Fedex Pilots proposed retirement plan
11-03-2017, 06:10 PM
#441
Gets Weekends Off
Joined APC: Mar 2009
Position: Fedex
Posts: 160
Since alpa evidently has not learned a damn thing from the last class action lawsuit, I hope they are ready for another one. I've talked with a lot of guys out there that will absolutely want to put up money on a another lawsuit if these "I already got my 25" Alpa MEC clowns get their way and manage to give a way our A-fund outside of section 6 negotiations. There is so much we gave up in the last contract just so that we can retain out A-fund and just two years into it they wanna do away with it. This is beyond stupidity!!! Fedex must be quietly doing backflips now that these boy scouts have presented the plan to them. I got my $50K set aside for a class action suit if this train is not stopped...
11-03-2017, 06:45 PM
#443
Gets Weekends Off
Joined APC: Mar 2009
Position: Fedex
Posts: 160
This should be required reading for everyone, especially those pilots drinking the cool aid and thinking that a $50 billion / year company like Fedex can't afford to sustain (or improve upon) their $200 million / year retirement benefit expense. Simply substitute "Fedex" for "GE" in the excerpt which follows.....
How Business Elites Looted Private-Sector Pensions
By Ellen Schultz
Editor’s note: In New York state, anti-union pundits and politicians are demanding pension cuts for new public employees. They argue that private-sector workers don’t have pensions this good, so in fairness, public-sector benefits must come down to the private-sector level.
But as former Wall Street Journal reporter Ellen Schultz details below, the erosion of private-sector pensions didn’t “just happen.” It is the result of a deliberate transfer of wealth from workers to corporate executives and shareholders – a “pension heist,” to borrow the title of Schultz’s new book. The excerpt below summarizes her conclusions and details the recent case of General Electric; the book is filled with detailed accounts of similar maneuvers by other corporations.
The same corporate interests that attacked private-sector pensions yesterday are leading the charge to slash public-sector pensions today. For example, General Electric’s GE Asset Management is part of the Partnership for New York City, a corporate lobbying group that is one of the loudest voices calling for cuts in the pensions of public workers (see Clarion, April 2011).
Meanwhile, GE’s top executives have seen their pensions grow richer than ever.
In December 2010, General Electric held its Annual Outlook Investor Meeting at Rockefeller Center in New York City. At the meeting, chief executive Jeffrey Immelt stood on the Saturday Night Live stage and gave the gathered analysts and shareholders a rundown on the global conglomerate’s health. But in contrast to the iconic comedy show that is filmed at Rock Center each week, Immelt’s tone was solemn. Like many other CEOs at large companies, Immelt pointed out that his firm’s pension plan was an ongoing problem. The “pension has been a drag for a decade,” he said, and it would cause the company to lose 13 cents per share the next year. Regretfully, to rein in costs, GE was going to close the pension plan to new employees.
The audience had every reason to believe him. An escalating chorus of bloggers, pundits, talk show hosts, and media stories bemoan the burgeoning pension-and-retirement crisis in America, and GE was just the latest of hundreds of companies, from IBM to Verizon, that have slashed pensions and medical benefits for millions of retirees. To justify these cuts, companies complain they’re victims of a “perfect storm” of uncontrollable economic forces – an aging workforce, entitled retirees, a stock market debacle, and an outmoded pension system that cripples their chances of competing against pensionless competitors and companies overseas.
What Immelt didn’t mention was that, far from being a burden, GE’s pension and retiree plans had contributed billions of dollars to the company’s bottom line over the past decade and a half, and were responsible for a chunk of the earnings that the executives had taken credit for. Nor were these retirement programs – even with GE’s 230,000 retirees – bleeding the company of cash. In fact, GE hadn’t contributed a cent to the workers’ pension plans since 1987 but still had enough money to cover all the current and future retirees.
And yet, despite all this, Immelt’s assessment wasn’t entirely inaccurate. The company did indeed have another pension plan that really was a burden: the one for GE executives. And unlike the pension plans for a quarter of a million workers and retirees, the executive pensions, with a $4.4 billion obligation, have always been a drag on earnings and have always drained cash from company coffers: more than $573 million over the past three years alone.
So a question remains: With its fully funded pension plan, why was GE closing its pensions?
A look at what really happened to GE’s pensions illustrates some of the reasons behind the steady erosion of retirement benefits for millions of Americans at thousands of companies.
RETIREE PENSIONS UNFAIRLY BLAMED
No one disputes that there’s a retirement crisis, but the crisis was no demographic accident. It was manufactured by an alliance of two groups: top executives and their facilitators in the retirement industry – benefits consultants, insurance companies, and banks – all of whom played a huge and hidden role in the death spiral of American pensions and benefits.
Yet, unlike the banking industry, which was rightly blamed for the subprime mortgage crisis, the masterminds responsible for the retirement crisis have walked away blame-free. And, unlike the pension raiders of the 1980s, who killed pensions to extract the surplus assets, they face no censure. If anything they are viewed as beleaguered captains valiantly trying to keep their overloaded ships from being sunk in a perfect storm. In reality, they’re the silent pirates who looted the ships and left them to sink, along with the retirees, as they sailed away safely in their lifeboats.
The roots of this crisis took hold two decades ago, when corporate pension plans, by and large, were well funded, thanks in large part to rules enacted in the 1970s that required employers to fund the plans adequately and laws adopted in the 1980s that made it tougher for companies to raid the plans or use the assets for their own benefit. Thanks to these rules, and to the long-running bull market that pumped up assets, by the end of the 1990s pension plans at many large companies had such massive surpluses that the companies could have fully paid their current and future retirees’ pensions, even if all of them lived to be 99 and the companies never contributed another dime.
But despite the rules protecting pension funds, US companies siphoned billions of dollars in assets from their pension plans. Many, like Verizon, used the assets to finance downsizings, offering departing employees additional pension payouts in lieu of cash severance. Others, like GE, sold pension surpluses in restructuring deals, indirectly converting pension assets into cash.
To replenish the surplus assets in their pension piggy banks, companies cut benefits. Initially, employees didn’t question why companies with multibillion-dollar pension surpluses were cutting pensions that weren’t costing them anything, because no one noticed their pensions were being cut. Employers used actuarial sleight of hand to disguise the cuts, typically by changing the traditional pensions to seemingly simple “cash balance” pension plans, which superficially resembled 401(k)s.
Cutting benefits provided a secondary windfall: It boosted earnings, thanks to new accounting rules that required employers to put their pension obligations on their books. Cutting pensions reduced the obligations, which generated gains that are added to income. These accounting rules are the Rosetta Stone that explains why companies with massively overfunded pension plans went on a pension-cutting spree and began slashing retiree health benefits even when their costs were falling. By giving companies an incentive to reduce the liability on their books, the accounting rules turned retiree benefits plans into cookie jars of potential earnings enhancements and provided employers with the means to convert the trillion dollars in pensions and retiree benefits into an immediate, dollar-for-dollar benefit for the company.
EXEC PAY THRIVES
With perfectly legal loopholes that enabled companies to tap pension plans like piggy banks, and accounting rules that rewarded employers for cutting benefits, retiree benefits plans soon morphed into profit centers, and populations of retirees essentially became portfolios of assets and debts, which passed from company to company in swirls of mergers, spin-offs and acquisitions. And with each of these restructuring deals, the subsequent owner aimed to squeeze a profit from the portfolio, always at the expense of the retirees.
The flexibility in the accounting rules, which gave employers enormous latitude to raise or lower their obligations by billions of dollars, also turned retiree plans into handy earnings-management tools.
Unfortunately for employees and retirees, these newfound tricks coincided with the trend of tying executive pay to performance. Thus, deliberately or not, the executives who green-lighted massive retiree cuts were indirectly boosting their own pay.
As their pay grew, managers and officers began diverting growing amounts into deferred-compensation plans, which are unfunded and therefore create a liability. Meanwhile, their supplemental executive pensions, which are based on pay, ballooned along with their compensation. Today, it’s common for a large company to owe its executives several billion dollars in pensions and deferred compensation.
These growing “executive legacy liabilities” are included in the pension obligations employers report to shareholders, and account for many of the “growing pension costs” companies are complaining about. Unlike regular pensions, the growing executive liabilities are largely hidden, buried within the figures for regular pensions. So even as employers bemoaned their pension burdens, the executive pensions and deferred comp were becoming in some companies a bigger drag on profits.
WORKERS CONTINUE TO LOSE
With the help of well-connected Washington lobbyists and leading law firms, over the past two decades employers have steadily used legislation and the courts to undermine protections under federal law, making it almost impossible for employees and retirees to challenge their employers’ maneuvers. With no punitive damages under pension law, employers face little risk when they unilaterally slash benefits, even when promised in writing, since they can pay their lawyers with pension assets and drag out the cases until the retirees give up or die.
As employers curtail traditional pensions, employees are increasingly relying on 401(k) plans, which have already proven to be a failure. Employees save too little, too late, spend the money before retiring, and can see their savings erased when the market nosedives.
Today, pension plans are collectively underfunded, hundreds are frozen, and retiree health benefits are an endangered species. And as executive pay and executive pensions spiral, these executive liabilities are slowly replacing pension obligations on many corporate balance sheets.
Meanwhile, the same crowd that created this mess – employers, consultants, and financial firms – are now the primary architects of the “reforms” that will supposedly clean it up. Under the guise of improving retirement security, their “solutions” will enable employers to continue to manipulate retirement plans to generate profit and enrich executives at the expense of employees and retirees. Shareholders pay a price, too.
Their tactics haven’t served as case studies at Harvard Business School, and aren’t mentioned in the copious surveys and studies consultants produce for a gullible public. But the masterminds of this heist should take a bow: They managed to take hundreds of billions of dollars in retirement benefits that were intended for millions of workers and divert them to corporate coffers, shareholders, and their own pockets. And they’re still at it.
A former investigative reporter for The Wall Street Journal, Ellen Schultz covered the so-called retirement crisis for the Journal for more than a decade. Adapted from Retirement Heist by Ellen Schultz, by arrangement with Portfolio, a member of Penguin Group (USA), Inc., Copyright © Ellen Schultz 2011.
goingback
CEO
How Business Elites Looted Private-Sector Pensions
By Ellen Schultz
Editor’s note: In New York state, anti-union pundits and politicians are demanding pension cuts for new public employees. They argue that private-sector workers don’t have pensions this good, so in fairness, public-sector benefits must come down to the private-sector level.
But as former Wall Street Journal reporter Ellen Schultz details below, the erosion of private-sector pensions didn’t “just happen.” It is the result of a deliberate transfer of wealth from workers to corporate executives and shareholders – a “pension heist,” to borrow the title of Schultz’s new book. The excerpt below summarizes her conclusions and details the recent case of General Electric; the book is filled with detailed accounts of similar maneuvers by other corporations.
The same corporate interests that attacked private-sector pensions yesterday are leading the charge to slash public-sector pensions today. For example, General Electric’s GE Asset Management is part of the Partnership for New York City, a corporate lobbying group that is one of the loudest voices calling for cuts in the pensions of public workers (see Clarion, April 2011).
Meanwhile, GE’s top executives have seen their pensions grow richer than ever.
In December 2010, General Electric held its Annual Outlook Investor Meeting at Rockefeller Center in New York City. At the meeting, chief executive Jeffrey Immelt stood on the Saturday Night Live stage and gave the gathered analysts and shareholders a rundown on the global conglomerate’s health. But in contrast to the iconic comedy show that is filmed at Rock Center each week, Immelt’s tone was solemn. Like many other CEOs at large companies, Immelt pointed out that his firm’s pension plan was an ongoing problem. The “pension has been a drag for a decade,” he said, and it would cause the company to lose 13 cents per share the next year. Regretfully, to rein in costs, GE was going to close the pension plan to new employees.
The audience had every reason to believe him. An escalating chorus of bloggers, pundits, talk show hosts, and media stories bemoan the burgeoning pension-and-retirement crisis in America, and GE was just the latest of hundreds of companies, from IBM to Verizon, that have slashed pensions and medical benefits for millions of retirees. To justify these cuts, companies complain they’re victims of a “perfect storm” of uncontrollable economic forces – an aging workforce, entitled retirees, a stock market debacle, and an outmoded pension system that cripples their chances of competing against pensionless competitors and companies overseas.
What Immelt didn’t mention was that, far from being a burden, GE’s pension and retiree plans had contributed billions of dollars to the company’s bottom line over the past decade and a half, and were responsible for a chunk of the earnings that the executives had taken credit for. Nor were these retirement programs – even with GE’s 230,000 retirees – bleeding the company of cash. In fact, GE hadn’t contributed a cent to the workers’ pension plans since 1987 but still had enough money to cover all the current and future retirees.
And yet, despite all this, Immelt’s assessment wasn’t entirely inaccurate. The company did indeed have another pension plan that really was a burden: the one for GE executives. And unlike the pension plans for a quarter of a million workers and retirees, the executive pensions, with a $4.4 billion obligation, have always been a drag on earnings and have always drained cash from company coffers: more than $573 million over the past three years alone.
So a question remains: With its fully funded pension plan, why was GE closing its pensions?
A look at what really happened to GE’s pensions illustrates some of the reasons behind the steady erosion of retirement benefits for millions of Americans at thousands of companies.
RETIREE PENSIONS UNFAIRLY BLAMED
No one disputes that there’s a retirement crisis, but the crisis was no demographic accident. It was manufactured by an alliance of two groups: top executives and their facilitators in the retirement industry – benefits consultants, insurance companies, and banks – all of whom played a huge and hidden role in the death spiral of American pensions and benefits.
Yet, unlike the banking industry, which was rightly blamed for the subprime mortgage crisis, the masterminds responsible for the retirement crisis have walked away blame-free. And, unlike the pension raiders of the 1980s, who killed pensions to extract the surplus assets, they face no censure. If anything they are viewed as beleaguered captains valiantly trying to keep their overloaded ships from being sunk in a perfect storm. In reality, they’re the silent pirates who looted the ships and left them to sink, along with the retirees, as they sailed away safely in their lifeboats.
The roots of this crisis took hold two decades ago, when corporate pension plans, by and large, were well funded, thanks in large part to rules enacted in the 1970s that required employers to fund the plans adequately and laws adopted in the 1980s that made it tougher for companies to raid the plans or use the assets for their own benefit. Thanks to these rules, and to the long-running bull market that pumped up assets, by the end of the 1990s pension plans at many large companies had such massive surpluses that the companies could have fully paid their current and future retirees’ pensions, even if all of them lived to be 99 and the companies never contributed another dime.
But despite the rules protecting pension funds, US companies siphoned billions of dollars in assets from their pension plans. Many, like Verizon, used the assets to finance downsizings, offering departing employees additional pension payouts in lieu of cash severance. Others, like GE, sold pension surpluses in restructuring deals, indirectly converting pension assets into cash.
To replenish the surplus assets in their pension piggy banks, companies cut benefits. Initially, employees didn’t question why companies with multibillion-dollar pension surpluses were cutting pensions that weren’t costing them anything, because no one noticed their pensions were being cut. Employers used actuarial sleight of hand to disguise the cuts, typically by changing the traditional pensions to seemingly simple “cash balance” pension plans, which superficially resembled 401(k)s.
Cutting benefits provided a secondary windfall: It boosted earnings, thanks to new accounting rules that required employers to put their pension obligations on their books. Cutting pensions reduced the obligations, which generated gains that are added to income. These accounting rules are the Rosetta Stone that explains why companies with massively overfunded pension plans went on a pension-cutting spree and began slashing retiree health benefits even when their costs were falling. By giving companies an incentive to reduce the liability on their books, the accounting rules turned retiree benefits plans into cookie jars of potential earnings enhancements and provided employers with the means to convert the trillion dollars in pensions and retiree benefits into an immediate, dollar-for-dollar benefit for the company.
EXEC PAY THRIVES
With perfectly legal loopholes that enabled companies to tap pension plans like piggy banks, and accounting rules that rewarded employers for cutting benefits, retiree benefits plans soon morphed into profit centers, and populations of retirees essentially became portfolios of assets and debts, which passed from company to company in swirls of mergers, spin-offs and acquisitions. And with each of these restructuring deals, the subsequent owner aimed to squeeze a profit from the portfolio, always at the expense of the retirees.
The flexibility in the accounting rules, which gave employers enormous latitude to raise or lower their obligations by billions of dollars, also turned retiree plans into handy earnings-management tools.
Unfortunately for employees and retirees, these newfound tricks coincided with the trend of tying executive pay to performance. Thus, deliberately or not, the executives who green-lighted massive retiree cuts were indirectly boosting their own pay.
As their pay grew, managers and officers began diverting growing amounts into deferred-compensation plans, which are unfunded and therefore create a liability. Meanwhile, their supplemental executive pensions, which are based on pay, ballooned along with their compensation. Today, it’s common for a large company to owe its executives several billion dollars in pensions and deferred compensation.
These growing “executive legacy liabilities” are included in the pension obligations employers report to shareholders, and account for many of the “growing pension costs” companies are complaining about. Unlike regular pensions, the growing executive liabilities are largely hidden, buried within the figures for regular pensions. So even as employers bemoaned their pension burdens, the executive pensions and deferred comp were becoming in some companies a bigger drag on profits.
WORKERS CONTINUE TO LOSE
With the help of well-connected Washington lobbyists and leading law firms, over the past two decades employers have steadily used legislation and the courts to undermine protections under federal law, making it almost impossible for employees and retirees to challenge their employers’ maneuvers. With no punitive damages under pension law, employers face little risk when they unilaterally slash benefits, even when promised in writing, since they can pay their lawyers with pension assets and drag out the cases until the retirees give up or die.
As employers curtail traditional pensions, employees are increasingly relying on 401(k) plans, which have already proven to be a failure. Employees save too little, too late, spend the money before retiring, and can see their savings erased when the market nosedives.
Today, pension plans are collectively underfunded, hundreds are frozen, and retiree health benefits are an endangered species. And as executive pay and executive pensions spiral, these executive liabilities are slowly replacing pension obligations on many corporate balance sheets.
Meanwhile, the same crowd that created this mess – employers, consultants, and financial firms – are now the primary architects of the “reforms” that will supposedly clean it up. Under the guise of improving retirement security, their “solutions” will enable employers to continue to manipulate retirement plans to generate profit and enrich executives at the expense of employees and retirees. Shareholders pay a price, too.
Their tactics haven’t served as case studies at Harvard Business School, and aren’t mentioned in the copious surveys and studies consultants produce for a gullible public. But the masterminds of this heist should take a bow: They managed to take hundreds of billions of dollars in retirement benefits that were intended for millions of workers and divert them to corporate coffers, shareholders, and their own pockets. And they’re still at it.
A former investigative reporter for The Wall Street Journal, Ellen Schultz covered the so-called retirement crisis for the Journal for more than a decade. Adapted from Retirement Heist by Ellen Schultz, by arrangement with Portfolio, a member of Penguin Group (USA), Inc., Copyright © Ellen Schultz 2011.
goingback
CEO
11-03-2017, 07:01 PM
#445
Gets Weekends Off
Joined APC: Mar 2017
Posts: 100
And another thing, in addition to my first two posts on this subject.
TIMIMG
Why are we proposing any retirement change outside of Section 6 negotiations? This is not "give and take" like it is during Section 6. The company does not have to play ball. The ONLY reason they will entertain our proposal is if it works toward their benefit...be it money or risk or both. If it works for their benefit, it probably does not work for ours. There are no free lunches in life. This will cost us something. If not money, then more of the market risk being shifted from the company to the pilots.
The A Plan is probably our most powerful bargaining tool. It is hard to bargain well when the one you are bargaining with (the company) has no obligation to. Again, the only reason they will entertain a change is if it benefits them. If you believe there is a solution that offers a win for the company and a win for the pilot group with no associated cost either in dollars or risk, I have some oceanfront property in Arizona to sell you.
Again, why is this so critical now? Well, we agreed to a contract term that is way too long and we have a lot of senior guys who want an improvement to their retirement and they can't wait until the next Section 6 because they will be retired by then. The MEC screwed up by pushing a contract forward without fixing this 2 years ago and the pilot group screwed up by supporting it. We made our bed, now lie in it.
Re-address retirement next time in formal Section 6 negotiations but, as I said before, don't give away the A Plan. Push for an increase in the B Plan with a new "cash over the cap" provision.
TIMIMG
Why are we proposing any retirement change outside of Section 6 negotiations? This is not "give and take" like it is during Section 6. The company does not have to play ball. The ONLY reason they will entertain our proposal is if it works toward their benefit...be it money or risk or both. If it works for their benefit, it probably does not work for ours. There are no free lunches in life. This will cost us something. If not money, then more of the market risk being shifted from the company to the pilots.
The A Plan is probably our most powerful bargaining tool. It is hard to bargain well when the one you are bargaining with (the company) has no obligation to. Again, the only reason they will entertain a change is if it benefits them. If you believe there is a solution that offers a win for the company and a win for the pilot group with no associated cost either in dollars or risk, I have some oceanfront property in Arizona to sell you.
Again, why is this so critical now? Well, we agreed to a contract term that is way too long and we have a lot of senior guys who want an improvement to their retirement and they can't wait until the next Section 6 because they will be retired by then. The MEC screwed up by pushing a contract forward without fixing this 2 years ago and the pilot group screwed up by supporting it. We made our bed, now lie in it.
Re-address retirement next time in formal Section 6 negotiations but, as I said before, don't give away the A Plan. Push for an increase in the B Plan with a new "cash over the cap" provision.
11-03-2017, 07:05 PM
#446
Gets Weekends Off
Joined APC: Mar 2009
Position: Fedex
Posts: 160
There is a lot of misunderstanding among many of our guys with regards to our retirement plan and what exactly we currently have. It's shocking that the union has expanded zero effort at getting some basic information to the crew force to clear up some of the confusion and educate those that simply do not fully understand our retirement benefits and options. In order to evaluate other options that the union wants to cram down our throats, everyone absolutely positively has to have a crystal clear understanding what is at stake before making an educated decision. As past has shown, the one sided Alpa sales job will soon begin so please educate yourselves fully and ask questions....
Here is a simple start....
RETIREMENT 101
A defined benefit plan, most often known as a pension, is a retirement account for which your employer ponies up all the money and promises you a set payout when you retire. A defined contribution plan, like a 401(k) or 403(b), requires you to put in your own money; in our case, our B-Plan, the Company currently contributes 8% in your name.
Your current defined benefit will be $130k per year if you are a $260k/25year pilot at retirement. However, should you elect Survivor Benefit Insurance (SBI) that $130k will be reduced by the cost of the insurance for whichever option you elect. Generally, the cost is predicated on the desired benefit value for your survivor; i.e. 50/75/100% and/or the age differential between you and your elected survivor (there are other factors which could influence your annual payout depending on your election choice)
CURRENT IRS LIMITS
Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Actuarial assumptions and computations are required to figure these contributions.
In general, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of:
1. 100% of the participant's average compensation for his or her highest 3 consecutive calendar years, or
2. $210,000 for 2015 and 2016 ($215,000 for 2017)
The dollar amounts are subject to cost-of-living adjustments in future years.
THEREFORE, THE COMMON MISCONCEPTION THAT OUR A-PLAN CANNOT BE INCREASED DUE TO IRS RESTRICTIONS IS PATENTLY FALSE!
Maximum Dollar Limits
Maximum annual benefit payable by a defined benefit pension plan (Our A-plan)
2017 - $215,000
2016 - $210,000
Annual limit for combined employer - employee contributions to a defined contribution plan (Our B-plan)
2017 - $54,000
2016 - $53,000
Annual contribution limit to an Individual Retirement Account for individuals
2017 - $5,500
2016 - $5,500
Retirement Plan Contribution and Benefit Limits | Pension Rights ..
Section 415 of the Internal Revenue Code (Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made following adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.
Effective January 1, 2017, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $210,000 to $215,000. For a participant who separated from service before January 1, 2017, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2016, by 1.0112.
The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2017 from $53,000 to $54,000...
…The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2017 are as follows:
The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $18,000.
The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $265,000 to $270,000…
ANNUITIES
The 2017 cost of an annuity to replace $130,000 in retirement income is currently $1.3M at age 45 and $2.3M at age 60. This means you must deposit that amount, at that age, with the insurance company of your choice and receive payments at age 65; these amounts do not take into account any survivor benefits!
FEDEX DOES NOT!!!! BUY AN ANNUITY FOR YOU WHEN YOU RETIRE.
IF THEY DID THEY WOULD NOT BE ABLE TO RECAPTURE THE MONEY SPENT FOR THE ANNUITY SHOULD YOU DECEASE BEFORE THE PAID PREMIUM WAS EXHAUSTED.
EXAMPLE: If the company purchased an $130k annuity at a cost of $2.3M for you at age 60 and you expired after only one year, they would have unnecessarily spent $2.17M (assuming no SBI designee, $2.3M-$130k=$2.17M). Therefore, as it stands now FedEx recovers/returns to the general fund, all the remaining monies set aside/designated for you, should you expire prematurely! What does this mean? If a pilot were to decease before exhausting the earmarked funds that the Company has set aside for you, that excess money $2.17M in the example, is put back into the general fund and used to offset future retirement plan funding requirements. Don't worry, if you happen to live to one hundred FedEx would still pay your benefit, it's just that you would have exceeded their actuarial estimate of longevity; you cannot exhaust your benefit in that sense.
INCREASED B-PLAN
The average $260k/25year Pilot has saved approximately $800k-$1.25M in their 401k If your argument is that a higher B-plan contribution in lieu of an A-plan is more secure in your hands, then you would need to accumulate an additional $2.3M in contributions and interest, above and beyond the current 8% B-plan, over the same 25-year period, to equal the $130k benefit you currently have with the existing A-plan. Additionally, you would bear all the risk and fees associated with managing that money, and there would be no PBGC fallback if a catastrophic financial crisis occurred.
October 28, 2015
WASHINGTON - The Pension Benefit Guaranty Corporation announced today that the annual maximum guaranteed benefit for a 65-year-old retiree in a single-employer plan remains at $60,136. FedEx is a single-employer plan.
TO BE ABSOLUTELY CLEAR, FEDEX WOULD HAVE TO CONTRIBUTE AN ADDITIONAL AMOUNT OF CASH TO YOU, THE PILOT, THAT WOULD EQUATE TO YOU HAVING $2.3M MORE IN YOUR B-PLAN THAN YOU CURRENTLY CAN EXPECT TODAY, DURING THAT SAME 25 YEAR PERIOD. ADDITIONALLY, YOU MAKE ALL OF THE INVESTMENT DECISIONS AND ASSUME ALL THE RISKS AND COSTS ASSOCIATED WITH INVESTING IN THE STOCK MARKET! THAT $2.3M DOLLAR AMOUNT IS PREDICATED ON 2017 ANNUITY COSTS, WHAT YOUR ACTUAL COST WILL BE IN 5/10/15/20/25 YEARS WILL PREDICTABLY BE HIGHER AND REQUIRE AN EVEN LARGER CASH CONTRIBUTION FROM THE COMPANY! IT ALSO MEANS THAT THERE WOULD BE NO POSSIBILITY OF FEDEX RECOUPING ANY OF THAT MONEY SHOULD YOU DIE!
****AND THAT WOULD STILL ONLY GET YOU $130,000, EXACTLY WHAT YOU HAVE CURRENTLY! IF YOU WANTED A GREATER RETIREMENT BENEFIT YOU WOULD HAVE TO HAVE THAT MUCH MORE MONEY!****
COMPANY RETIREMENT LIABILITY
Now let's examine the much espoused and bandied about, but clearly misunderstood, $6B-$8B Pilot Retirement Liability that FedEx claims to be burgeoning under, which makes it so impossible for them to increase our A-plan.
First, the $6B-$8B number is an actuarial assumption. Which is, that EVERY pilot is going to earn and receive the maximum retirement benefit possible, based upon their longevity, for 20 years of retirement. This liability begins on a pilots 5 year vesting date(it may be from day one of employment, but that data is not available as it is proprietary) Additionally, we must assume that FedEx makes some actuarial adjustments for pilots who elect survivor benefits, retire early; or those who decease prior to retirement and therefore receive no retirement benefit.(remember, FedEx's obligation should you decease “prior to entering retirement” is limited to only the life insurance benefit that you elect annually, even if you had reached retirement age at your time of death)
What it absolutely does not mean is that this is the actual cost to FedEx annually for Pilot Retirements! Again, $6B-$8B in obligation/liability, but not actual value disbursed to retirees; that number is in the $100M-$160M range per annum, based on best estimates! (1000-1600 retirees and/or survivors each receiving $100k a year)
VARIABLE ANNUITY PENSION PLANS (VAPP) - AKA, the Fedex Alpa pet project
"...One alternative to consider is changing the pension plan so that future accruals are paid in the form of variable annuities. Much like changing to a defined contribution (DC) plan, changing to a variable annuity plan shifts the plan's investment risk for future benefit accruals to the participants. Variable annuity plans have the following advantages over DC plans:
• Participants will still receive benefits for the rest of their lives (they will not outlive their benefit).
• Professional investment management and longevity pooling are expected to lead to larger monthly benefits.
In a variable annuity plan design, the investment risk for future benefit accruals is moved from the plan sponsor to the participants by changing benefits to match the actual investment returns of the trust. In good times, participants share directly in the gains and the pension benefits will increase to at least partially offset inflation. In bad times, participants share directly in the losses and the pension benefits will decrease to match investment returns. However, participants are still provided with lifelong income. Variable annuity retirement benefits are generally larger than the DC retirement benefits provided by the same contribution due to professional investment management and the pooling of longevity experience. Variable annuity plan participants receive lifelong monthly pension benefits that increase their overall financial security. While DC plan participants can purchase annuities at retirement, guaranteeing lifelong income, very few do so, which puts them at risk of outliving their assets. Many of us have focused on the "guaranteed benefits" of DB plans for a long time. It may be time to change our focus to "lifelong" benefits, where the exact dollar amount is not guaranteed, but participants are assured that they will not outlive their benefits and some inflation protection may be provided instead.
What Is a Variable Annuity Plan?
In general, a variable annuity plan is a defined benefit pension plan where benefits change based on the return of the plan's assets. Although they have been around for a long time, variable annuity plans are not common.
Perhaps this design has been less appealing in the past because it does not guarantee that participants' monthly pension benefits will not decrease.
In a variable annuity plan design, the plan establishes a conservative assumed investment return (AIR), or hurdle rate. If the plan's investment returns equal the hurdle rate, the plan functions exactly like a traditional DB plan. However, if the plan's investments earn more or less than the hurdle rate in a plan year, all benefits earned in prior years are adjusted up or down by the difference between the actual investment return and the hurdle rate...” (Quote's taken from Milliman White Paper)
OUR CURRENT A-PLAN/DEFINED BENEFIT PLAN ALREADY GUARANTEES US A LIFELONG BENEFIT WITHOUT ANY RISK OF IT DECREASING.
WHILE THERE IS NO POTENTIAL FOR GAINS, REALIZE THAT ANY UPSIDE IN A VAPP IS DIVIDED BETWEEN ALL ACTIVE RETIREES AT THAT TIME AND ONLY FOR THE AMOUNT IN EXCESS OF THE (AIR)/HURDLE RATE.
EXAMPLE: If we assume 1500 Retirees, then for every $1,000,000 in gains above the (AIR) you would receive an additional $667. This amount could be higher for some and lower for others if the distribution is not an even split among participants, i.e. Those pilots whose baseline retirement was $130k would receive marginally more than a $100k baseline pilot, who would receive more than a $80k baseline pilot, etc. This ratio would be established within the plan rules, it is also unclear whether these distributions would occur monthly, quarterly, semi-annually or annually.
Here is a simple start....
RETIREMENT 101
A defined benefit plan, most often known as a pension, is a retirement account for which your employer ponies up all the money and promises you a set payout when you retire. A defined contribution plan, like a 401(k) or 403(b), requires you to put in your own money; in our case, our B-Plan, the Company currently contributes 8% in your name.
Your current defined benefit will be $130k per year if you are a $260k/25year pilot at retirement. However, should you elect Survivor Benefit Insurance (SBI) that $130k will be reduced by the cost of the insurance for whichever option you elect. Generally, the cost is predicated on the desired benefit value for your survivor; i.e. 50/75/100% and/or the age differential between you and your elected survivor (there are other factors which could influence your annual payout depending on your election choice)
CURRENT IRS LIMITS
Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Actuarial assumptions and computations are required to figure these contributions.
In general, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of:
1. 100% of the participant's average compensation for his or her highest 3 consecutive calendar years, or
2. $210,000 for 2015 and 2016 ($215,000 for 2017)
The dollar amounts are subject to cost-of-living adjustments in future years.
THEREFORE, THE COMMON MISCONCEPTION THAT OUR A-PLAN CANNOT BE INCREASED DUE TO IRS RESTRICTIONS IS PATENTLY FALSE!
Maximum Dollar Limits
Maximum annual benefit payable by a defined benefit pension plan (Our A-plan)
2017 - $215,000
2016 - $210,000
Annual limit for combined employer - employee contributions to a defined contribution plan (Our B-plan)
2017 - $54,000
2016 - $53,000
Annual contribution limit to an Individual Retirement Account for individuals
2017 - $5,500
2016 - $5,500
Retirement Plan Contribution and Benefit Limits | Pension Rights ..
Section 415 of the Internal Revenue Code (Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made following adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.
Effective January 1, 2017, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $210,000 to $215,000. For a participant who separated from service before January 1, 2017, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2016, by 1.0112.
The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2017 from $53,000 to $54,000...
…The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2017 are as follows:
The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $18,000.
The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $265,000 to $270,000…
ANNUITIES
The 2017 cost of an annuity to replace $130,000 in retirement income is currently $1.3M at age 45 and $2.3M at age 60. This means you must deposit that amount, at that age, with the insurance company of your choice and receive payments at age 65; these amounts do not take into account any survivor benefits!
FEDEX DOES NOT!!!! BUY AN ANNUITY FOR YOU WHEN YOU RETIRE.
IF THEY DID THEY WOULD NOT BE ABLE TO RECAPTURE THE MONEY SPENT FOR THE ANNUITY SHOULD YOU DECEASE BEFORE THE PAID PREMIUM WAS EXHAUSTED.
EXAMPLE: If the company purchased an $130k annuity at a cost of $2.3M for you at age 60 and you expired after only one year, they would have unnecessarily spent $2.17M (assuming no SBI designee, $2.3M-$130k=$2.17M). Therefore, as it stands now FedEx recovers/returns to the general fund, all the remaining monies set aside/designated for you, should you expire prematurely! What does this mean? If a pilot were to decease before exhausting the earmarked funds that the Company has set aside for you, that excess money $2.17M in the example, is put back into the general fund and used to offset future retirement plan funding requirements. Don't worry, if you happen to live to one hundred FedEx would still pay your benefit, it's just that you would have exceeded their actuarial estimate of longevity; you cannot exhaust your benefit in that sense.
INCREASED B-PLAN
The average $260k/25year Pilot has saved approximately $800k-$1.25M in their 401k If your argument is that a higher B-plan contribution in lieu of an A-plan is more secure in your hands, then you would need to accumulate an additional $2.3M in contributions and interest, above and beyond the current 8% B-plan, over the same 25-year period, to equal the $130k benefit you currently have with the existing A-plan. Additionally, you would bear all the risk and fees associated with managing that money, and there would be no PBGC fallback if a catastrophic financial crisis occurred.
October 28, 2015
WASHINGTON - The Pension Benefit Guaranty Corporation announced today that the annual maximum guaranteed benefit for a 65-year-old retiree in a single-employer plan remains at $60,136. FedEx is a single-employer plan.
TO BE ABSOLUTELY CLEAR, FEDEX WOULD HAVE TO CONTRIBUTE AN ADDITIONAL AMOUNT OF CASH TO YOU, THE PILOT, THAT WOULD EQUATE TO YOU HAVING $2.3M MORE IN YOUR B-PLAN THAN YOU CURRENTLY CAN EXPECT TODAY, DURING THAT SAME 25 YEAR PERIOD. ADDITIONALLY, YOU MAKE ALL OF THE INVESTMENT DECISIONS AND ASSUME ALL THE RISKS AND COSTS ASSOCIATED WITH INVESTING IN THE STOCK MARKET! THAT $2.3M DOLLAR AMOUNT IS PREDICATED ON 2017 ANNUITY COSTS, WHAT YOUR ACTUAL COST WILL BE IN 5/10/15/20/25 YEARS WILL PREDICTABLY BE HIGHER AND REQUIRE AN EVEN LARGER CASH CONTRIBUTION FROM THE COMPANY! IT ALSO MEANS THAT THERE WOULD BE NO POSSIBILITY OF FEDEX RECOUPING ANY OF THAT MONEY SHOULD YOU DIE!
****AND THAT WOULD STILL ONLY GET YOU $130,000, EXACTLY WHAT YOU HAVE CURRENTLY! IF YOU WANTED A GREATER RETIREMENT BENEFIT YOU WOULD HAVE TO HAVE THAT MUCH MORE MONEY!****
COMPANY RETIREMENT LIABILITY
Now let's examine the much espoused and bandied about, but clearly misunderstood, $6B-$8B Pilot Retirement Liability that FedEx claims to be burgeoning under, which makes it so impossible for them to increase our A-plan.
First, the $6B-$8B number is an actuarial assumption. Which is, that EVERY pilot is going to earn and receive the maximum retirement benefit possible, based upon their longevity, for 20 years of retirement. This liability begins on a pilots 5 year vesting date(it may be from day one of employment, but that data is not available as it is proprietary) Additionally, we must assume that FedEx makes some actuarial adjustments for pilots who elect survivor benefits, retire early; or those who decease prior to retirement and therefore receive no retirement benefit.(remember, FedEx's obligation should you decease “prior to entering retirement” is limited to only the life insurance benefit that you elect annually, even if you had reached retirement age at your time of death)
What it absolutely does not mean is that this is the actual cost to FedEx annually for Pilot Retirements! Again, $6B-$8B in obligation/liability, but not actual value disbursed to retirees; that number is in the $100M-$160M range per annum, based on best estimates! (1000-1600 retirees and/or survivors each receiving $100k a year)
VARIABLE ANNUITY PENSION PLANS (VAPP) - AKA, the Fedex Alpa pet project
"...One alternative to consider is changing the pension plan so that future accruals are paid in the form of variable annuities. Much like changing to a defined contribution (DC) plan, changing to a variable annuity plan shifts the plan's investment risk for future benefit accruals to the participants. Variable annuity plans have the following advantages over DC plans:
• Participants will still receive benefits for the rest of their lives (they will not outlive their benefit).
• Professional investment management and longevity pooling are expected to lead to larger monthly benefits.
In a variable annuity plan design, the investment risk for future benefit accruals is moved from the plan sponsor to the participants by changing benefits to match the actual investment returns of the trust. In good times, participants share directly in the gains and the pension benefits will increase to at least partially offset inflation. In bad times, participants share directly in the losses and the pension benefits will decrease to match investment returns. However, participants are still provided with lifelong income. Variable annuity retirement benefits are generally larger than the DC retirement benefits provided by the same contribution due to professional investment management and the pooling of longevity experience. Variable annuity plan participants receive lifelong monthly pension benefits that increase their overall financial security. While DC plan participants can purchase annuities at retirement, guaranteeing lifelong income, very few do so, which puts them at risk of outliving their assets. Many of us have focused on the "guaranteed benefits" of DB plans for a long time. It may be time to change our focus to "lifelong" benefits, where the exact dollar amount is not guaranteed, but participants are assured that they will not outlive their benefits and some inflation protection may be provided instead.
What Is a Variable Annuity Plan?
In general, a variable annuity plan is a defined benefit pension plan where benefits change based on the return of the plan's assets. Although they have been around for a long time, variable annuity plans are not common.
Perhaps this design has been less appealing in the past because it does not guarantee that participants' monthly pension benefits will not decrease.
In a variable annuity plan design, the plan establishes a conservative assumed investment return (AIR), or hurdle rate. If the plan's investment returns equal the hurdle rate, the plan functions exactly like a traditional DB plan. However, if the plan's investments earn more or less than the hurdle rate in a plan year, all benefits earned in prior years are adjusted up or down by the difference between the actual investment return and the hurdle rate...” (Quote's taken from Milliman White Paper)
OUR CURRENT A-PLAN/DEFINED BENEFIT PLAN ALREADY GUARANTEES US A LIFELONG BENEFIT WITHOUT ANY RISK OF IT DECREASING.
WHILE THERE IS NO POTENTIAL FOR GAINS, REALIZE THAT ANY UPSIDE IN A VAPP IS DIVIDED BETWEEN ALL ACTIVE RETIREES AT THAT TIME AND ONLY FOR THE AMOUNT IN EXCESS OF THE (AIR)/HURDLE RATE.
EXAMPLE: If we assume 1500 Retirees, then for every $1,000,000 in gains above the (AIR) you would receive an additional $667. This amount could be higher for some and lower for others if the distribution is not an even split among participants, i.e. Those pilots whose baseline retirement was $130k would receive marginally more than a $100k baseline pilot, who would receive more than a $80k baseline pilot, etc. This ratio would be established within the plan rules, it is also unclear whether these distributions would occur monthly, quarterly, semi-annually or annually.
11-03-2017, 07:45 PM
#447
Gets Weekends Off
Joined APC: Mar 2017
Posts: 100
Originally Posted by pwdrhound
There is a lot of misunderstanding among many of our guys with regards to our retirement plan and what exactly we currently have. It's shocking that the union has expanded zero effort at getting some basic information to the crew force to clear up some of the confusion and educate those that simply do not fully understand our retirement benefits and options. In order to evaluate other options that the union wants to cram down our throats, everyone absolutely positively has to have a crystal clear understanding what is at stake before making an educated decision. As past has shown, the one sided Alpa sales job will soon begin so please educate yourselves fully and ask questions....
Here is a simple start....
RETIREMENT 101
A defined benefit plan, most often known as a pension, is a retirement account for which your employer ponies up all the money and promises you a set payout when you retire. A defined contribution plan, like a 401(k) or 403(b), requires you to put in your own money; in our case, our B-Plan, the Company currently contributes 8% in your name.
Your current defined benefit will be $130k per year if you are a $260k/25year pilot at retirement. However, should you elect Survivor Benefit Insurance (SBI) that $130k will be reduced by the cost of the insurance for whichever option you elect. Generally, the cost is predicated on the desired benefit value for your survivor; i.e. 50/75/100% and/or the age differential between you and your elected survivor (there are other factors which could influence your annual payout depending on your election choice)
CURRENT IRS LIMITS
Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Actuarial assumptions and computations are required to figure these contributions.
In general, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of:
1. 100% of the participant's average compensation for his or her highest 3 consecutive calendar years, or
2. $210,000 for 2015 and 2016 ($215,000 for 2017)
The dollar amounts are subject to cost-of-living adjustments in future years.
THEREFORE, THE COMMON MISCONCEPTION THAT OUR A-PLAN CANNOT BE INCREASED DUE TO IRS RESTRICTIONS IS PATENTLY FALSE!
Maximum Dollar Limits
Maximum annual benefit payable by a defined benefit pension plan (Our A-plan)
2017 - $215,000
2016 - $210,000
Annual limit for combined employer - employee contributions to a defined contribution plan (Our B-plan)
2017 - $54,000
2016 - $53,000
Annual contribution limit to an Individual Retirement Account for individuals
2017 - $5,500
2016 - $5,500
Retirement Plan Contribution and Benefit Limits | Pension Rights ..
Section 415 of the Internal Revenue Code (Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made following adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.
Effective January 1, 2017, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $210,000 to $215,000. For a participant who separated from service before January 1, 2017, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2016, by 1.0112.
The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2017 from $53,000 to $54,000...
…The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2017 are as follows:
The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $18,000.
The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $265,000 to $270,000…
ANNUITIES
The 2017 cost of an annuity to replace $130,000 in retirement income is currently $1.3M at age 45 and $2.3M at age 60. This means you must deposit that amount, at that age, with the insurance company of your choice and receive payments at age 65; these amounts do not take into account any survivor benefits!
FEDEX DOES NOT!!!! BUY AN ANNUITY FOR YOU WHEN YOU RETIRE.
IF THEY DID THEY WOULD NOT BE ABLE TO RECAPTURE THE MONEY SPENT FOR THE ANNUITY SHOULD YOU DECEASE BEFORE THE PAID PREMIUM WAS EXHAUSTED.
EXAMPLE: If the company purchased an $130k annuity at a cost of $2.3M for you at age 60 and you expired after only one year, they would have unnecessarily spent $2.17M (assuming no SBI designee, $2.3M-$130k=$2.17M). Therefore, as it stands now FedEx recovers/returns to the general fund, all the remaining monies set aside/designated for you, should you expire prematurely! What does this mean? If a pilot were to decease before exhausting the earmarked funds that the Company has set aside for you, that excess money $2.17M in the example, is put back into the general fund and used to offset future retirement plan funding requirements. Don't worry, if you happen to live to one hundred FedEx would still pay your benefit, it's just that you would have exceeded their actuarial estimate of longevity; you cannot exhaust your benefit in that sense.
INCREASED B-PLAN
The average $260k/25year Pilot has saved approximately $800k-$1.25M in their 401k If your argument is that a higher B-plan contribution in lieu of an A-plan is more secure in your hands, then you would need to accumulate an additional $2.3M in contributions and interest, above and beyond the current 8% B-plan, over the same 25-year period, to equal the $130k benefit you currently have with the existing A-plan. Additionally, you would bear all the risk and fees associated with managing that money, and there would be no PBGC fallback if a catastrophic financial crisis occurred.
October 28, 2015
WASHINGTON - The Pension Benefit Guaranty Corporation announced today that the annual maximum guaranteed benefit for a 65-year-old retiree in a single-employer plan remains at $60,136. FedEx is a single-employer plan.
TO BE ABSOLUTELY CLEAR, FEDEX WOULD HAVE TO CONTRIBUTE AN ADDITIONAL AMOUNT OF CASH TO YOU, THE PILOT, THAT WOULD EQUATE TO YOU HAVING $2.3M MORE IN YOUR B-PLAN THAN YOU CURRENTLY CAN EXPECT TODAY, DURING THAT SAME 25 YEAR PERIOD. ADDITIONALLY, YOU MAKE ALL OF THE INVESTMENT DECISIONS AND ASSUME ALL THE RISKS AND COSTS ASSOCIATED WITH INVESTING IN THE STOCK MARKET! THAT $2.3M DOLLAR AMOUNT IS PREDICATED ON 2017 ANNUITY COSTS, WHAT YOUR ACTUAL COST WILL BE IN 5/10/15/20/25 YEARS WILL PREDICTABLY BE HIGHER AND REQUIRE AN EVEN LARGER CASH CONTRIBUTION FROM THE COMPANY! IT ALSO MEANS THAT THERE WOULD BE NO POSSIBILITY OF FEDEX RECOUPING ANY OF THAT MONEY SHOULD YOU DIE!
****AND THAT WOULD STILL ONLY GET YOU $130,000, EXACTLY WHAT YOU HAVE CURRENTLY! IF YOU WANTED A GREATER RETIREMENT BENEFIT YOU WOULD HAVE TO HAVE THAT MUCH MORE MONEY!****
COMPANY RETIREMENT LIABILITY
Now let's examine the much espoused and bandied about, but clearly misunderstood, $6B-$8B Pilot Retirement Liability that FedEx claims to be burgeoning under, which makes it so impossible for them to increase our A-plan.
First, the $6B-$8B number is an actuarial assumption. Which is, that EVERY pilot is going to earn and receive the maximum retirement benefit possible, based upon their longevity, for 20 years of retirement. This liability begins on a pilots 5 year vesting date(it may be from day one of employment, but that data is not available as it is proprietary) Additionally, we must assume that FedEx makes some actuarial adjustments for pilots who elect survivor benefits, retire early; or those who decease prior to retirement and therefore receive no retirement benefit.(remember, FedEx's obligation should you decease “prior to entering retirement” is limited to only the life insurance benefit that you elect annually, even if you had reached retirement age at your time of death)
What it absolutely does not mean is that this is the actual cost to FedEx annually for Pilot Retirements! Again, $6B-$8B in obligation/liability, but not actual value disbursed to retirees; that number is in the $100M-$160M range per annum, based on best estimates! (1000-1600 retirees and/or survivors each receiving $100k a year)
VARIABLE ANNUITY PENSION PLANS (VAPP) - AKA, the Fedex Alpa pet project
"...One alternative to consider is changing the pension plan so that future accruals are paid in the form of variable annuities. Much like changing to a defined contribution (DC) plan, changing to a variable annuity plan shifts the plan's investment risk for future benefit accruals to the participants. Variable annuity plans have the following advantages over DC plans:
• Participants will still receive benefits for the rest of their lives (they will not outlive their benefit).
• Professional investment management and longevity pooling are expected to lead to larger monthly benefits.
In a variable annuity plan design, the investment risk for future benefit accruals is moved from the plan sponsor to the participants by changing benefits to match the actual investment returns of the trust. In good times, participants share directly in the gains and the pension benefits will increase to at least partially offset inflation. In bad times, participants share directly in the losses and the pension benefits will decrease to match investment returns. However, participants are still provided with lifelong income. Variable annuity retirement benefits are generally larger than the DC retirement benefits provided by the same contribution due to professional investment management and the pooling of longevity experience. Variable annuity plan participants receive lifelong monthly pension benefits that increase their overall financial security. While DC plan participants can purchase annuities at retirement, guaranteeing lifelong income, very few do so, which puts them at risk of outliving their assets. Many of us have focused on the "guaranteed benefits" of DB plans for a long time. It may be time to change our focus to "lifelong" benefits, where the exact dollar amount is not guaranteed, but participants are assured that they will not outlive their benefits and some inflation protection may be provided instead.
What Is a Variable Annuity Plan?
In general, a variable annuity plan is a defined benefit pension plan where benefits change based on the return of the plan's assets. Although they have been around for a long time, variable annuity plans are not common.
Perhaps this design has been less appealing in the past because it does not guarantee that participants' monthly pension benefits will not decrease.
In a variable annuity plan design, the plan establishes a conservative assumed investment return (AIR), or hurdle rate. If the plan's investment returns equal the hurdle rate, the plan functions exactly like a traditional DB plan. However, if the plan's investments earn more or less than the hurdle rate in a plan year, all benefits earned in prior years are adjusted up or down by the difference between the actual investment return and the hurdle rate...” (Quote's taken from Milliman White Paper)
OUR CURRENT A-PLAN/DEFINED BENEFIT PLAN ALREADY GUARANTEES US A LIFELONG BENEFIT WITHOUT ANY RISK OF IT DECREASING.
WHILE THERE IS NO POTENTIAL FOR GAINS, REALIZE THAT ANY UPSIDE IN A VAPP IS DIVIDED BETWEEN ALL ACTIVE RETIREES AT THAT TIME AND ONLY FOR THE AMOUNT IN EXCESS OF THE (AIR)/HURDLE RATE.
EXAMPLE: If we assume 1500 Retirees, then for every $1,000,000 in gains above the (AIR) you would receive an additional $667. This amount could be higher for some and lower for others if the distribution is not an even split among participants, i.e. Those pilots whose baseline retirement was $130k would receive marginally more than a $100k baseline pilot, who would receive more than a $80k baseline pilot, etc. This ratio would be established within the plan rules, it is also unclear whether these distributions would occur monthly, quarterly, semi-annually or annually.
Here is a simple start....
RETIREMENT 101
A defined benefit plan, most often known as a pension, is a retirement account for which your employer ponies up all the money and promises you a set payout when you retire. A defined contribution plan, like a 401(k) or 403(b), requires you to put in your own money; in our case, our B-Plan, the Company currently contributes 8% in your name.
Your current defined benefit will be $130k per year if you are a $260k/25year pilot at retirement. However, should you elect Survivor Benefit Insurance (SBI) that $130k will be reduced by the cost of the insurance for whichever option you elect. Generally, the cost is predicated on the desired benefit value for your survivor; i.e. 50/75/100% and/or the age differential between you and your elected survivor (there are other factors which could influence your annual payout depending on your election choice)
CURRENT IRS LIMITS
Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Actuarial assumptions and computations are required to figure these contributions.
In general, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of:
1. 100% of the participant's average compensation for his or her highest 3 consecutive calendar years, or
2. $210,000 for 2015 and 2016 ($215,000 for 2017)
The dollar amounts are subject to cost-of-living adjustments in future years.
THEREFORE, THE COMMON MISCONCEPTION THAT OUR A-PLAN CANNOT BE INCREASED DUE TO IRS RESTRICTIONS IS PATENTLY FALSE!
Maximum Dollar Limits
Maximum annual benefit payable by a defined benefit pension plan (Our A-plan)
2017 - $215,000
2016 - $210,000
Annual limit for combined employer - employee contributions to a defined contribution plan (Our B-plan)
2017 - $54,000
2016 - $53,000
Annual contribution limit to an Individual Retirement Account for individuals
2017 - $5,500
2016 - $5,500
Retirement Plan Contribution and Benefit Limits | Pension Rights ..
Section 415 of the Internal Revenue Code (Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made following adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.
Effective January 1, 2017, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $210,000 to $215,000. For a participant who separated from service before January 1, 2017, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2016, by 1.0112.
The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2017 from $53,000 to $54,000...
…The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2017 are as follows:
The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $18,000.
The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $265,000 to $270,000…
ANNUITIES
The 2017 cost of an annuity to replace $130,000 in retirement income is currently $1.3M at age 45 and $2.3M at age 60. This means you must deposit that amount, at that age, with the insurance company of your choice and receive payments at age 65; these amounts do not take into account any survivor benefits!
FEDEX DOES NOT!!!! BUY AN ANNUITY FOR YOU WHEN YOU RETIRE.
IF THEY DID THEY WOULD NOT BE ABLE TO RECAPTURE THE MONEY SPENT FOR THE ANNUITY SHOULD YOU DECEASE BEFORE THE PAID PREMIUM WAS EXHAUSTED.
EXAMPLE: If the company purchased an $130k annuity at a cost of $2.3M for you at age 60 and you expired after only one year, they would have unnecessarily spent $2.17M (assuming no SBI designee, $2.3M-$130k=$2.17M). Therefore, as it stands now FedEx recovers/returns to the general fund, all the remaining monies set aside/designated for you, should you expire prematurely! What does this mean? If a pilot were to decease before exhausting the earmarked funds that the Company has set aside for you, that excess money $2.17M in the example, is put back into the general fund and used to offset future retirement plan funding requirements. Don't worry, if you happen to live to one hundred FedEx would still pay your benefit, it's just that you would have exceeded their actuarial estimate of longevity; you cannot exhaust your benefit in that sense.
INCREASED B-PLAN
The average $260k/25year Pilot has saved approximately $800k-$1.25M in their 401k If your argument is that a higher B-plan contribution in lieu of an A-plan is more secure in your hands, then you would need to accumulate an additional $2.3M in contributions and interest, above and beyond the current 8% B-plan, over the same 25-year period, to equal the $130k benefit you currently have with the existing A-plan. Additionally, you would bear all the risk and fees associated with managing that money, and there would be no PBGC fallback if a catastrophic financial crisis occurred.
October 28, 2015
WASHINGTON - The Pension Benefit Guaranty Corporation announced today that the annual maximum guaranteed benefit for a 65-year-old retiree in a single-employer plan remains at $60,136. FedEx is a single-employer plan.
TO BE ABSOLUTELY CLEAR, FEDEX WOULD HAVE TO CONTRIBUTE AN ADDITIONAL AMOUNT OF CASH TO YOU, THE PILOT, THAT WOULD EQUATE TO YOU HAVING $2.3M MORE IN YOUR B-PLAN THAN YOU CURRENTLY CAN EXPECT TODAY, DURING THAT SAME 25 YEAR PERIOD. ADDITIONALLY, YOU MAKE ALL OF THE INVESTMENT DECISIONS AND ASSUME ALL THE RISKS AND COSTS ASSOCIATED WITH INVESTING IN THE STOCK MARKET! THAT $2.3M DOLLAR AMOUNT IS PREDICATED ON 2017 ANNUITY COSTS, WHAT YOUR ACTUAL COST WILL BE IN 5/10/15/20/25 YEARS WILL PREDICTABLY BE HIGHER AND REQUIRE AN EVEN LARGER CASH CONTRIBUTION FROM THE COMPANY! IT ALSO MEANS THAT THERE WOULD BE NO POSSIBILITY OF FEDEX RECOUPING ANY OF THAT MONEY SHOULD YOU DIE!
****AND THAT WOULD STILL ONLY GET YOU $130,000, EXACTLY WHAT YOU HAVE CURRENTLY! IF YOU WANTED A GREATER RETIREMENT BENEFIT YOU WOULD HAVE TO HAVE THAT MUCH MORE MONEY!****
COMPANY RETIREMENT LIABILITY
Now let's examine the much espoused and bandied about, but clearly misunderstood, $6B-$8B Pilot Retirement Liability that FedEx claims to be burgeoning under, which makes it so impossible for them to increase our A-plan.
First, the $6B-$8B number is an actuarial assumption. Which is, that EVERY pilot is going to earn and receive the maximum retirement benefit possible, based upon their longevity, for 20 years of retirement. This liability begins on a pilots 5 year vesting date(it may be from day one of employment, but that data is not available as it is proprietary) Additionally, we must assume that FedEx makes some actuarial adjustments for pilots who elect survivor benefits, retire early; or those who decease prior to retirement and therefore receive no retirement benefit.(remember, FedEx's obligation should you decease “prior to entering retirement” is limited to only the life insurance benefit that you elect annually, even if you had reached retirement age at your time of death)
What it absolutely does not mean is that this is the actual cost to FedEx annually for Pilot Retirements! Again, $6B-$8B in obligation/liability, but not actual value disbursed to retirees; that number is in the $100M-$160M range per annum, based on best estimates! (1000-1600 retirees and/or survivors each receiving $100k a year)
VARIABLE ANNUITY PENSION PLANS (VAPP) - AKA, the Fedex Alpa pet project
"...One alternative to consider is changing the pension plan so that future accruals are paid in the form of variable annuities. Much like changing to a defined contribution (DC) plan, changing to a variable annuity plan shifts the plan's investment risk for future benefit accruals to the participants. Variable annuity plans have the following advantages over DC plans:
• Participants will still receive benefits for the rest of their lives (they will not outlive their benefit).
• Professional investment management and longevity pooling are expected to lead to larger monthly benefits.
In a variable annuity plan design, the investment risk for future benefit accruals is moved from the plan sponsor to the participants by changing benefits to match the actual investment returns of the trust. In good times, participants share directly in the gains and the pension benefits will increase to at least partially offset inflation. In bad times, participants share directly in the losses and the pension benefits will decrease to match investment returns. However, participants are still provided with lifelong income. Variable annuity retirement benefits are generally larger than the DC retirement benefits provided by the same contribution due to professional investment management and the pooling of longevity experience. Variable annuity plan participants receive lifelong monthly pension benefits that increase their overall financial security. While DC plan participants can purchase annuities at retirement, guaranteeing lifelong income, very few do so, which puts them at risk of outliving their assets. Many of us have focused on the "guaranteed benefits" of DB plans for a long time. It may be time to change our focus to "lifelong" benefits, where the exact dollar amount is not guaranteed, but participants are assured that they will not outlive their benefits and some inflation protection may be provided instead.
What Is a Variable Annuity Plan?
In general, a variable annuity plan is a defined benefit pension plan where benefits change based on the return of the plan's assets. Although they have been around for a long time, variable annuity plans are not common.
Perhaps this design has been less appealing in the past because it does not guarantee that participants' monthly pension benefits will not decrease.
In a variable annuity plan design, the plan establishes a conservative assumed investment return (AIR), or hurdle rate. If the plan's investment returns equal the hurdle rate, the plan functions exactly like a traditional DB plan. However, if the plan's investments earn more or less than the hurdle rate in a plan year, all benefits earned in prior years are adjusted up or down by the difference between the actual investment return and the hurdle rate...” (Quote's taken from Milliman White Paper)
OUR CURRENT A-PLAN/DEFINED BENEFIT PLAN ALREADY GUARANTEES US A LIFELONG BENEFIT WITHOUT ANY RISK OF IT DECREASING.
WHILE THERE IS NO POTENTIAL FOR GAINS, REALIZE THAT ANY UPSIDE IN A VAPP IS DIVIDED BETWEEN ALL ACTIVE RETIREES AT THAT TIME AND ONLY FOR THE AMOUNT IN EXCESS OF THE (AIR)/HURDLE RATE.
EXAMPLE: If we assume 1500 Retirees, then for every $1,000,000 in gains above the (AIR) you would receive an additional $667. This amount could be higher for some and lower for others if the distribution is not an even split among participants, i.e. Those pilots whose baseline retirement was $130k would receive marginally more than a $100k baseline pilot, who would receive more than a $80k baseline pilot, etc. This ratio would be established within the plan rules, it is also unclear whether these distributions would occur monthly, quarterly, semi-annually or annually.
Outstanding! A must read for everyone.
11-04-2017, 02:22 AM
#449
Gets Weekends Off
Joined APC: Jun 2015
Position: Fetal in the hub
Posts: 410
pwdrhound is absolutely correct, but what is the use?
I just watched the ALPA "informational" video and three slides near the end explain it all
Slide #1 our current DB plan-the company "sponsor" carries majority of the risk
Slide #2 DC plan B fund-the employee carries most of the risk
Slide #3 ALPA VB proposed plan-risk is shared equally
Repeat after me your benefits are not supposed to be a casino.
We can continue to lambast the Union leadership, but the membership keeps voting to approve this garbage.
And the reason why is simple, their ideology makes them despise organized labor. Its the saddest thing I've seen at any airline in my lifetime.
I just watched the ALPA "informational" video and three slides near the end explain it all
Slide #1 our current DB plan-the company "sponsor" carries majority of the risk
Slide #2 DC plan B fund-the employee carries most of the risk
Slide #3 ALPA VB proposed plan-risk is shared equally
Repeat after me your benefits are not supposed to be a casino.
We can continue to lambast the Union leadership, but the membership keeps voting to approve this garbage.
And the reason why is simple, their ideology makes them despise organized labor. Its the saddest thing I've seen at any airline in my lifetime.
11-04-2017, 03:15 AM
#450
Gets Weekends Off
Joined APC: Nov 2016
Posts: 936
Originally Posted by Shaman
...
And the reason why is simple, their ideology makes them despise organized labor. Its the saddest thing I've seen at any airline in my lifetime.
And the reason why is simple, their ideology makes them despise organized labor. Its the saddest thing I've seen at any airline in my lifetime.
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