Originally Posted by
KC10 FATboy
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.
Your required contribution of $84,300 a year for 25 years at 7% return would net over $5,000,000, so well more than would be required using the 4% rule. You also fail to account for longevity and upgrades with your $200,000 salary increasing by 3% a year for life. For example, a 9 year FO made about 200/hour in 2018 and the next year as a 10 year WB FO, made $214/hour, or almost 7% more.
All of this, however, means nothing because pensions don’t work on an individual basis but on a large group basis. Pooled money and averaging of life spans allows it to be funded less than the highest benefit received. Why do you think that FedEx hasn’t been required to make a pension contribution since before 2020 despite hiring hundreds of pilots during that time frame? For example, if our pension fund has $25B in funds and earns your 7%, that would equate to $1.75B in yearly interest alone. Paying out $130,000 per retired pilot max, that interest would pay the retirement for over 13,400 pilots in a year without touching the principle. Economy of scales matter.
I hope this encourages you to take another look at math. The closest thing to financially comparing the cost of our retirement would be to look at the cost of a lifetime annuity purchased on the day you retire. Even that would cost more than what the cost to the company would have to fund for our retirement because the sellers of those annuities want to make money as well. Right now, that cost is around $2M plus or minus. So that would require less than $35000 a year at your 7% return for 25 years. Less if you stay longer.