Originally Posted by
NuGuy
It's not hard to model the costing of a very generic DB plan, but there are a bunch of variables to consider. In the current market, with relatively high interest rates (relative to recent history, that is), you can take a baseline of a 45 YO pilot lifetime payout at 65 of $12,000/mo ($144k/yr) w/survivorship benefits to spouse (about the same age) is about $850k, plus or minus.
If you want to pump it up to $15,000/mo ($180k/yr), you're looking at a current value of $1.1 million.
As the pilot gets older, the cost increases.
Increase the payout, the cost increases.
Lower the interest rates, and the cost increases...a lot (not linear).
If you are starting from scratch, you'd have a whole range of demographics to blend out the cost, but the number gets big in a hurry. IF you are going to replace the DB, ideally you want that money back on a rough equivalent of what the current dollar value of the plan would be. For a 30 YO, that'd be about $400k. For a 64 YO, that's $2.2 million.
There are a colossal number of variables to consider, but understand just dropping the DB would involve a ton of complicated costing, and if you want an equivalent benefit, some people are going to get giant checks, and others not so much, and sometimes that's tough to explain despite the math.
Under ERISA law and IRS rules, in a standard termination of a 100% funded defined benefit pension plan (like ours), every participant receives 100% of their accrued benefit, with no reductions.The plan’s assets cannot be used for company costs like general operations, salaries, or debt repayment. Pension assets are held in trust exclusively for participants’ benefits, and diversion for non-benefit purposes is prohibited by ERISA. The union can’t negotiate away the money, the company can’t take it
Assuming a pilot starts at $200,000 a year and gets a 3% pay raise every year, the company must contribute a
minimum 20.1% of the pilot’s final-year salary (approximately
$84,300 annually, escalating with salary, to the 401k for 25 years at 7% return to provide $130,000/year in retirement using the safe 4% rule withdrawal rate.
That exceeds the current IRS 415c overall annual addition limit of $70,000 per year.
We already receive 9%. To replace the defined pension and receive our already earned 9%, a new hire who can work 25 years would need minimum 29% with cash over the 415c cap.
Warning public math. Public retirement calculators used.