You also have to consider that the company often gets tax breaks on money they put into tax advantaged plans. If the company is getting a 25% tax break it makes it easier to negotiate. The company would provide a smaller percentage if there is no tax advantage to them.

 

The following is my opinion. From what information I can gather the "optional" choice is very complicated and there is a process that has to be adhered to. My understanding is Dalpa can say it will be optional because, at this point, it hasn't been determined yet that it can't be optional.

The first step is that something has to be negotiated with regards to the proposal. Lets just assume the proposal is negotiated as is. Once this is done then both Delta and Dalpa submit this Plan to the IRS and tell the IRS what they intend to do. It is then up to the IRS to approve or reject all or part of the Plan.
Since an MBCBP is legal in and of itself, the only thing that is possibly in question would be the "optional" nature of the the Plan.

The above brings me to a question. Why would the IRS not agree to the Plan being optional? If they don't and it applies to everyone then that will lead to more money that is tax deferred (not a good thing in the IRS's eyes) than if the Plan were optional where the IRS could collect more taxes now and on future investments of that money.

Standing by for incoming!!!

Denny

 

And that's a big reason why MBCBPs is so popular with Doctors and Lawyers, because most high earning Doctors and Lawyers are Owners/Partner in their practice and receive substantial savings towards their own retirement. Our Profession is not structured that way and Delta being a a Corporation not a person doesn't need to save for retirement so the benefits aren't as great

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Good info Denny. With 16 years left, I’m starting to think this MBCBP might be better for me, if the DC contribution goes up.

 

No 'incoming' from me. This is very logical.

The other thing about negotiating a completely new program is that an 'Out clause' could be included. i.e. "The MBCBP shall be approved by the IRS as 'Optional', otherwise the MBCBP shall not be implemented and the current DPSP Cash language from the previous PWA shall remain unchanged and in force."

(or some similar language that the lawyers would write)

 

What a lot of younger pilots are bringing up is 5% return on a MBCBP and it is a valid concern. What they aren't adding in is the saving on the tax deferral nature of the Plan. I would submit that this savings should be included on top of that 5%. I have no idea what that amount would be.

Denny

 

Sure. I'm currently taking care of two youngins so it might be a while, but give me a few hours to make my spreadsheet more user-friendly for someone who isn't me and ya'll can throw your own numbers in.

 

What several of us have tried to stress is that savings is small enough that it is not remotely worth the 5% target return that is outside of your control. The only real savings is if your withdrawals are taxed in a lower income bracket.

It is tax deferral not tax avoidance. An investor's focus should always be on total return. A lot of investors have lost significant wealth focusing on tax deferral vs capital appreciation/total return. IMO the MBCBP is an inefficient use of Capital.

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And if you read my post again you will see I specifically said it was tax deferral. I made no mention of tax avoidance. The Government will get its money one way or the other. I'd just like to know what the return would be considering the tax deferral nature of the Plan. What are the actual numbers? Not your claim that it will be low. Is it 1, 2, 3 percent on top of the 5%? What is the true number?

Pretty sure anyone who retires in the next 5 to 10 years will be in that lower tax bracket. And that's a boatload of pilots...

 

yeah, i'm going to disagree completely.