And employee stock ownership plans put all your (fragile) eggs in one (shaky) basket as well:

 

to answer the second question.there were two basic setups for pension plans, DB only and both DB and DC.

DL had a DB only plan and formula was (2.4% * YOS * FAE) where YOS was years of service (max 25) and FAE was your highest 36 consecutive months of earnings in your last 120 months. So as long as you had 25 years you got a 60% FAE pension. NW and US air were similar.

AA and UA had a both DB and DC setup, they had an A fund (pension) and a B fund (DC plan). UAs formula was (1.5% * YOS * FAE) with no cap on years of service PLUS an 11% B fund. AAs was similar except it was (1.25% * YOS* FAE) and excluded your first year.

now my opinion is we should absolutely not try to resurrect a DB only pension. IF we decide to go down that road I would much prefer a plan similar in setup to UA’s old plan or UPS’s current plan where you get a smaller DB plan benefit but also have DC money that is yours in addition to that.

UPS current plan as I understand it is a 12% DC plan plus a DB plan where you get the greater of (1% * FAE* YOS) or a fixed dollar amount (I think $4500) * YOS. In both cases YOS is capped at 30 years.

 

No. No way would I vote for a contract that had one.

Here's the reason - as we've seen, people will start to depend on the pension (rightly so) and probably not invest other money in retirement, because well, they have a retirement.

So, say we have a pension replacing the current DC contribution. Along comes some bad times in the economy, war, turmoil, COVID v2, and the company is in trouble. I could totally see the company coming along and say, "you need to take a 40% payout or we're terminating the pension." We take the paycut, then they say, "eh, not enough. Pension is going anyway" - A pension would be like a sword of Damocles over our heads. As we've seen, there is always a way for the company to take such a pension away. I really prefer having the money in my name, available to invest as I wish. I throw it in a S&P 500 fund and let it ride - if that's good enough for Warren Buffett, good enough for me.

 

I want no part of a traditional DB pension. When I walk out the door I want to give DAL the big middle finger that they have earned, I want to be owed nothing by this company and I want them to have ZERO financial involvement in my life when I leave.

Back when we had 60% FAE, many pilots would stay senior on smaller equipment. I knew several guys that flew the 737 until their last year then they would bid the L1011 even though they were junior. Wanna know why? Because the full service bank then, like now was 60 hours. Know how that came about? Because 60/12 =5. Back then, reserve guarantee was always l 5 hours less than the regular line award. And as a regular line holder you could only bid/fly/get paid up to a set limit each month. I don't remember exactly what it was, but let's say it was 75 hours. (That probably isn't far off). No matter what you flew, as a regular line holder you would only get paid 75 hours in THIS month. A reserve pilot would only get paid for 70. But a reserve pilot could take that 5 hours out of his bank and 'fill up'. You could also use any time over 75 hours to spill back to a month in which you didn't fly the full 75 hours as a regular line holder. If you flew 85 hours, the remaining 10 would flow into next month as a 'bow wave', or you could put some into the 'bank'. So in order to have a full month, you only had to work 65 hours next month. That system was much better suited to 'mo time off, but you were limited in how much you cold make each month. I guess we have proven that when confronted with mo' money or mo' time off we will choose mo' money everytime

Back to the original story. So a captain on the 737 was making... I dunno, let's say $150/hour or $11,250/month (I don't remember and I don't want to look it up), and an L1011 A was making $200/hour or Had that guy worked his last three years at 737 rates, his DB retirement would have been structured on the $150 for three year average and he would have received 60% of that or about $6,750/month for the rest of his life. Buuuuuut... since he went to the L1011 for a year, that $200 was factored in and his FAE jumped to $7,500/month for the rest of his life. He was senior right up until his last year and had to suck it up for an extra $750/month in retirement.

But then Delta wanted to shed their commitment and we all know the rest of that story ...

Oh and I think ALPA is lying to us on the MBCBP. jmho, ymmv. dyodd.

 

Count me as a big fat giant NO on pensions.

-They aren’t in your name.
-Bankruptcy vaporizes your benefit.
-PBGC doesn’t fully protect.
-They aren’t portable.
-Survivorship typically only includes your spouse

(Where’s badflaps? He can talk you out of a DB in a pithy 3 sentences or less.)

Class leaders clowns:
Air Lines
USPS
Sears
NJ State Employees retirement
IL State Employees’ retirement


Did anyone see the blowback on the questionable optionality on the Cash Balance Plan? Wait till you see the backlash if you float a DC for DB trade. Never going to happen.

Shifting to annuities, if anyone is thinking about buying retail DB substitute:
Did some research on Equity Indexed Annuities for purposes of deferring taxes. On the surface for a small fee you get the chance to sock away money just like a 401k. Pay tax on withdrawal in retirement. Sounds good, right?

Some big minuses:
-Payout rate of an annuity is not the same as withdrawal rate from a 401k/IRA. 4-5% withdraw from your IRA typically doesn’t touch principle. 4-5% annuity payout includes the complete surrender of the principle.
-Annuities typically cap returns at ~7%
-Participation Rate fee lowers returns
-Spread/Margin Fee lowers returns
-Riders lower payout
-Fees stack against the cap
-Surrender fee makes unwinding one of these difficult or expensive
-Not FDIC insured, not regulated by SEC. (State insurance commission)
-*****Even under contract, Issuers can change terms of annuity down the road by appeal through State Insurance regulator bypassing you!****** This is what kills it for me. You trade return for lowering of risk, only to have the potential in retirement for the issuer to rewrite the deal to their advantage!

 

where do you suppose they park that pension money? A piggy bank?
It’s not some magical place where Puff the Dragon lives I can promise you that. It’s mostly all the same capital markets we have access to as well. The investment rates are the same for pension as well as 401s. I would much rather have it in my possession then pray someone else doesn’t just steal it from me after 20 years. And if you really don’t like the stock market just send it to a money market account.

 

I don’t think it’s a scam, but I am pretty sure there is a lot of “questionable” activity. You will never convince me the “Masters of the Universe” don’t regularly collude or share information on some level. It’s uncanny how at times they move in packs even apparently contrary to the business news. With that said however, if you are in for the long haul it probably doesn’t matter as long as you adjust your portfolio to appropriately match your investment timeline.


Also - Hell no to a promise ( pension) vice money in my name via the 401. Been burned once, that’s enough.

Scoop

 

absolutely. Look no further than Congress.

 

Unless there was a federal law fully protecting/insuring pensions then I don't think it makes sense for any individual company. I think a federally insured pension tied to the individual so you could change jobs would be a good idea. In theory that could just be social security, but people don't conceive of it in that way and assume a more complex financial instrument and private middlemen are necessary to be paid adequately in retirement. Pensions that are totally in the hands of a company until they are threatened or gutted in bankruptcy are a terrible idea to me. I don't trust any law will be made in the interest of labor in the foreseeable future and so prefer direct contribution. Once deposited its yours in total and not vulnerable to adjustment or threats or anyone telling you what you need to settle for, only the swings of the general market. Not ideal, but it seems better than losing the pension by way of some loop hole.

 

The ultimate irony is that if you went back to 1995 and asked the company to trade the then pension for a DC, they would have said "no way, no how". Why? Because at that point, interest rates were historically "normal", and with modest investment returns, the pensions were self-funding for the most part. DC money would have been "real" money they'd have to pay out every two weeks.

Near zero interest rates are a historical anomaly. Investors and consumers have been living in a fantasy land of unicorns, rainbows and free money the past 12 years. Any economy that needs zero interest is not fundamentally healthy, and those investors who think the world is ending because rates are finally going up are in for a rude surprise.