Minimum Cash Value plan and the IRS
04-09-2019, 08:34 PM
#51
Trimming my beard
Thread Starter
Joined APC: Jul 2014
Position: 7ERB
Posts: 241
Originally Posted by BobZ
From the Department of Labor.
How do Cash Balance Plans work?
In a typical cash balance plan, a participant's account is credited each year with a "pay credit" (such as 5 percent of compensation from his or her employer) and an "interest credit" (either a fixed rate or a variable rate that is linked to an index such as the one-year treasury bill rate). Increases and decreases in the value of the plan's investments do not directly affect the benefit amounts promised to participants. Thus, the investment risks are borne solely by the employer.
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The investment 'risks'....this means downside as well as excess upside, belong to the plan sponsor. our employer. Its one thing if a CBDB is funded with the corporations money on top of employee earnings, but in our case this plan will primarily be funded WITH OUR OWN EARNED MONEY.
Make no mistake, if the asset base outperforms, delta will reap that windfall. One way or another.
Your personal ROI 'guarantee' has NOTHING to do with the asset base performance. What you are getting is an IOU in a paper sack based on the agreed upon indexing ROI formula.
As I said, CBDB plans usually have an ROI index floor to protect the beneficiary.....but ALSO install a ROI cap to protect the corporation/plan sponsor AND the backstopping agency....the PBGC.
You best DYODD. ERISA and Dept of Labor regs are a good place to start. Believing in what you think alpa 'experts' tell you is done at your own peril.
Those 'experts' also told us the terminated pension was secure. Right up to the bankruptcy filing. Of course the day after the bankruptcy filing, the first piece of paper put in front of the judge was to terminate the unqualified pension payments to retired pilots.
But then im just a dumbass airline pilot, and I wouldn't recommend ever taking investment advice from one of those.
How do Cash Balance Plans work?
In a typical cash balance plan, a participant's account is credited each year with a "pay credit" (such as 5 percent of compensation from his or her employer) and an "interest credit" (either a fixed rate or a variable rate that is linked to an index such as the one-year treasury bill rate). Increases and decreases in the value of the plan's investments do not directly affect the benefit amounts promised to participants. Thus, the investment risks are borne solely by the employer.
************
The investment 'risks'....this means downside as well as excess upside, belong to the plan sponsor. our employer. Its one thing if a CBDB is funded with the corporations money on top of employee earnings, but in our case this plan will primarily be funded WITH OUR OWN EARNED MONEY.
Make no mistake, if the asset base outperforms, delta will reap that windfall. One way or another.
Your personal ROI 'guarantee' has NOTHING to do with the asset base performance. What you are getting is an IOU in a paper sack based on the agreed upon indexing ROI formula.
As I said, CBDB plans usually have an ROI index floor to protect the beneficiary.....but ALSO install a ROI cap to protect the corporation/plan sponsor AND the backstopping agency....the PBGC.
You best DYODD. ERISA and Dept of Labor regs are a good place to start. Believing in what you think alpa 'experts' tell you is done at your own peril.
Those 'experts' also told us the terminated pension was secure. Right up to the bankruptcy filing. Of course the day after the bankruptcy filing, the first piece of paper put in front of the judge was to terminate the unqualified pension payments to retired pilots.
But then im just a dumbass airline pilot, and I wouldn't recommend ever taking investment advice from one of those.
That is exactly why I started this discussion, because I know lots of dumbass airline pilots me potentially better than most. Good stuff.
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04-09-2019, 08:50 PM
#52
Gets Weekends Off
Joined APC: Jun 2015
Posts: 4,116
In speaking to the legislative affairs guys I understand there are direct negotiations with the government agencies concerning retirement improvements.
Possibly the funding coming from excess 401 funds may allow variations in the plan development. But appreciate given their financials, the PBGC as the backstop benefit provider, is not likely to entertain anything other than the most conservative of benefit templates.
Possibly the funding coming from excess 401 funds may allow variations in the plan development. But appreciate given their financials, the PBGC as the backstop benefit provider, is not likely to entertain anything other than the most conservative of benefit templates.
04-09-2019, 11:14 PM
#53
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Joined APC: Sep 2008
Position: Kickin’ Back
Posts: 6,971
04-10-2019, 02:38 AM
#54
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Joined APC: Dec 2010
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Posts: 169
Originally Posted by BobZ
Your assumption is that once the corporation is defunct, the underlying asset base is also unscathed, so as to support your reimbursement baseline contribution level.
This is a horrible idea. Your money once 'contributed' is no longer YOUR MONEY. It becomes part of a comingled blind trust. While the asset base allocations in this plan are 'generally' defined......there is no specific allocation requirements. So if the component held in individual equities is held in World Com stock...….to bad so sad.
Maybe the PBGC will once again be your savior. But I wouldn't count on it.
This is a horrible idea. Your money once 'contributed' is no longer YOUR MONEY. It becomes part of a comingled blind trust. While the asset base allocations in this plan are 'generally' defined......there is no specific allocation requirements. So if the component held in individual equities is held in World Com stock...….to bad so sad.
Maybe the PBGC will once again be your savior. But I wouldn't count on it.
04-10-2019, 06:07 AM
#55
Trimming my beard
Thread Starter
Joined APC: Jul 2014
Position: 7ERB
Posts: 241
I reread the reference website. BoBZ describes it accurately. Tax-deferred T-bill growth rates, likely under company control and growing via credits. I’m not seeing much about which to be excited.
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04-10-2019, 07:28 AM
#56
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Joined APC: Jun 2014
Posts: 679
I'll just take my money now, pay taxes on it and back door Roth it. I wan't nothing to do with taking a portion of my retirement money and putting it into a pool that if I get what I put in will be worth less than what I would have if I had access to it now. Time value of money is laughed at by some, but it is a real thing.
$10,000 invested today at 4% for 20 years ....... $21,911
$10,000 invested today at 6% for 20 years ....... $32,071
$10,000 invested today at 8% for 20 years ....... $46,609
Even if you are a terrible investor or there are bad market conditions over the next 20 years you would easily make the 4% or whatever the market balanced cash plan would promise AND there would be no threat to you if the program terminated, was given up, or the funding stopped for the program stopped.
$10,000 invested today at 4% for 20 years ....... $21,911
$10,000 invested today at 6% for 20 years ....... $32,071
$10,000 invested today at 8% for 20 years ....... $46,609
Even if you are a terrible investor or there are bad market conditions over the next 20 years you would easily make the 4% or whatever the market balanced cash plan would promise AND there would be no threat to you if the program terminated, was given up, or the funding stopped for the program stopped.
04-10-2019, 08:01 AM
#57
Gets Weekends Off
Joined APC: Dec 2007
Posts: 5,414
This has been an EXCELLENT discussion and BobZ in particular has provided fantastic info. I've started researching MBCBP and so far I've found in theory it is a good idea if you are high income, close to retirement, you have a certain degree of control over your business and selecting the plan administrator/investor.
DALPA Reps have stated that MBCBPs are common amongst high income earners. What they failed to mention were those high income earners were Owner Operators of a business such as Doctors with a Practice or Lawyers with a firm. They have direct control over the performance of their business and direct control over the selection of the plan administrator. They also get significant tax discounts for the money they AND their employees contribute.
The issue I see with MBCBP and Delta Pilots is we have no control the direction of the business(Delta Management) and no control over selection of the Plan Administrator(DALPA and/or Management). Hate to say it but after attending the DALPA R&I Roadshow I wouldn't trust the current DALPA Admin to manage a Dairy Queen much less select a reputable Plan Administrator. I was very happy to see they are pursing the MBCBP as optional only. It will be interesting to see what further details come out if this moves forward during negotiations.
Even if this is executed perfectly I can only see me self contributing to a MBCBP with 10 years or less to go. Anything earlier I'll take the DPSP Cash and RUN.
DALPA Reps have stated that MBCBPs are common amongst high income earners. What they failed to mention were those high income earners were Owner Operators of a business such as Doctors with a Practice or Lawyers with a firm. They have direct control over the performance of their business and direct control over the selection of the plan administrator. They also get significant tax discounts for the money they AND their employees contribute.
The issue I see with MBCBP and Delta Pilots is we have no control the direction of the business(Delta Management) and no control over selection of the Plan Administrator(DALPA and/or Management). Hate to say it but after attending the DALPA R&I Roadshow I wouldn't trust the current DALPA Admin to manage a Dairy Queen much less select a reputable Plan Administrator. I was very happy to see they are pursing the MBCBP as optional only. It will be interesting to see what further details come out if this moves forward during negotiations.
Even if this is executed perfectly I can only see me self contributing to a MBCBP with 10 years or less to go. Anything earlier I'll take the DPSP Cash and RUN.
04-10-2019, 09:14 AM
#58
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Joined APC: Mar 2015
Position: stake holder ir.delta.com
Posts: 10,034
Originally Posted by Trip7
This has been an EXCELLENT discussion and BobZ in particular has provided fantastic info. I've started researching MBCBP and so far I've found in theory it is a good idea if you are high income, close to retirement, you have a certain degree of control over your business and selecting the plan administrator/investor.
DALPA Reps have stated that MBCBPs are common amongst high income earners. What they failed to mention were those high income earners were Owner Operators of a business such as Doctors with a Practice or Lawyers with a firm. They have direct control over the performance of their business and direct control over the selection of the plan administrator. They also get significant tax discounts for the money they AND their employees contribute.
The issue I see with MBCBP and Delta Pilots is we have no control the direction of the business(Delta Management) and no control over selection of the Plan Administrator(DALPA and/or Management). Hate to say it but after attending the DALPA R&I Roadshow I wouldn't trust the current DALPA Admin to manage a Dairy Queen much less select a reputable Plan Administrator. I was very happy to see they are pursing the MBCBP as optional only. It will be interesting to see what further details come out if this moves forward during negotiations.
Even if this is executed perfectly I can only see me self contributing to a MBCBP with 10 years or less to go. Anything earlier I'll take the DPSP Cash and RUN.
DALPA Reps have stated that MBCBPs are common amongst high income earners. What they failed to mention were those high income earners were Owner Operators of a business such as Doctors with a Practice or Lawyers with a firm. They have direct control over the performance of their business and direct control over the selection of the plan administrator. They also get significant tax discounts for the money they AND their employees contribute.
The issue I see with MBCBP and Delta Pilots is we have no control the direction of the business(Delta Management) and no control over selection of the Plan Administrator(DALPA and/or Management). Hate to say it but after attending the DALPA R&I Roadshow I wouldn't trust the current DALPA Admin to manage a Dairy Queen much less select a reputable Plan Administrator. I was very happy to see they are pursing the MBCBP as optional only. It will be interesting to see what further details come out if this moves forward during negotiations.
Even if this is executed perfectly I can only see me self contributing to a MBCBP with 10 years or less to go. Anything earlier I'll take the DPSP Cash and RUN.
