Originally Posted by
Albief15
For a 30-something hired a DC plan with an 18-20% (ala United/American post bk) might be attractive. Why? Accumulate enough in 20-25 years and can walk as desired…no requirement to wait until 60 or take a hit if you go at 55. Any DB plan, however faces some pretty serious risks too:
1. You have to make enough income to make that 18% mean something. Furloughs or LOAs (not mil) could cost you…
2. The Government's 415-c limits on retirement savings. Right now it is about 52k. There have been initiatives in the past to limit those to 20%/20k per year, which would put a major dent in any benefit those DC plans would accrue.
3. Interest/investment risk. Obviously--if you put your DC plan into an investment that fails, you lose big time.
IMHO, its # 2 that is the biggest unknown. With our disability plans and time on your side, I think 1 and 3 can be mitigated. 2 is just too murky….
Alaska and a few other places offered their pilots a rebalance option. If a pilot at FDX was lucky enough to get a high 5 early in his career (good timing, flex instructor, FEPP winner, etc) freezing your current pension (ala American or NW) and taking a much higher DC plan might make you more in the long run. It would certainly be more beneficial to your family if you pass away before you retire or shortly thereafter. I"m not an R&I guru but you can run your own calculations. The guy who is going to get his high 5 his last 6-7 years probably isn't interested. That guy who got hired at 32 in the mid 90s and has been a WB captain since 2001 just might.
In the past apparently FDX offered a rebalance, but the calculations showed it was worth about 25 cents on the dollar to the current plan. There probably is a formula to make a DC plan (B plan) worth what a DB plan (A plan) is currently worth, but I have no idea what the numbers are. Fortunately, its just math and someone can figure it out.
This is going to get interesting as the information of the positions comes out….
As in previous posts, the best way for everyone to get a handle on this is google immediate annuity and play the numbers.
A DC plan is NOT a good deal for the fedex pilot demographic. majority.
A 65 year old would need to have accumulated about $1.8M to have a payout of $10k per month.
To accumulate $1.8M, one would have to save at least $2500/month, AND earn 7% EACH AND EVERY year for 25 years.
This would equate to having an employer contribution north of 20%.
All market risk would be on the pilot. (no bad investments, selling at the bottom, too conservative, too aggressive, etc- and still earning 7% EACH AND EVERY year).
Rebalancing your portfolio approaching retirement could arrest that 7%- thereby making that $1.8M a more elusive goal.
Our demographic (51-52 year olds) does not work well, as the compounding over time is not there.
Our hiring demograhic over the past 8 years or so has an average new hire in his 40's. So hitting the early years of compounding (2500/month + 7% every year) would be very very difficult.
Guys hired in the mid 2000's will likely not see WB captain until approaching the 18-20 year point, so a % of WB cap pay is a long way off- maybe his last 5-7 years (if he's willing to be in the bottom 20%tile).
If i was a finacially astute new hire less than 30 years old- maybe I'd consider a DC plan >20%. We don't have many of those guys, and we haven't hired much if any of that demographic in the past 5-6 years.
The companies' profitability (we're well managed from a corporate financial aspect {maybe not so much in a flight ops management}), and the ERISA laws provide a much better assurance for our DB plan, contrasted to market risk, of a DC plan. If things go south in a horrible way, the DB plan can be frozen (aka Northwest) vs. a distress termination (aka- UAL, US, DAL- getting PBCG mins).
If we expend ANY negotiating capital on retirement, IMHO, is to have an inflation adjustment, for all, as of signing. Or, kick up the current DC plan % to counter inflation. (UAL had a DB plan and 11% DC plan for a while- and contrary to many in the financial cognoscenti- this did NOT cause UAL BK).
Additionally, IMHO, we should not expend negotiating capital to feather the nests of the near term potential retiree's at the expense of the majority.
- Every proposal I've heard would only make guys stay longer-disproportianatley benefiting that small segment of the list.
- This demographic (over the vast majority of fedex pilots) has rode the wave of rapid ascensions, (doubling WB fleet-WB cap in 10-12 years), and benefited from the extension of the 65 age extension.
- The rest of the crew force has experienced stagnation, and excesses.
Not suggesting that they be penalized for timing and events that are beyond their control.
But just my humble opinion, negotiating capital should be spent on what will enhance the renumeration and QoL for all (or at least the VAST majority) of pilots. Thus the inflation index, everyone benefits, not just the few.
Also- it seems like this proposal could be just another "distraction".