Originally Posted by
pinseeker
What would you have to contribute yearly at a 7% ROR for 25 years to get an annuity worth $130 per year for 15 years?
We currently have an 8% B fund.
So how much per year would you have to make to so that 9% equalled that yearly contribution?
If you do get cash over cap, how much would you need to cover the taxes on that cash over cap?
Check annuity calculators and quicken.
To have the same payout as the max A fund requires a net present value of over $2M. Can you save & invest that well?
A 35 year old pilot would have to contribute an average of $43000 annually thru age 65 to reach the sum that would enable him to have an annual payout equivalent to the A fund cap. (max qualified pensionable earnings now $265 & 25 yos- Doesn't matter if your FAE is $3XX the cap is $265k now. the retirement office stated that the IRS has historically raised the cap about $5k every 3 years- ). This $43k annual contribution assumes earning 6% ROI each and every year, 2% inflation. The pilot assumes ALL risk factors, market, portfolio, systemic, inflation etc. So a bear market just prior to retirement could be devastating, a conservative portfolio would limit the necessary ROI- The Schwab financial planner that ALPA is coordinating with used 5.2% ROI for my plan, and I'm pretty heavy in equities.
To accumulate this necessary sum would require a B fund of ~22%. However the IRS caps limit how much the company can contribute- so once he is a wide body capt he will reach the IRS limit before the end of the year, so even if he did have a contractual 22% B fund he would not be able to get the full amount into his tax sheltered 401-Bfund (unless he had cash over cap- but then it would be taxable and still couldn't go in the 401k anyway- an post tax ira possibly).
IMHO, there is no realistic way that we can replace the value of our contractual DB plan by a DC plan. The $$ required+ IRS caps/restrictions + all risk is on the pilot.
There are only two ways the DB A fund can go away. 1) Distress termination approved by a Federal judge and the PBGC iaw Federal ERISA laws in a bankruptcy court. 2) we give it away in contractual collective bargaining negotiations. The federal ERISA laws mandate contribution levels based on the number of annuitants, actuarial factors and more. The company cannot just take it, nor arbitrarily decide not to fund it. Additionally executive management's DB plan is with ours, so they have a collective interest in resourcing it and staying in compliance with the fiduciary responsibilities.
There is a valid point that the IRS caps limit the future DB payouts value wrt inflation. But as long as the IRS continues with increasing the max pensionable earnings cap $5k every 3 years (~2-3%) that will provide some downside protection. (i.e. $265k in 2016, 270 in 2019...)