I really need DAPLA to address this concept for line conversation. That’s what is being discussed as the MBCP. A cash balance plan is literally a new idea (for airline pilots) to utilize the excess (DPSP cash) into a tax DEFERRED account. Much like a 401k. It would allow the DPSP CASH to go into a managed account (in your name) and managed by the overall age profile. When you retire, you have a few options. Lump sum, annuity, or roll into a traditional Ira. Right now (the latest I have been told) is 75% of pilots hit the 401 limit (personal contributions and employer contributions) and the result is DPSP excess. That is simply the 16% is paid out as DPSP CASH on the paystub. Guess what, not only are you paying tax at your rate- the company may be too depending on your earnings for SS, Medicare, etc. The company saves a lot of money here. MBCP shields those taxes.

Now the MBCP allows all the excess above the 401 limit to be put into a MBCBP. Admin fees are small on this and far below normal payroll taxes and your balance is yours. The money deposited is invested based on the group longevity scale (typically). It’s hedeged to the age of participants and when you retire, you have no less than what you put in, but gains subject to the market. When you retire you can do an annuity, lump sum, or roll into a traditional IRA. The company saves money in doing this, but you also are not taxed on this until you retire and theoretically are at a lower tax rate compared to the tax rate in earning years. From a tax cost standpoint, everyone wins, and it’s like another 401k (traditional).The option of being in/out can exist and the rate if return is likely less than simply stating the S&P500 as a benchmark, since the investment manager must be conservative to honor all receipts.

There is a reason the MBCBP is used by High earning individuals (typically doctors and lawyers) as there is a small window of years where the plan makes sense, for us- we can use it for decades. The company literally pays themselves to have this in a tax conversation and (once the treasury agrees to the plan) pilots need to decide if being a bit under market benchmarks makes it equitable in the tax deferral (smaller gains) vs investing the money post tax rate in an investment account with current tax liabilities.

I’m an FO, knowing I won’t get a pension and have prepped for a great retirement with the 401K, Roth, Backdoor Roth IRA, HSA, etc, and it seems we are really missing the information of what’s available to move mindsets off a pension that won’t happen. Some really seem to think a “lump sum” will happen and fix the gaps- and that’s another conversation, but hearing “DPSP cash is the fun fund” simply makes me try really hard to keep my head straight when the next conversation point is retiring.