worked to 63.
Assume high 5 is 240k (guys hired in this demographic won't make WB captain earlier than 15 year point if that).
$240*2%*20 years=(240*.4)=$96k annually or 8K/month
Now to achieve a cash flow of $8k per month, one must have an annuity with a net present value of $1,434,592 by retirement (63 in this example). (
Immediate Annuities Overview ? ImmediateAnnuities.com)
In order for one to save/invest in a 401k/B fund to buy an immediate annuity of $1.434M one would have to invest >$3200 per month AND get an average rate of return of no less than 6%. Assume only 3% inflation.(no bear markets no market risk)
Savings Goal Calculator
So one would need a B fund with employer contributions > 30% to ensure a savings amount that would generate an equivalent return as an A fund in this simple example. The other BIG deal is that the pilot assumes ALL market risk with a defined contribution plan. So less than 20 average of 6% IRR (internal rate of return) or inflation of >3% will sink it.
Imagine if one was retiring in 2008/2009, a portfolio set up to generate this cash flow would have been decimated. (market risk) However the DB plan keeps chugging out your return.
I'm sure you've heard the quote- "never fly with a DR. or invest with a pilot"
So unless the we can all be Warren Buffet like investors, AND the company is generous enough to add > 30% to our monthly compensation, the DB is THE BEST thing going and not even be considered in negotiations.
Will you have> $1.5M in your 401k???