Great job with the spreadsheet on DropBox. The lookup tables for tax rates were a nice added feature. My biggest complaint is the 6% distribution rate on MBCBP vs 4% on MMIC (My Money, I Control). The correct analysis is to compare the account values, as both distribution options are available in either plan. When applying an equal rate for distributions, the MMIC comes out ahead for all years tested. Anything less than 6 years wouldn't calculate.

A second adjustment I'd recommend is to look at marginal tax rates vs average tax rate for calculating the MMIC contributions. You are giving an unfair advantage to the MMIC plan by reducing the contribution by the average tax rate not the marginal rate as you should do.

Also, the capital gains taxes didn't seem to be properly calculating. The VLOOKUP was referencing only the capital gains income and not total income when applying the capital gain rate.

You have a great start on a useful tool and a few tweeks will perfect it.

You are miles ahead of the general population and a comparable distance ahead of the pilot population as well. The problem I've run across with CFPs in they limit their advice to a neat 6 sided box created by Wall Street. I have yet to meet with a CFP, fiduciary or otherwise that grasps what can be done with money outside of traditional paper investments. For that reason, I based my analysis on a vanilla S&P 500 ETF. There is an entire world of investments that extend beyond an ETF that are available within the MMIC option. Even restricting the analysis to 5% vs 8%, there are more favorable outcomes with the MMIC. The MBCBP may be a good option for the last 5 years of a typical pilot career, but that is a limited benefit for a targeted group. This does not consider the plus up.

A CFP is not the gold standard for financial advice. Spend some time with a room full of multi-millionaires and you quickly realize that a 5% MBCBP vs an 8% MMIC is not even a relevant conversation. There are so many things that can be done with money outside of the traditional investments. There is a large group of pilots asking for the freedom to pursue some of those options.

Again, no issue with the 6% return, but the proper analysis is to apply it to both piles of money. A 4% withdrawal rate from the MMIC plan will likely leave a sizeable estate for your heirs, but a 6% lifetime annuity is worth exactly $0 when you die. These values are not captured in the 6% vs 4% analysis.

The real issue with the MBCBP is the "optional" nature only exists within DALPA, not the IRS. For a time horizon under 5 years, there is some validity in the tax benefits of the MBCBP, in fact if I were a decade older, I'd consider exercising my option to participate if given the choice. In the hands of an average individual, the MMIC invested in an S&P ETF outperforms the MBCBP on an after tax basis for a longer term investment horizon. Those of us crying loudly against it are unconvinced of the optional nature and believe we can do better outside of the plan.

What I am asking for is a plan that lets me dictate when and how much I contribute to a vehicle that provides a stable 5% return. Heck, even Warren Buffet recommends 10% in government bonds and 90% S&P Index for the average investor. The MBCBP by it's very nature over indexes individuals in the stable return portion.

 

There has been much speculation on the tax savings to the company, but nobody has quantified it. Here is my analysis of the tax savings. $0. They still pay employment taxes and the employer portion of FICA on deferred compensation plans. Furthermore, the company has added administrative responsibility to fund the plan. It actually adds a burden on the company, not a tax savings.

 

Serious question, deductible from what exactly? It’s an expense so there is no corporate income tax whether it’s retirement money or compensation. And once you get above the OASDI cap all that’s left for employer obligations on compensation is Medicare.

 

I think you are missing the point. The money needs to be able to stay with your family, it’s next to impossible for that if you or your spouse die, most likely your children will be over the age of 25 so the money goes back into the pool

 

The greater issue is you can’t see my point:

For probably 95%+, the money will be fully used by either the pilot or the spouse. For the 5% that both pilot and spouse die before exhaustion, the account is likely partially used. So really it’s less than 1% that both the pilot and spouse die before using any dollars of the account. And at that point all the rest of your estate flows to heirs, but sadly that $25,000 or so investment is lost... to your fellow coworker.

The argument of the anti-VEBA is the fear of (not you) but your heirs being in that 1%, far exceeds the 99% chance of you enjoying the tax savings (thus ironically helping your estate remain larger for your heirs).


Maybe my % is a few points off either way, but the point remains.

 

Another major VEBA issue was confiscation of DPSP Cash that effectively removed the Mega Back Door Roth.

 

I disagree with your analysis recommendation; these are retirement income vehicles, what matters is how they affect my/your retirement income. I used the proposal that DALPA has given us and what they said is the most likely use of that money. I'll look at adding other options in the future. Having said all that, if the account values are what you are looking for, they're the first three lines under in the "At Retirement" table. Pre-tax, of course.

Also, I fixed the 6 year bug, thanks for pointing that out. I'll try to roll it out tonight.

Thanks, I kind of forgot I did that. It was too difficult to figure out what that would be if the "DPSP Cash" took you into a higher bracket, so I'll add that to the list of things to work on.

I'll work on that too. I don't have a lot of experience with how capital gains are taxed, so I'll need to do some more reading to make it right.

I'm fairly certain that they know what can be done outside of your standard investment. It's just that those things come with significantly higher risk and as such are not suitable for a retirement portfolio. If you've maxed out your IRAs, 401(k)s, HSAs, and every other option available to you to the point where you're literally trying to figure out what to do with all the extra money you have, then I don't think anyone would blame you for being willing to take risks with it. In fact, that's pretty much your only other option at that point.

Also true. But, just to play devils advocate, having guaranteed income from an annuity (whether you wanted it or not) could potentially let you keep all that money in the market making more money because you don't need to pull it out. Make some smart roll-overs to some vehicles not subject to mandatory withdrawals and you've got yourself quite a legacy.

While I understand that nobody likes being told what to do, I think the anger is misplaced. Having an essentially guaranteed return of 5% of the income over and above 401(k) limits, of which you put exactly $0 towards, is a hell of a lot better than a sharp stick to the eye. I mean, using my default numbers (which, yes, I've heard your complaints about) over a 30 year career, the difference in retirement income is $288k/yr vs $308k /year. If that extra $20k is what makes or breaks your retirement, I think you need to start looking for some slightly lower quality hookers and blow.

 

There is a way to do a valid comparison among the plans, I've intentionally chosen a vanilla conservative comparison using S&P ETF. The MMIC plan far exceeds those numbers in a conservative real estate portfolio, but that requires more effort than an ETF and isn't an equivalent comparison of the different vehicles. When you start factoring in the flexibility of the MMIC option it is far superior.

With the exception of the min balance plan, DALPA is making a good effort at providing solutions. I hope they continue pursuing an optional MBCBP, because it has a place for older pilots looking to defer income. The plan is safer than the NQDC plan because of the reduced bankruptcy risk. The problem with the proposal is that it puts too much in a stable return fund relative to the balance of a pilot's overall portfolio.

 

I don’t love this plan. But there is no way in hell the company will up our dc to 25% without a vehicle such as this. I’m just being realistic. And still waiting for someone to sell a better product that is feasible other than pay me a ton more and I’ll invest it myself.

Hey eh that sounds great. I’m all for that approach that we will never get.

 

Thanks gunfighter and pilotwombat. I'm really enjoying your constructive dialogue!