Originally Posted by
kronan
...And Dlax seems to be arguing both ways...that the ‘cost’ to a floating VB cap with a 2% floor is the same as the ‘cost’ to index our Traditional High 5 to the same cap.
But Dlax has pointed out the VB cap is Not the equivalent of our traditional Average cap. That one or two really good years in the 350-450 range have a big Impact on the Traditional Average while Attaining the VB 275 calculation would require every Single year of your career to be at that floating cap level....
I don't think the cost of a our A fund with a High 5 FAE method, indexed to the same IRS limits, would be the same as our current A fund in any case, or the same as the VB fund in all cases.
I believe providing a higher benefit actually incurs greater cost. (We are talking about "negotiating" an increased benefit, right???)
I believe indexing our current A plan to the IRS limits would be a reasonable 5.7% increase, and then a 1.5-3.0% increase annually.
But, I'm not under any illusion that the company agreeing to guaranteed, 2% floor benefit, accrual each year, is any cheaper than what they provide now --- unless you replace how the "average earnings" are calculated.
The benefit & cost changes are highly dependent on YOS.
The easiest way to see this, and compare the plans clearly, is to assume the Investment Return = the Hurdle Rate, for every year.
15 YOS
Current A - 30% of High 5
VB - 30% of CAE. (Career Avg Earnings)
20 YOS -
Current A - 40% of High 5
VB - 40% of CAE
25 YOS
Current A - 50% of High 5
VB - 50% of CAE
30 YOS
Current A -50% of High 5
VB - 60% of CAE
35 YOS
Current A - 50% of High 5
VB - 70% of CAE
And for the rare, rainbow unicorn, 40 YOS pilot...
Current A - 50% of High 5
VB - 80% of CAE
Of course, even for the rainbow unicorn pilot, his CAE accrued benefit would be WELL BELOW any IRS Earnings Cap the year he retired, because the average is based on ALL of his W-2s from year 1.
After Year 5, the CAE method simply, and most definitly, accrues a smaller benefit, and accrues it at a slower rate.
So in the scenarios outlined above, the VB plan based on CAE can only be beneficial with YOS greater than 25...and then, it all highly depends on how the early portion, and middle portion, of that pilots career played out.
For military guys, it's like a 30 year Colonel, who's retirement is NOT based on his last/highest 36 months of pay....rather on his average, weighted-pay across his entire career -- as a 2LT, 1LT, Capt, Major, LT Col and Colonel.
(Hopefully, he was a "fast burner boy" getting promoted (upgrading) early! Hopefully, there weren't any periods of "downsizing" where promotions were slowed, and he didn't spend extra years as a junior or mid-grade officer)
Under an "enhanced A plan" with extra 1% YOS credits to 30 year, we could increase the max benefit to...55% of High 5
How would this compare to the VB plan accrued floor benefit of 60% of CAE?
Let's model it!
Show us the "assumed upgrade timeline" and we can start the spreadsheets!
If we gave increased 1% credits for those over 25, what percentage of our crew force would this cover now...and potentially cover based on current age?
Let's see our current pilot distribution based on YOS....based on age...and based on current High 5.
Given this information, we will gain clarity on who will benefit and who won't. Where the company will incur greater cost and where the company will save money.
I'm highly confident the company is studying each of these pilot cohorts very carefully, and working hard to keep any improvements "cost neutral", or "to a minimum", across the whole crew force.