DLax85

Let's talk accrued benefit: It's currently a function of Years of Service and 'current" High 5 earning.

Lets take a pilot who's been on property 15 years and a high 5 of $200K

His current accrued benefit is 30% of $200K = $60K

With the freezing of the current DB and a switch to a VB will his YOS clock and high 5 start over?

I believe they will.

If so, regardless of the increased cap under a VB he will only accrue 10 years of service, which will yield 20% of his new VB high 5.

Let's assume, that's $300K. (...a $40K rise in the cap and he maximizes it).

20% of $300K = $60K

$60k (old DB) + $60K (new VB) = $120K combined

What would his benefit have been if he had the full 25 years of service under old DB?

$130K!!

I agree with you, the company doesn't want DB. They don't want to raise the cap. They want a pure DC like the pax carriers have.

If we end up at mediation, I believe they will point to the pax carriers and say see "we'd agree to that industry standard 16-18% B fund model" (in fact, that's where they wanted to go in our last negotiation)

Our only argument will be to point at the UPS model.

I think the truck is barreling down. I too think we should jump.

But we can choose to jump left or jump right.

I think many are suggesting it may be more prudent to "jump right" --- right towards an increased B fund with cash over cap provision.

Something in the neighborhood of 12-13%

DLax85

Yes - the KISS principle applies!

...and what would the current consultants/expert advisors have to gain from the proposal above?

Nothing - they are in the "DB to VB conversion" business.

A Honda dealer is not going to recommend you buy a Ford.

dckozak

i reviewed the ALPA video dated 3Nov to see what was suggested as part of the transitional issues going forward. My read was that a pilot would have the option to stay on the transitional DB plan without changes, as such, no change to the individual if they so choose. I reviewed the video (look at 11:25 into the video, if you wish to see your self) I was unable to conclude that all pilots would, in affect, have their current DB (A plan) frozen as you allude with your premise (above).

If in deed we all agree to this transition and it does involve freezing the DB, I believe it warrants pointed questions as to how to avoid the scenario you describe. ALPA and Fedex have always come up with bridge gaps for pilots in different situations and this one, as you described would need to be addressed, if this is even an issue.

Had Fedex and ALPA increased the 401K monies beyond the insulting 1% on DOS, I think most pilots (at least the junior, it still doesn't solve the near retiree issue) would happily see this as a ok solution to the depleting value of the DB. As it stands the older pilots are taking it in the shorts while (some) younger seen content to wait to 2021 or later to "solve their" retirement problem in section 6.

Like I said previously, it appears those of us near retirement have been throw under the bus with regards to near term fixes. I voiced loud and clear my thoughts on the shortcoming of contract 2015 but the majority decided to take the money now and worry about retirement later. The DB is dying, the company wants it to go and we , collectively, decided not to fight to save it. For the pilots with 10 plus years to go, you have decide what fork in the road to take. For some of us, it would appear our fate has been cast.

iarapilot

I figure I will throw my 2 pesos into the conversation. There are many (most) guys on here that know way more than I ever will concerning retirement.

Much of this has already been mentioned, but!

Outside of section 6 negotiations, we are thinking about changing retirement? Has the Company EVER given us a good deal contractually, minus the original vacation policy and deviation system? And in this situation I think there would not be much give and take when the Company doesn't have to play ball at all. Unless, of course, it really benefits them.

Have we ever been outsmarted in negotiations that we have had in the past? FDA LOA 1, bridge TA, etc?

Others have mentioned that our Union will never admit that a deal we got was detrimental. FDA LOA 1 is a perfect example.

The Company lawyers are way more savvy than our boys are. 4A2B was negotiated long ago; it took awhile for us to realize that we got bit in the arse.

Yep, I am a cup half empty kind of guy. History has made it so. Until we as a group get a little more "militant", we will probably find that we dropped the ball in one area or another in a future negotiation. In addition, our negotiators need to be a lot more insightful in future dealings with the Company.

UnskilledFXer

Before there is any attempt to change the current retirement plan, we must require our Union to fully explain, with real numbers, what is being proposed under the Variable Benefit Pension Plan (VBPP). Nothing less than a retirement calculator, that can be tailored to each individuals expected years of service, estimated income, and penalties assessed for early retirement and survivor benefits, will be acceptable.
I have watched all the videos on the ALPA website, read several “white papers” explaining VBPP’s, and have done some research into Mr. Blitzstein’s career and expertise. Mr. Blitzstein has a long history with organize labor, is a trustee for pension plans, was appointed by President Obama to the PBGC Advisory Committee, and is a leading authority on VB pension plans.. He most certainly deserves respect for his opinions. However, his presentation on the ALPA webpage is nearly devoid of substance, with many generalities, such as overall look at the Defined Benefit Pensions funding across the labor spectrum with no specific information on Fedex’s current funding status as it relates to their pension obligations. The 2+billion dollars Fedex put into funding its pension this past fiscal year was mentioned in the videos. However, the reason for such large funding was not explained. Was it done to meet the minimum obligation, was it done to mitigate the increase in the “variable rate premium” by the PBGC, or for some other financial reason. Knowledge of why they chose that amount is as important as the amount.

Changes made to retirement outside of formal section 6 negotiations. This is extremely important to members of this pilot group who have less than 25 years of service, and critically important those who’s high 5 earnings will significantly increase by the end of this contract. This is critical !! Accumulated Benefit Obligation (ABO). If we as a group decide to “voluntarily” switch to a different retirement plan, and agree to a freeze on the current A Plan, see Unions Nov. power point presentation, any ABO would be calculated at that time, by definition. Why is that important?
Examples:

Pilot 1: 15 years of service, high 5 $200k current ABO $60,000 per year benefit.

Pilot 1: If new plan is negotiated in normal Section 6 bargaining. Assuming contract is completed within 5 years and pilot raises high 5 earnings to $260k.
Pilot now has 20 years of service that ABO is now $104,000 per year Benefit.

Pilot 2: 5 years of service, high 5 $160k current ABO $16000 per year benefit.

Pilot 2: Same assumptions as above. New high 5 earnings $220k. New ABO $44000 per year benefit.

Pilot 3: Newhire, less than 1 year of service. Not vested.

Pilot 3: 5 years of service, high 5 $175k. ABO $17,500 per year benefit.

The above figures assume the pilot will someday retire at or above age 60 with 25 years of service. These are estimates, early retirement and survivor benefits reduce each with similar percentages.
Significant pay increases and 5 extra years toward retirement makes big difference. Remember these increases are in our current agreement and cannot be taken away involuntarily. We would be foolish to accept anything less than what gains are guaranteed at the end, not in the early stages, of this contract. No estimates, no promises, nothing less.

PBGC, as of now are DB plan is covered, a VB plan would also be covered. So what’s the big deal? Our current A plan if maxed out is valued at $130k per year. The PBGC insurance maximum is $60500. You receive approximately $5000 a month for life if Fedex can convince a bankruptcy court that they cannot meet their pension obligations. How much is the VB plan worth?

VB Plans. Information obtained from several sources has highlighted the complexity of these instruments. Many variables including, stock and bond performance, complex trading instruments, fees and additional charges make for a financial product best analyzed by professionals not pilots. With this in mind, if the decision is made to consider this plan in lieu of the current plan, time should be allotted, and plan specifics given in written form to the individual pilot, so that they may have their financial services representative review the information and assist them in making their decision on how to vote.

VB Plans have some major advantages for employers, they remove charges incurred from variable rate premiums, due to the fact they are usually funded. According to Findley Davies, another advocate of the VB Plan, “the plan will always be very close to 100% funded because there is no investment risk by the sponsor” this is also confirmed in the Unions November power point presentation. So who assumes the risk? You do. Current A Plan funding requires that the company pay a variable rate premium if the pension fund is underfunded this is paid to the PBGC. These fees have recently been drastically increased by Congress. Any change in plan could be very profitable from a corporate standpoint.


Research into replacing income currently being provided by the A Plan, in the form of an individually purchased annuity shows a cost of approximately $2.0 to $2.2 million dollars.

Unless you attained a maximum high 5 and have 25 years of service, an early decision to voluntarily switch pension plans, prior to the end of this contract appears risky. Perhaps information yet to be shared with this pilot will be enlightening. One thing is certain. If the Defined Benefit Retirement Plan is voluntarily given up it will be gone forever.

mempurpleflyer

Good analysis. And it all points to a few simple questions...why are we doing this? Why now? What is so time critical that it needs to be taken care of before the next round of Section 6 negotiations?

We are taught as pilots to slow things down in an emergency...that there are very few things that have to be rushed. Yet we are acting like the airplane is on fire and we must do something quickly. Once we voluntarily freeze our A Plan, there is no going back. We need to go into holding and take our time. There are other options.

mempurpleflyer

Why is the union not in favor of leaving the A Plan alone and working with the company during formal negotiations to increase the B Plan with a "cash over the cap" provision?

Eventually the company will get its wish...the A Plan will eventually die due to inflation and we will have made a slow and steady switch to an all B Plan retirement. It will just take time.

5millionaire

Nice post, exactly how I feel

DLax85

I recently had a conversation with a very senior Capt who will be retiring in 2018. He has the current DB completely maxed out. He is against the change to a VB.

He said, you know housing has historically been a good investment, but only if you buy low and sell high. Sometimes it’s better to rent.

I was puzzled at first and didn’t understand.

His point, any conversion or transfer of assets done now will be done pretty close to the top of the market. Company selling high = pilots buying high

The stock market has been spectacular the past 12 months, but what’s our “forward looking expected rate of return” vs the VB plan hurdle rate?

He’s concerned the very first “variation” could be downward, based on typical investment performance regression to the mean

Negative returns early in retirement can have powerful affects

While many have said senior guys with 25 years and High 5 maxed have nothing to risk, I think they do.

If they retire in next 18-24 months, select the VB option and then the market goes south for a few years. They will be starting in the hole.

We all know how ALPA likes to preach about the Time Value of Money when they advocate to settle contract negotiations quickly. Will they fully address the risks associated with negative returns soon after retirement?

If we decide to convert from a DB to a VB, the initial funding assumptions, and any asset & liability transfers, will be very important

Red Letter

a.k.a. Sequence risk. Your financial advisor should be discussing this with you.



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