Originally Posted by
DLax85
Kronan -
I'm trying to understand your model and your math above.
In the first year of the payout, your 200 pilots get 2% of $275,000 because they only had 1 year in the plan - so that's 2% x 1 x $275,000 = $5,500 per pilot....x 200 pilots = $1,100,00 total....correct?
In the second year, it appears your next 200 pilots get 2% of $280,000, but once again, you only multiply that by 1 year....2% x 1 x $280,000 = $5,600 per pilot....x200 pilots = $1,120,000....correct?
If so, I think this is in error. The pilots retiring in the second year, have 2 years of credit in the new retirement plan.
Their amount would be twice what you estimate: 2% x 2 years x $280,000 = $11,200 per pilot.....x200 pilots = $2,240,000
And subsequently, the 3rd group to retire would get: 2% x 3 years x $285,000 = $17,100 per pilot.....x200 pilots = $3,420,000
Extrapolate out to a 25 or 30 year career, and we see this 2% floor grows the total liability for each "year group" of retirees each year.
For example, if over the next 25 years the DC limit grew at 1% per year (approximately 28.24% when compounded), it would be $365K.....and that years floor payout would be: 2% x 25 years x $365,000 = $182,500 per pilot....x200 pilots = $36,500,000
Plus, all the other payouts for the other year groups 1 thru 25. A rough guess (without a spreadsheet) is that total would be $470,250,000 for all year groups. It would grow substantially larger each year, as all subsequent year groups would have about 25 years (or even more) in the new plan.
Bottom line, I'm unsure the modeling you outline above is accurate for the "2% guaranteed floor", and thus the plans ability to sustain a 30% loss every year and remain viable is also questionable.
In Unity,
DLax
Ding ding ding.
And on that topic DLax - in the event of pension plan termination, the VB/PSPP as a "fully PBGC compliant" fund (as it is advertised) will only payout based on the PBGC's estimation of the plan's level of funding and expected future payouts (not necessarily promised payouts). The PBGC's payout determination could be anywhere from hundreds of dollars per year to a max of 65K$ per year for the terminated pension fund. The way this VB/PRSPP avoids the funding issues raised by the company as an impediment to improving the current A plan could be our undoing in the event of plan termination. Look around and let's face the fact that plan termination is a real threat in our future and plan accordingly.
While we would hope to receive 65K per year, this alternative funding that is a fraction of our current A plan's funding methodology would probably yield in a fraction of that 65k from the PBGC. This is critical to understand, that the buzz phrase "fully PBGC compliant" has wide variety of meanings when it is shown on powerpoint to us. What is being actively advertised as an ingenious financial move to us (the low funding requirements of the new plan while still being PBGC compliant) could later prove to be disastrous.
The PBGC could easily demonstrate that our plan could never produce a 2% floor and was thus a true variable plan and we understood the investment risks associated with this plan when it was ratified by the membership.
It looks to be impossible to have the relatively small funding requirements of variable plan coupled with the higher promised obligations of a traditional pension plan. DR K