Tuck, I agree, this is a good discussion.
Here are my concerns with the PSPP:
First, only one of our DB plans can be protected by the PBGC. If we go to the PSPP and freeze our current DB plan, which plan gets protected. Now, that may not matter much for someone who has been on the property five years or less, however, you have been here quite a while. How would you feel about your earned DB benefits not being protected by the PBGC. The only way to prevent this is to transfer our earned benefits from the current DB plan and incorporate them into the PSPP. How would that affect the funding status of the company DB plan? I doubt the company would take money out of that plan to fund a new plan. The other option is to allow pilots to chose which plan they want to be a part of. If we all go to the PSPP, then that is most likely the plan that will be protected. If we are allowed to chose, then we wasted 6+years, because the company offered to raise the FAE during the last negotiations if we put all new hires under a DC plan.
I've heard that recently from a few guys - the company offering to raise the FAE - I don't believe that's true. I've never heard it from anyone at the table and I've asked them. We know the Company offered a nice DC raise (I think their opening bid was around 16% and likely could have gotten to 18%) but I've never heard of them offering to improve the DB plan for legacy pilots if DC only for new pilots. I think this is a urban legend brought up by those that really want to focus on DB improvements. Check your sources, ask the R&I and NC during that time and the MEC during that time.
On the PBGC I agree - that is a risk with only one plan covered.
Second, in the PSPP, the pilot assumes the investment risk and the company assumes the longevity risk. However, the company still controls the investments. If I am assuming the investment risk, why don't I get to chose my investments until I retire. In an ideal world, we would get a very low hurdle rate and a floor level that pays much higher than our current DB plan. But, the company would want just the opposite. Remember, the hurdle rate is what is used to determine the amount that the company will contribute to the PSPP. If I were the company, assuming the longevity risk, I would try to balance my investments to stay just above the floor rate. What incentive do they have to earn any more? By doing that, they mitigate the longevity risk by not having as high of a benefit to pay and a balance of investments that are conservative enough to practically guarantee that they can meet their obligations.
No I don't think you understand it correctly. The company input would be a straight % of total pilot salary - the % would be negotiated and the actual amount would grow as total pilot earnings (typically) grow year over year. This plan actually costs the Company MORE cash in the long term than the current DB plan. Their inputs to the current DB plan are slowly decreasing as inflation takes over - in the PSPP the actual cash from the Company would grow year over year and keep up with our salaries - thus not requiring any future negotiations. Now that could be seen as a negative for the Company but they now have a known number to contribute every year and no more PBO. As far as investment goes, it would be done by a third party that would be mutually agreed to by the CO and ALPA. No one has ever said that the Company controls the investments.
Third, as Tony stated, some pilots will do fine under the PSPP while others will do no worse than if they retired under the current plan. Who wants to volunteer to be one of the pilots that does no worse than the current plan? I know that I don't want to volunteer for that if we switch.
Like I said, there are outyear improvements that are difficult to measure but are not "no worse". The ability to allow your investments to stay in the market during an average 20 year retirement does not exist today for the DB plan (it does for the DC plan and EVERY pilot does this exact thing because it's the smart thing to do) - that ability would be available under the new PSPP. The donut hole people here we are talking about are pilots that were hired at a much later age - typically upper 40s or later - so they were never going to get a great benefit. Now there probably are a few (very few IMO) pilots that over a 25 year career were planning on camping in the right seat until the last 5 years and working min hours and never worrying about their high 5 until those last 5 years. Doing that under the PSPP would likely hurt you - BUT you will get no less than what you would have earned under the legacy plan. In reality, with pay rates as they've been and pilot work ideas as they are, these pilots may be more of an academic exercise than any reality.
Fourth, the MEC has already floated the idea that the pilots could shoulder the cost of a stabilization fund by capping the returns is good years.I bet the company would jump on that. Right now, they have that burden with our current DB plan.
The cap is protection for the plan - when the current DB plan has a great market return year, the Company can opt, and often does, to put nothing in that year or very minimal. That's the plus of a DB plan to a corporation. Under the new PSPP, the Company would continue that % of pilot salary input regardless of how the market did. So returns are say 5% over hurdle rate, their would be cap and excess earnings would go into the stab fund to help during a downturn but, over a certain rate within that cap, returns would likely go back to the pilots (all to be negotiated) - BUT the company would still be required to put in their annual input which is huge.
As far as keeping your DB plan in the market to keep up with inflation, that is why I will keep my DC plan in the market. The problem with keeping the PSPP in the market after you retire is that your DB retirement balance can go down. According to the lectures, the value of a pancake is only determined at the end of every year. When you retire, your number of pancakes are set and there is not a floor for you any more. So, is it still a defined benefit if you do that? I would prefer to keep up with inflation with my DC plan where I control the investments and the investment risk. I can also freeze my value at any time during the year, I don't have to wait until the end of the year to see how the market closes to know the value of my plan.
Yup, there will be some fluctuations - most likely in the early years of retirement as we know, historically, the market always goes up. So you may, for example, start with $130K, then during a bear market go down to $124k, then $118K then when it returns back to $126k, $136k, and upwards from there. It won't be for everyone - but for many (most I predict), that have sufficient retirement funds elsewhere to cover the fluctuations, this will be a huge win.
There are many variables of the PSPP that need to be negotiated and all of those parts will determine how good the plan is. The MEC has already stated that they are ecstatic with the results in the calculator. Why would the company offer any more. I think that they already set the high water mark from which the company will negotiate down from. The company has had almost two years to try to figure out how to outsmart us with our own plan. We always end up screwing ourselves by thinking that we can outsmart the company. The company controls system form, hiring, pairings, and yes, retirement benefit investments. Right now they have an incentive to balance max rate of return along with investment safety. With the PSPP, investment safety will be their only concern.
People give the Company way too much credit. They are not smarter than you. Get that in your head. CRS is not smarter than the pilot they are scheduling - well not the well informed, well read pilot which I know our negotiators are. I don't believe the Company has spent any time looking at this plan since they initially rejected it - based on not enough time or money to look into it. Anyone who has been here for a while realizes that they aren't some masters behind the curtain. They likely are just beginning to look at openers now - they have likely given very little thought to the PSPP. I don't think we screw ourselves by thinking we can outsmart the Company because typically our guys at the table ARE smarter than their guys - but we do have a lot more people, with very different ideas and needs, making decisions and that's where we screw ourselves - I'm not sure how to overcome that part.
Why not try to raise the FAE cap on our retirement. As Tony stated, it's a simple computation. The NC has already stated that the start up costs for the PSPP will be in the billions of dollars. If the company used that money to raise the FAE instead, what would that number be? I asked the NC that very question, and I was told that it would be to hard to calculate. However, they expect me to believe that they can negotiate a complicated retirement plan with many variables that will be safer and better than the current plan. I just don't buy it.
Start up costs in the billions of dollars? Where did you hear that? In a lecture? On a posted you tube video, in a comm? I've never heard anything like that. The start up costs are not billions because in the beginning, there isn't much value to the PSPP - you have to have stabilization fund but the other costs are not so expensive - what makes you think they would be? I don't think there's anything confusing about raising the FAE - that's not the issue nor has it ever been. The problem with raising the FAE is it immediately puts a huge PBO cost to the Company - something they have said time and time again they do not want. In fact, it is mentioned in their annual actuarial reports. But cash alone, kind of like what they offered in the DC plan in 2015? That's something I believe they MAY consider.
Keep discussion going - it's good for all of us.