Originally Posted by
FastBurner
First - Noworkallplay and FXLAX are trolls, easier to put on ignore list on APC and disregard than engage in literally making us all dumber for spending time reading their drivel. (Though I think Starclipper, no work, and fxlax might all be same person).
Good point on understanding that the floor guarantee is not much above what we have... so why bother with crafting a new product? I created an excel product back in 2018 that I will be posting on the site that mimics the math with a variable plan. I do show similar calculations wherein the “floor” would be less until year 26.
When working through the actual calculations and process of how the plan would work, the following are additional considerations:
- investment RISK shifted to individual
- process works in chronological order
—- company kicks in stab reserve (negotiated for both requirement and amount)
—- individuals work and earn pensionable earnings (could company redefine what counts?)
—- company contributes flat % of pensionable earnings (2%, negotiated)
—- at end of plan year, earnings converted to shares with year 1 par val $10.00 (290,000 X .02 / $10.00 = 580 shares)
—- year 1 “credit” example is $5,800 (but really 580 shares that accumulate every year)
—- (this is only $600 more “guaranteed” by floor vs current plan)
- pensionable earnings are the key, so working more will increase your floor (subject to limit)
—- but, the modeler assumes the company contributes a flat percent of earnings (2%) equating to a floor accrual
—- that is negotiated, what if it’s 1.9%? At max is $5,510 vs $5,800 or roughly 29 shares
—- what if irs cap is lowered?
- every year counts, imagine having a young family or Mil duty for first 5 years and not getting 1,000 hours
- there are 1700 or so FOs above most junior capt, a huge rebalance would occur if earnings drove share purchases
- when are shares purchased every year?
—- Intuitively, we would always want to purchase our shares at the lowest share price, but we would have no “control” per se.
—- we would like to cash out with a high share price, again no control per se
- what happens during 3 years of declines (2000-2003, -10,-13,-23 ish) if first three years of plan?
—- what levels would “break” the model and force the company to add more or terminate?
—- negotiated beginning Stab Reserve amounts
If this makes eyes glaze over then good, these aren’t even the most complicated parts of plan. Point is there are too many variables that determine the final outcome
Investment RISK is not shifted solely to the Individual, if it was, then there'd be no Floor and No Hurdle and we'd simply be buying Shares in our Pension Trust similar to a mutual fund or EFT. But, again, Sorry TonyC, a PSPP style modification is NOT a Defined Contribution Plan...it is a Defined Benefit Plan which will pay out benefits for a lifetime. Not just til you're individual pot of money runs out. Sadly, some of our peers aren't going to Collect their Pensions for decades. Some will die of illness within a handful of years after retiring, some in plane crashes or car crashes.
I think it's highly unlikely that the company could redefine what Pensionable Earnings are. I think our current PBB definitions are likely inline with Government Regulations, but I could certainly be mistaken. It's not something I've looked into.
Company Contributions to our Pension Trust has never been discussed\announced as far as I can recall.
2% of Pensionable Earnings was the proposed "pancake" value for annual calculations.
580 shares is a Year 1 calculation only, and only if you were at that year's DC limit. After that the notional value floats, so theoretically, the best possible situation for someone hired in 2023 following a transition to a PSPP style plan would benefit immensely if 2024-2026 were down years economically since their notional share purchases would be cheaper each subsequent year. eg instead of purchasing 580 shares, they'd purchase 600, and then 620. Same benefit Dollar Cost averaging enjoys. Just not to the same level as truly purchasing a mutual fund or EFT.
I'm not sure why we'd agree to any Floor Percentage less than 2%, But what if we went to 1.9% and tied the Calculation limit to twice the DB limit, which would be a huge, huge improvement (and equally as hugely unlikely IMO) or tie it to WB Capt pay.
Or negotiate a 2.1% floor?
What happens to our B plan if the IRS DC limit is lowered? Oh wait, we've already got protective language in our CBA should that happen. (Think it also protects us if the DB limit is ever lowered as well)
Every year does count. Having a young family and choosing to work only 500 hours is a personal choice. It is a choice that has a huge impact on your family's eventual B-plan value. It is a choice that has a huge potential impact on Disability Compensation, should-God forbid-our young family go on disability. (Pretty easy to live a great life on 500 hours, not quite as much fun on 250 hours)
Again, the NC listened to those very valid concerns and added another Benefit formula to the PSPP proposal. Benefits would be the highest of Market Returns, Floor Calculation, and no worse than a value created by our current A plan formula.
Mil Leave. USERRA requires FedEx to compute Retirement Benefits as if you were actually working. My expectation would be a PSPP year equivalent to 1000CHs times pay rate. (Similar to what I would expect should someone go out on Disability-but that was never explicitly discussed)
When someone comes back from Mil Leave, assuming there's been a seat bid, they are allowed to hold whatever Seat position their Seniority holds.
What levels would "break" a PSPP style Pension. I do recall hearing that our PSPP style pension was stress-tested over various historical eras without breaking.
What has broken Pensions in the past is overly optimistic investment return predictions resulting in no required Pension contributions. FedEx has been very realistic with predicted returns on our Pension Trust and has used leverage to add assets to our Pension Trust even when they haven't been required to do so.
PSPP design has a fixed contribution year by year. I have no idea what percentage that was, when the market imploded last year I posted a model of hypothetical 30% down turns year by year by year. Even with that extreme, still works out because the initial draw from our Pension Trust will be very limited (roughly 120-150 people retire each year)
This might sound odd, but a lot of times after a huge bear market subsequent years have outsized returns as well.
The future could always be different. But in that different future....how does that economic collapse impact on Traditional A plans?
In that hypothetical future, it's a land of tough choices. Pension Benefits have been negotiated lower to prevent outright termination of a plan.
"—- (this is only $600 more “guaranteed” by floor vs current plan)"
The PSPP is only a modest improvement over the status quo for those closest to retirement. (Of which I will be one should it be incorporated into our next TA, and if that TA passes)
As proposed, it really only stops the inflationary bleeding that impacts our A plan each year.