Pension~Historical Expected Return on Assets
01-02-2018, 11:48 AM
#11
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Joined APC: Jul 2007
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Having a cup of joe and reading the Wall Street Journal
Little article on pension funds chasing yield given current market forecasts
Pension funds concerned they won’t meet their “target returns” of 7-8% moving forward
Some fund managers looking at more exotic, alternative investments to make up the difference
Current Wishire Consulting projections:
US Equities - 6.25%
US Bonds - 3.50%
Foreign Equities - 6.45%
Public Pensions currently funded at 56.7% equities, 23.3% bonds, 20.0% alternate investments
Given the banner year in stocks in 2017, some fund managers concerned equity positions & alternate investments may be overweighted
Let’s pay close attention to the “assumed rates of return” when the advantages of the Variable Pension Plan are touted
Let’s look forward - with complete understanding of how “regression to the mean” could affect future returns
Little article on pension funds chasing yield given current market forecasts
Pension funds concerned they won’t meet their “target returns” of 7-8% moving forward
Some fund managers looking at more exotic, alternative investments to make up the difference
Current Wishire Consulting projections:
US Equities - 6.25%
US Bonds - 3.50%
Foreign Equities - 6.45%
Public Pensions currently funded at 56.7% equities, 23.3% bonds, 20.0% alternate investments
Given the banner year in stocks in 2017, some fund managers concerned equity positions & alternate investments may be overweighted
Let’s pay close attention to the “assumed rates of return” when the advantages of the Variable Pension Plan are touted
Let’s look forward - with complete understanding of how “regression to the mean” could affect future returns
01-04-2018, 11:30 AM
#12
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Originally Posted by kwri10s
Nice post.
A couple quick things to ponder. If the buying power of our $130 will continue to diminish over time, so will the relative expense cost to fund the A fund for FDX. If we just simply indexed our max retirement amount to the annual inflation rate, that would result in the same relative expense for FDX year over year while maintaining our relative buying power. Right now we allow them to reap the rewards of paying less 1999 dollars every month into the fund in order to fund our 2017 $130 retirement expense.
Speaking of inflation or buying power in future years which seems to be the phrase of the day. In order to keep pace with historic inflation, our new Variable Annuity Defined Benefit plan will have to gain 2-3% annually to stay cost neutral. Then in order to increase the average pilot's increase in retirement pay for every year they work the fund will need to earn around 8%. In order to build the surplus we need to balance out any lean years, we would need to exceed the baseline 10-11% we have to earn just to break even or maintain the $130. Since no one would recommend putting 100% into equities, the smart folks we hire to run the fund will get a combined bond, reinsurance, equity balance. Vanguard used the estimate of 5.1%. We need to double what Vanguard projects is a normal retirement plan rate of return. Yeah, I see that happening.
A couple quick things to ponder. If the buying power of our $130 will continue to diminish over time, so will the relative expense cost to fund the A fund for FDX. If we just simply indexed our max retirement amount to the annual inflation rate, that would result in the same relative expense for FDX year over year while maintaining our relative buying power. Right now we allow them to reap the rewards of paying less 1999 dollars every month into the fund in order to fund our 2017 $130 retirement expense.
Speaking of inflation or buying power in future years which seems to be the phrase of the day. In order to keep pace with historic inflation, our new Variable Annuity Defined Benefit plan will have to gain 2-3% annually to stay cost neutral. Then in order to increase the average pilot's increase in retirement pay for every year they work the fund will need to earn around 8%. In order to build the surplus we need to balance out any lean years, we would need to exceed the baseline 10-11% we have to earn just to break even or maintain the $130. Since no one would recommend putting 100% into equities, the smart folks we hire to run the fund will get a combined bond, reinsurance, equity balance. Vanguard used the estimate of 5.1%. We need to double what Vanguard projects is a normal retirement plan rate of return. Yeah, I see that happening.
How did you come up with the 8% figure? I agree with the necessity to keep pace with inflation (2-3%) and to build a baseline to even out lean years (additional 2-3%) but I don't understand what you mean by the "increase the average pilots' increase in retirement in retirement pay for every year they work" comment. Thanks.
09-07-2020, 08:16 PM
#13
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Bumping an old thread with some updated 10-year forecasts from Vanguard
Equities ~ 3.9% - 5.9% (Mean 4.9%)
Bonds ~ 0.7% - 1.7% (Mean 1.2%)
A typical retirement fund with a 50/50 asset allocation would yield ~ 2.30% - 3.80% (Mean - 3.05%)
Let's remember the modeler used a "hurdle rate" of 5%.
Assuming we negotiated such a "hurdle rate"....or even a 4% rate...what would happen to each pilots retirement benefit over the next 10 years if Vanguards forecast proves accurate?
We are where we are. Let the company continue to take the A fund risks.
In Unity,
DLax
Equities ~ 3.9% - 5.9% (Mean 4.9%)
Bonds ~ 0.7% - 1.7% (Mean 1.2%)
A typical retirement fund with a 50/50 asset allocation would yield ~ 2.30% - 3.80% (Mean - 3.05%)
Let's remember the modeler used a "hurdle rate" of 5%.
Assuming we negotiated such a "hurdle rate"....or even a 4% rate...what would happen to each pilots retirement benefit over the next 10 years if Vanguards forecast proves accurate?
We are where we are. Let the company continue to take the A fund risks.
In Unity,
DLax
09-08-2020, 11:12 AM
#14
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Joined APC: Jun 2018
Posts: 1,838
We need to figure out what we want. We have a big group now saying leave the current A plan frozen and just get a bigger B plan. Well, what is it? The whole reason we went down this path is we said we wanted an A plan increase. If we don’t get an A plan increase on this contract you can kiss a gain in the future goodbye. If we only increase the B fund then our total retirement package will be out of scale when it comes to fixed income vs variable. Is this what we really want to do?
09-08-2020, 11:59 AM
#15
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Originally Posted by Noworkallplay
We need to figure out what we want. We have a big group now saying leave the current A plan frozen and just get a bigger B plan. Well, what is it? The whole reason we went down this path is we said we wanted an A plan increase. If we don’t get an A plan increase on this contract you can kiss a gain in the future goodbye. If we only increase the B fund then our total retirement package will be out of scale when it comes to fixed income vs variable. Is this what we really want to do?
There are changes we can negotiate to our current A plan that will increase the benefit WITHOUT changing to a Variable Benefit Plan. Tethering the FAE to the IRS 401(K) limits, or perhaps NB Capt Pay x 1,000 hours, will allow the A Fund value to grow. Adding, 1% YOS multiplier for years 26-30, would allow the max percentage to grow from 50% to 55%. These can both occur without switching to a Variable Benefit Plan, and shifting the investment risk.
And yes, increase the B fund. Total Retirement = A Fund + B Fund. Our retirement absolutely can be increased without replacing our current A Plan with a Variable Benefit Plan. Demand the Union genuinely explore, publicly discuss, and publicly present all of these other options!
In Unity,
DLax
09-08-2020, 02:46 PM
#16
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Posts: 1,838
Originally Posted by DLax85
No, that's not what a big group is saying. They are saying don't change our A fund to a Variable Benefit Plan where the pilot group assumes the investment risk. Don't change the A Plan where you eliminate "HIGH 5" FAE.
There are changes we can negotiate to our current A plan that will increase the benefit WITHOUT changing to a Variable Benefit Plan. Tethering the FAE to the IRS 401(K) limits, or perhaps NB Capt Pay x 1,000 hours, will allow the A Fund value to grow. Adding, 1% YOS multiplier for years 26-30, would allow the max percentage to grow from 50% to 55%. These can both occur without switching to a Variable Benefit Plan, and shifting the investment risk.
And yes, increase the B fund. Total Retirement = A Fund + B Fund. Our retirement absolutely can be increased without replacing our current A Plan with a Variable Benefit Plan. Demand the Union genuinely explore, publicly discuss, and publicly present all of these other options!
In Unity,
DLax
There are changes we can negotiate to our current A plan that will increase the benefit WITHOUT changing to a Variable Benefit Plan. Tethering the FAE to the IRS 401(K) limits, or perhaps NB Capt Pay x 1,000 hours, will allow the A Fund value to grow. Adding, 1% YOS multiplier for years 26-30, would allow the max percentage to grow from 50% to 55%. These can both occur without switching to a Variable Benefit Plan, and shifting the investment risk.
And yes, increase the B fund. Total Retirement = A Fund + B Fund. Our retirement absolutely can be increased without replacing our current A Plan with a Variable Benefit Plan. Demand the Union genuinely explore, publicly discuss, and publicly present all of these other options!
In Unity,
DLax
09-08-2020, 04:43 PM
#17
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Originally Posted by Noworkallplay
I can get onboard with that. Now what’s the odds we get it? What are we as a group going to do to see it through? Are we prepared for negotiations that go 2-3 years to fight for it? So if we ask for a substantial bump to the current A fund what do you think the company is going to ask for? Remember it’s called negotiations and the company can propose changes also.
What I'm proposing has some aspects of what the union is proposing. For example, tethering the Earnings Capt to the 401(K) IRS limits. That rise from $285K to $260K immediately (9.6% increase), then most likely at 1-1.5% per year. Not that substantial given it's been capped at $260K for 20 years (??).
The additional 1% multipliers for years 26-30, is only asking for 5 additional years for anyone. The Variable Benefit Plan is asking for YOS to be completely uncapped. (Tag line:....every year counts)....and "supposedly" the VBP somehow guarantees a pilot to get at least 2% per year. The 5 year extension I'm proposing would be half of that.
Increasing the B Fund is something we've obtained over the past 15 years already.....from 5% to 9%. Increasing the B fund is actually what they want - Defined Contributions, not Defined Benefits.
So yes, we should be willing to fight for it. And yes, it probably will take 2 years - that's how the company rolls. Those who've been on property awhile know this. I'm unsure what the company will ask. Maybe PBS (....ain't gonna happen!). Maybe to sell out future pilot retirements (....not something we should do!). Maybe an extension to the "Fly To You Die, Sick Buy Back Discount Plan"....that whole program is a far greater benefit to them. Sure, we can let guys who want to do this keep working that hard in their mid 60s.
Bottom line: The Defined Benefit Plans of FEDEX and UPS are what set us apart from the pax carriers that lost their pensions for various reasons. We shouldn't significantly change or give away the best part of our CBA.
In Unity,
DLax
09-08-2020, 04:55 PM
#18
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Posts: 101
Shack!
Originally Posted by FastBurner
Ding ding ding. The biggest consideration for any plan change is “who owns the interest rate risk?”
Yes, the 1999 retirees have felt their purchasing power reduce from 130,000 to 88,699 or 41,300 ish decline. So, something needs to change in that respect. For 2017 retirees, if they retired with 189,000 / yr that would match the 1999 purchasing power... But, what is “I guarantee you $10,833 / mo - forever” worth?
So, from the perspective of this probationary new hire, with 17 total years to be with the greatest airline - let the company assume the risk for the A plan. If cost of living adjustment is off the table - fine, simply increase B to 12% (with annual increases), cash over cap, and profit sharing for any amount over “X.” Just isn’t difficult.
Yes, the 1999 retirees have felt their purchasing power reduce from 130,000 to 88,699 or 41,300 ish decline. So, something needs to change in that respect. For 2017 retirees, if they retired with 189,000 / yr that would match the 1999 purchasing power... But, what is “I guarantee you $10,833 / mo - forever” worth?
So, from the perspective of this probationary new hire, with 17 total years to be with the greatest airline - let the company assume the risk for the A plan. If cost of living adjustment is off the table - fine, simply increase B to 12% (with annual increases), cash over cap, and profit sharing for any amount over “X.” Just isn’t difficult.
There is EXTREME value in a guaranteed income for life...even if it's not as much as we'd like or has not kept pace with inflation. Once it's gone, it's never coming back. Otherwise, wish us luck with a formula, some mythical shares and "ironclad" contract language to protect us.
I'll repeat what Fastburner says here....
If cost of living adjustment is off the table - fine, simply increase B to 12% (with annual increases), cash over cap, and profit sharing for any amount over “X.” Just isn’t difficult.
This should be our mantra!
09-09-2020, 07:41 AM
#20
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Originally Posted by DLax85
Bumping an old thread with some updated 10-year forecasts from Vanguard
Equities ~ 3.9% - 5.9% (Mean 4.9%)
Bonds ~ 0.7% - 1.7% (Mean 1.2%)
A typical retirement fund with a 50/50 asset allocation would yield ~ 2.30% - 3.80% (Mean - 3.05%)
Let's remember the modeler used a "hurdle rate" of 5%.
Assuming we negotiated such a "hurdle rate"....or even a 4% rate...what would happen to each pilots retirement benefit over the next 10 years if Vanguards forecast proves accurate?
We are where we are. Let the company continue to take the A fund risks.
In Unity,
DLax
Equities ~ 3.9% - 5.9% (Mean 4.9%)
Bonds ~ 0.7% - 1.7% (Mean 1.2%)
A typical retirement fund with a 50/50 asset allocation would yield ~ 2.30% - 3.80% (Mean - 3.05%)
Let's remember the modeler used a "hurdle rate" of 5%.
Assuming we negotiated such a "hurdle rate"....or even a 4% rate...what would happen to each pilots retirement benefit over the next 10 years if Vanguards forecast proves accurate?
We are where we are. Let the company continue to take the A fund risks.
In Unity,
DLax
Let's see, if Vanguard's forecast proves correct, then Each Pilot's VSPP benefit would only "earn" the floor benefit\annual 2% notional investment. With the exception of those who only work 50% or less of their potential BLG for QOL reasons. Those individuals would fall into the safety catch of a benefit equivalent to what they would have achieved under our current Benefit calculation.
Let's use me for example, not that I intend to work another 10 years, but I certainly could. As of now, I'm hitting 20 years so my current A plan Benefit would be $104k. (Not taking into consideration the reduced amount a survivors benefit would result in)
No actual way of predicting what will go on with the DC limit. In a few years, I think inflation's going to run rampant. So, I wag'd it with a 2% increase...and then rounded down towards an even thousand to begin with. Think next years predictions is at about 1.6%. It's on a spreadsheet, so easy to input any predictions anyone might have. In any case, went with
285k=5700 pancake
290=5800
295=5900
300=6000
305=6100
310=6200
315=6300
320=6400
326=6520
332=6640
338=6760
So, with no secret sauce, my PSPP benefit would be $68,320.
For a total of $172k as my combined A plan.
Of course, reportedly only ONE PBGC guarantee. So if Both failed, I'd only wind up with $64.9k Pension. Or even worse, FedEx completely fails by 2025 so my PSPP wouldn't be covered at all (the whole Govt younger than 5 year pension issue) so, my PBGC pension would wind up being $64.9k.
But if the PSPP didn't fail, but the Traditional Pension failed, then my combined Pension would only be $133k
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