Originally Posted by
TonyC
Then I'm glad I spoke up, because I think your are incorrect.
Good lord, it would not be the first or the last.
Sorry I've been flying this week and just forget to hit the gripe and whine forums. I've gone back and watched most all the videos again. Still very confused, but I still think my explanation is correct. I'll get to that shortly.
Originally Posted by
TonyC
Listen to Greg Reardon. He says exactly that.
January 2018 Joint Council Meeting: Greg Reardon (Begin at 18:38)
Start with Salary, compare with IRS Salary limit.
Take the lower of the 2, multiply by 2%, that's your Annual Floor Accrual.
Divide Annual Floor Accrual by Beginning of Year Share Value, that's your number of pancakes.
.....
Nowhere does Mr. Reardon mention that any pilot's benefit is affected in any way by how much any other pilot works or earns. If you make $150K and your buddy makes $300K, your benefit is based on $150K, and his benefit is based on the IRS Salary limit ($275K in 2918, increasing in future years.) So, in 2018, The Company would contribute to the fund a fixed percentage of your $150K and his $275K and then they'd be done.
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This section with Mr Reardon is where I cannot for the life of me follow where he got from point A to point B. I understand the simple math he is using to get to his solution, but I don't think he is either explaining this correctly or there's a huge leap of faith somewhere.
In the videos they are using two different descriptions when they talk about a "floor benefit". One time when they refer to the floor is when they reference a floor return rate below the 5% hurdle rate. The other time is in the explanation Tony is referencing, where Greg gets to his 2% "floor" benefit for an income of $275,000 discussion to arrive at a pancake. The first "floor" or a guaranteed 2% minimum rate of return I can understand. That makes since from a watch the dollar, see it grow over time concept. The second "floor" does not compute at all.
First, the $275 limit only applies if we are changing from a non-qualified DB plan to a qualified DB plan. I did hear in the videos that the VBP is a qualified plan. I'm not sure how that affects us, but here is a quick snapshot of the differences:
Qualified and non-qualified retirement plans are created by employers with the intent of benefiting employees. The Employee Retirement Income Security Act (ERISA), enacted in 1974, defines qualified and non-qualified plans.
Qualified plans are designed to offer individuals added tax benefits on top of their regular retirement plans, such as IRAs. Employers deduct an allowable portion of pretax wages from the employees, and the contributions and the earnings then grow tax-deferred until withdrawal.
Non-qualified plans are those that are not eligible for tax-deferral benefits. Consequently, deducted contributions for non-qualified plans are taxed when income is recognized. This generally refers to when employees must pay income taxes on benefits associated with their employment.
I think we currently are in an unqualified plan which is why we do not have an IRS mandated cap instead we have a contractual cap. IF we are changing to a qualified plan it seems that the money is now coming to the plan instead of to us as pay.???? Why the change? Is this why the $275 cap keeps coming up? Does it really apply? Assuming that the cap applies, I have no idea what Greg is doing with the 2% floor that he multiplies by $275. Where did 2% come from? IF that is a "floor" benefit then that would seem to imply that we should expect to see regular benefits in excess of that "floor". There are several times in different videos where speakers say that if you earn more then you get more. Or they also say that your earnings for comparison are uncapped. I don't know if some of those phrases changed over time as I was jumping around searching for the pancake explanation as I watched videos so they were not in chronological order as I watched.
To summarize, if I understand Tony and others trying to break it down for me; the company will pay a "known" amount every year that is a percentage of total payroll. (the annual amount will increase or decrease if total payroll increases or decreases for the year) That total amount will be allocated among each pilot based on how much they earn. Each pilot might be getting a pancake valued at 2% of their annual earnings (maybe capped at $275). All these funds are pooled and invested by professionals and they will try to earn 5%. If they earn 5% then you will get ZERO increase in the value of your pancake. If they earn more than 5% then the percentage over 5% will be the increase in the NAV of your share for the year. IF the pot earns less than 5% then your NAV decreases by the difference below 5%. Now there is another 2% minimum rate of return that guarantees as return floor. Either way you are guaranteed that the value of your pancake will NEVER drop below the original value of 2% of your cap ($275)
There's a whole bunch of math I'd like to throw out here, but I'm going to make sure we are all on the same page before we add math to the mix.