Not being able to "attach" this, I cut and paste...sorry for the eye chart!


Comparison of Pilot Pension Options at Fedex

For the sake of this argument, the computations are based on a life expectancy of 75 years, and a conservative 5% rate of return. I do not have access to the estimates used by the actuaries working on the pension determinations at Fedex. For sake of simplification, I have used a high 5 average of $200,000, 25 years of service, and a 2% multiplier. That would yield an annual pension benefit of 100,000. Actual multipliers and high 5 averages vary greatly between individuals. It should be noted that the Pilot Benefit Book has a much more detailed explanation of the three methods used to determine how the pension benefit is actually calculated. Though my annual pension benefit numbers are simplified, this analysis shows the present value of annuity principles that will apply to all calculated pension benefits, no matter your high 5 average or your multiplier. What’s important to note is the benefit we’d receive with a reduced penalty for going early vice a three percent per year penalty calculated from age 65.

Option 1: Current Situation
If you were to retire at age 60 today, you’d live for 15 more years and the present value of your pension annuity would be:
100,000 x 10.3797 = 1,037,970
If you were to retire at age 55 today, you’d live for 20 more years, you’d receive a 3% per year reduction (100K – 15K = 85K), and the present value of your pension annuity would be:
85,000 x 12.4622 = 1,059,287

Option 2: Law changes tomorrow and slides everything 5 years to the right (retirement age is now defined as 65 and early retirement eligibility is now postponed until age 60).
If you hit age 65 tomorrow, retire immediately, you’d live 10 more years and the present value of your pension annuity would be:
100,000 x 7.7217 = 772,170
If you retire at age 60 tomorrow (the new early retirement), you’d live 15 more years and the present value of your pension annuity would be reduced by 15% (100K – 15K = 85K):
85,000 x 10.3797 = 882,274.5

Option 3: Negotiated change to redefine retirement age to 65, with early retirement still available all the way back to 55, but only a 1% per year penalty for going early.
You hit age 65 the day after the change and retire, you live 10 more years and the present value of your pension annuity would be:
100,000 x 7.7217 = 772,170
You hit age 60 the day after the change and retire early, but now the early retirement reduction is only 5%, you’d live 15 more years and the present value of your pension annuity would be:
95,000 x 10.3797 = 986,072
You hit age 55 the day after the change and retire early, but your total reduced benefit is 10%, you’d live 20 more years and the present value of your pension would be:
90,000 x 12.4622 = 1,121,598

What’s interesting to look at is the 60 year old comparison. The present value of the pension annuity drops from 1,037,970 to 882,274.5 if the law changes tomorrow, everything slides to the right, and the early retirement reduction remains at 3% per year. If we negotiate a different reduction rate (1% per year), the 60 year old’s pension annuity only drops to 986,072, when the max retirement age is redefined to 65.

All of this is based on the premise that a rational person will consider the present value of an annuity equal to annual payments for the duration of the annuity. It’s also interesting to note that the total present value of the early retirement annuity is larger than in any case of working to obtain a 100% payment. Yet not many pilots decide to retire early. Nobody said we pilots are rational.

Feel free to bounce these numbers off the R and I committee. I’ve flown with both Scott S and Mike B. They are both sharp guys and we are lucky to have them.