tennisguru

The tax thing is an interesting math issue. Let's say someone has 20k per year in DPSP cash (I have no idea what's realistic, but the concept behind the numbers will still work).

Our current option is to take the cash, with the tax hit. Let's say after fed/state taxes, dues, etc you end up with 55% of that, or 11k. If you invest that 11k every year starting with $0 over 20 years @ 10% rate of return you'll have 630k in that account.

Option 2 would be this 5% VEBA/whatever you want to call it, the benefit being that you would get to put the full 20k in each year. That amount after 20 years would be 660k.

The math on those is very close, but of course the variable is what can you do with your own money. If you can average 11% instead of 10% that puts you at over 700k, 12% is just shy of 800k. Conversely if you can only do 8% you're only looking at 500k.

The one thing I don't know is how this union plan would be taxed on withdrawals after retirement. Is it ordinary income or long term capital gains? That would make a big variable that would need to be accounted for.

Either way I can see how the 5% "set it and forget it" plan appeals to some people. If they could push that yearly gain closer to 7% it'd really start to look much more attractive of an option for a larger number of pilots. A 7% ROR on the enhanced retirement option would push your 20 year account balance over 800k, which matches the 12% ROR if you took the DPSP cash tax hit.