The use of the term "lock box" is a little misleading. The FICA fund had a lock box that was funded with FICA taxes paid by you and your employer. Congress has raided this fund by lumping it in with the overall budget and replacing the funds with U.S. Government bonds. The Military Pension fund never had a lock box. There were never any funds deposited for you on a regular basis (like FedEx is required to do). It is funded in the annual appropriations bill passed by Congress every year. The entire Military Retirement Program, including TriCare, is one huge unfunded liability.
So, if I was a betting m,an, I would look for something in December (when the Deficit Reduction Committee makes their report) suggesting some type of reduction in military pensions and benefits. This could be in the form of an across the board percentage reduction (shared sacrifice), a means test to determine the amount of reduction based on your current income, a reduction in COLAs, or a FICA offset when the time comes to start drawing FICA.
It's their ball, their bat, and we are playing on their field.

 

And I can see them doing to our military pensions what they did to our Medical benefits when you reach 65. Reduce our pensions by the amount we get from SS.

Thanks for the Lock Box explanation. I can't speak for others but when I use it, it is tongue in cheek or another way to say it is you can't trust any of them.

 

The comment was a drive by in that sense that it was referencing other times when you weren't interested in reading about things you've complained about, but yes I did read the articles.

"In a distress termination the DB plan's assets are taken over by the Pension Benefit Guarantee Corporation. This has been an all too frequent event in the airline industry in recent years." That was hidden in the Distress Termination portion of the article.

and this is much clearer in the Future of airline pensions portion:
"Since the advent of deregulation thirty years ago almost every legacy carrier has been liquidated through bankruptcy or had their defined benefit retirement plans liquidated and the liabilities of those plans passed on to the PBGC. The one lone exception to this has been American Airlines."

For someone who often complains that others are putting words in your mouth, you do a fine job of it yourself or was the above a question? I said nothing about people's concerns or the chances of it happening here. I am the proud owner of the remnants of a terminated pension myself. I must admit that back then I knew very little about the ins and outs of either DB or DC plans, other than that were good and I should put as much money in as I could. While few will come out and admit it, that describes the overwhelming majority of people in general and pilots in particular. That article nails that pretty well. Honestly I didn't even really think heavily about what I was losing until it was in trouble.

When I did research it for myself, I learned a ton. I learned that it would be very hard to replace those DB benefits with anything remotely comparable in a DC plan. As far as termination goes, I learned about the specific rules and why it's hard to terminate a plan in the manner that most pilots here fear, that the benefits we would receive in a termination would likely be greater than anything we could have had in a DC supplement, and that paradoxically those same thing that creates so much fear amongst pilots(BK/distress term) actual is a reason to favor keeping them vs. switching completely over to DC plans.

Let's say the maximum monthly benefit for our pension plan is about $9,500 per month. That's a very simplistic(and low) number based on a salary of 75 hours times max pay rate as the basis for the high five using formula 1 and 25 years of service because that is the max benefit we've negotiated. It ignores things like per diem, intl override, and any additions that could potentially come from within the 3 formulas. Let's be optimistic (or pessimistic depending on your feelings) and say that we're going to live 25 years in retirement. Depending on what return rate you use, if you throw that into a fixed immediate annuity calculator, you get something in the neighborhood of 1.8M. Using the same 25 year career that would equate to basically getting about 72K per year in retirement contributions in addition to what we already get in our B funds. Besides the fact that would be well above the IRS yearly limitations on combined contributions ~ I have a hard time believing such a deal could be negotiated absent such limitations.

In future bankruptcies, I'm far more worried about DC plans than DB ones. While that piece of the pension article you quoted is factually correct, I personally doubt that will be true going forward. The airlines that terminated their pensions in recent years didn't touch their DC plans and often increased the %'s on the payouts, but that's bs to me. Using FDX and a 25 year pilot, if the company were required to plus us up to the IRS max of 49K from our max available 16.5K contribution that would be $812,500 a savings of about 1mil over the annuity mentioned above. Of course no pilot group has a plan like that, so the savings are even greater to companies, especially when you consider that while upping B/C fund percentages they simultaneously cut wages up to 50%. In addition to saving companies a bunch of money, upping B/C funds allowed companies to look like they were giving employees a soft landing as they terminated pensions greasing the public and government skids.

That won't be the case in the future imo. As DC plans continue to become the norm, company will adjust their spending using the savings and the next time they get into BK they will likely view DC plans as a huge drain on cash flow. DB plans have set funding requirements, and depending on the performance of the underlying investments they often don't have to make contributions to demonstrate to the feds that they are fully funded. UsAirways' plan was 97% funded in 1999, 104% funded in 2000 before dropping to 74% in 2002 because of the economy and a little company nudging by missing payments(UAL did the same thing, but even that wasn't enough to show that the plan was underfunded by the time of actual termination)

DC cash is coming out every two weeks and has zero insurance from the PBGC or anyone else. That makes it a juicy soft target for a quick 1113e motion to reduce, or suspend those benefits upon entrance into bankruptcy followed closely by it's friendly cousin 1113c to put the lights out for good.

Obviously we are dealing with corporations here, and not much truly gets their attention outside of $$$ or the government. Most of the airlines who lost pension were able to negotiate additional retirement benefits(increased B/C funds, stock distributed to pilots, bonds that were sold and divided up among the crewforce,etc). What got those pilots to the table was the existence of a DB plan and the laws governing termination of those plans. How they handled those negotiations is another long story, but I still think that the combination of what they got in B/C funds, stock/bond proceeds along with their eventual PBGC benefit will be more than they could have negotiated in a DC on their own in good times. Especially when you consider that Age 65 now allows airline pilots to get the PBGC's max benefit which I think is $54,900 vs the 35K Huck's uncle is getting.

None of it is pretty, but as long as keeping what we have will reasonably provide us with more than the alternative, drastic changes make no sense imo. That doesn't mean bad things can't or won't happen to us and that we shouldn't plan accordingly. It's not like I don't include the possibility of pension loss in my financial planning, but it just seems like a bunch of us want to actively fight the unknown simply because we know it's out there. And at a loss to boot. Why replace one promise with a lesser promise that has zero legal conditions attached to it? As that article correctly noted, upper management groups have not only kept their pensions. Wrong, but not a big surprise. What I think is worth noting though is that they aren't beating the doors down to transition those plans into DC plans like a lot of pilots are. Always an interesting topic.

 

That is amazing, but to me what's even more amazing is that talking to some of the younger crowd you find the exact same thing. Even though that is generally where most of the squawking about pensions comes from and also with people at airlines that never had a DB. This is about everybody, not pilots, but it's interesting.

The American Family’s Financial Turmoil |

Btw, I think you'll likely be right about what the PBGC calls a 'standard termination' (freeze), but when that could happen is anyone's guess. I don't think it's coming anytime soon and I think the benefits we'll probably get out of it will be greater than changing now. We all see the same gloom and doom, but on the other side of the ledger we forget that our plan funding just survived the worst recession since the Great Depression intact. That's nothing to scoff at, although I forget about that a lot.

 

OK I agree with you on this statement. I'm just not as optimistic that congress will not start changing all these programs when funds get short. Ditto for FedEx.

 

Ah so you wanted to make it about me. You will have a hard time finding where I said I don't want to read something. In fact I am calling you a liar. Now if you want to claim that I didn't want to call to get ALPA's nuance on a plain language policy you may have a point. And as I recall that wasnt me complaining that was you and gunter. Let me refresh your memory. Never Jumpseat on a flight when you already have a ticket. I know what that means but you think there is some nuance invovled.



"Yes it's easier to complain than read, sort of like the ALPA constitution and by-laws."

nuff said.

 

Interesting, and thought provoking. Real rough numbers...But, just to reach the PBGC number of $55K/yr(25yrs) we would need about a $900,000 D/C plan. That's on top of what we already get in our "B" plan.

Not so interesting. Sounds like an angry wife retort.

 

"A complaint filed in U.S. District Court says the pension plan was almost fully funded in 2000. But the plan lost about $2.1 billion over the next two years and the airline sought bankruptcy protection.

A bankruptcy court later terminated the plan.

Union officials say the massive losses were unusually high and claim they have uncovered "questionable circumstances" showing the assets may have been improperly invested."

USAir lost theirs in bankruptcy - obviously we have to be concerned about that. DL makes some great comments. It's crucial that the union stays on top of the pension funding which USAir obviously didn't - I suspect a lot didn't back then but are today.

Look I'll take a well funded DB plan over a generous DC plan any day. You just can't make the DC plan as valuable - there's no question on this. Talk to some of your SWA friends that over the years have averaged about 15%+ into their 401Ks and see if they'll have anywhere near the $130k/year pay out that our DB plan offers - guys are getting this today. I think you'll be surprised.

Do you have any idea how much money was lost in 401ks over this last recession by individuals? So don't tell me no one has ever lost money since it's their own. It's much harder for individuals (even after the excessive recession losses) to make similar gains in their funds than huge DB plans can. Any reading will show this. Huge funds like CALPERS even with their awful losses still end up with >8% of the lifetime. Very few DC plans have done the same. Yeah, yeah I know, all you FDX pilots are masters at investing and are making way more - then you don't have to worry about it.

Our DB plan has incredible value and it's worth the work it will take to keep it in place.

 

Or, My Dad can beat your Dad up.

 

Amen! I hope our new MEC chair and the rest of the membership understand this.