Originally Posted by
kronan
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.
The pilot assumes almost all of the investment risk, which is far more than the pilot has now. The Company dumps ALL of the investment risk up until the point the Retirement Fund performs so poorly that the stabilization fund is depleted. The only limits on the pilot' investment risk are numbers to be negotiated. The floor protects the upside, and the hurdle limits the upside.
If the plan works as designed, The Company will have ZERO investment risk. The pilot will be the only party with investment risk.
Originally Posted by
kronan
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.
"Individual pot of money [that] runs out" has not been used to describe the Variable Benefit Plan. Another straw man.
Nobody said it wouldn't pay out benefits for a lifetime. Another straw man.
The Variable Benefit Plan cannot be compared to a traditional Defined Benefit Plan. At best it can be described as a Hybrid Plan. Anybody with a smartphone and an ounce of Google-foo can find numerous descriptions of the "new" plan concept that has been suggested for failing Defined Benefit plans that combines features of a Defined Benefit Plan and a Defined Contribution Plan.
What The Company puts in is an amount of money every year proportional to the employee's annual salary, up to the IRS Defined Contribution Compensation Limit. That amount of money, whatever it is, is the last The Company ever has to worry about the pilot's eventual retirement benefit. It may go up, or it may go down, and The Company doesn't care. The Benefit the pilot receives upon retirement for each year's salary will VARY depending on how the Retirement Fund performed in the market. The shares he "accumulated" each year will be multiplied by the value of a share that year, and that will determine the lifelong Retirement Benefit the pilot will receive each year. The fact that the amount is a fixed amount then does not make it a Defined Benefit plan.
This video has only received 2,267 views. It's a pity, because this is Greg Reardon of Cheiron explaining how the Variable Benefit Plan works. He's the guy who started using the term pancakes. I BEG you all to watch this video, and I have it cued here right before the most important part:
https://youtu.be/LvjGtv6POFM?t=1119
Originally Posted by
kronan
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.
The amount of cash The Company must contribute to the fund to support the 2% "Floor Accrual Rate" is a tiny detail that would have to be negotiated. In the first year of the example used in the above-linked video, the pilot accrues a retirement benefit of $5,007. How much money in the fund is needed to match that liability? Oh, wait, $5,007 is not the liability, really, because that number can go up or down depending on the performance of the fund. The only real liability is the floor, and even that is supported by the stabilization fund. So, if the plan functions as advertised, The Company gets a discount on every pancake. Plenty of details for our "experts" to negotiate.
Originally Posted by
kronan
580 shares is a Year 1 calculation only, ...
Where'd you come up with 580?
Originally Posted by
kronan
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.
We can't tie the calculation to twice the DB limit because the IRS has set the rules for how the calculations are done. The limit is the IRS
DEFINED CONTRIBUTION Compensation limit because that's the law. Reference the above-linked video at 25:36.
Originally Posted by
kronan
Or negotiate a 2.1% floor?
All the details (apart from the IRS rules) are negotiable.
The Final Average Earnings Cap is also negotiable.
Originally Posted by
kronan
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)
CBA Section 28 RETIREMENT (PENSION BENEFITS)
Paragraph E. Federal Express Corporation Pilot Non-Qualified Plans
2. In the event the compensation limit of Code § 401(a)(17) and/or the
annual addition limit of Code § 415(c) is decreased legislatively, the
Federal Express Corporation PRSP Non-Qualified Plan for Pilots
(“PRSP Non-Qualified Plan”) shall be established.
§ 401(a)(17) of the IRS code refers to the annual compensation limit for DEFINED CONTRIBUTION plans
§ 415(c) of the IRS code refers to the
Limitation for DEFINED CONTRIBUTION plans
So, No, we don't have a CBA provision to establish a non-qualified plan in the event the IRS lowers the DEFINED BENEFIT limit. If you could stick to the facts instead of what you "think" it is, it might be less confusing.
Originally Posted by
kronan
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.
Every year counts in different ways for different plan types. If all we have are two defined contribution plans, like our current "B" Plan and the proposed Variable Benefit Plan, then every Credit Hour of every year counts towards improving the retirement benefit and the "B" Plan balance.
Under our current "A" Plan, a traditional Defined Benefit Plan, every year counts as a Year of Service, and that equates to 2% of the pilot's "High Five" Final Average Earnings. Maybe it's a young family, or maybe it's an aging parent, or maybe it's a family member with a major illness that causes the pilot to pay more attention to his home life than his flying gig. Maybe it's just a desire to remain senior in a lower-paying seat to improve his quality of life. Regardless of the reason, the pilot gets to choose to work less and still get 2% Years of Service credit under our "A" Plan. Under the Variable Benefit Plan, he won't have that choice.
Originally Posted by
kronan
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)
Your expectation ...
To Be Negotiated.
Originally Posted by
kronan
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?
Fixed contribution. That's right.
How does that economic collapse impact on Traditional "A" plans? That's The Company's problem, because they bear ALL of the investment risk.
Oh, and those highly-compensated executives still have a personal vested interest in the the success or failure of the fund since they're in it too.
Originally Posted by
kronan
In that hypothetical future, it's a land of tough choices. Pension Benefits have been negotiated lower to prevent outright termination of a plan.
Not when a Company wasn't going through a bankruptcy. I'm sure you know bankruptcy rules have changed to make it much more difficult for companies to use it as a tool to unload debt and walk away scot free. Delta used bankruptcy to do just that right before the bankruptcy laws changed because they knew they wouldn't be able to do it after the change.
Originally Posted by
kronan
"—- (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.
The Variable Benefit will also be subject to inflation. Our "A" Plan benefit has not been hurt by inflation, it has been hurt by our failure to raise the FAE CAP at the same rate as we have raised hourly pay rates. A pilot close to retirement may not see ANY improvement from the PSPP over the current "A" plan with the current FAE Cap, but EVERYONE will see a SUBSTANTIAL improvement over the "status quo" by raising the FAE Cap.
Ask anybody nearing retirement what their ACTUAL High Five (not limited by $260,000) is today. If they have 25 years of service, divide that High Five by 2, and that's what they should get in retirement in return for their years of hard work making this Company not only possible, but fabulously successful. THAT's what they deserve, not some "modest improvement" over $130,000.
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