StarClipper

I didn’t realize I was taking a grammar class but thanks for correcting my thesis, well done professor. Now I’m sure you got what I was saying and I’m certain our pay rates are comparable. Now let’s move on to the Union and the A Plan and stop making this about me.

Flaps50

"Oh, it can change, but in no way for the better. I'm expecting a complete decimation of our retirement, and a vote in favor of doing just that, due to a skewed road show series."

That's what I'm afraid of!

StarClipper

FedEx is is about to benefit big time from this new proposed tax bill. I say let them come up with the $$$$ to improve the A Plan. The Union need to stop wasting time and money on that BS Variable Plan.

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.

Fdxlag2

The only reason I bring annuities into the discussion is after someone claims it will cost $4 million to replace our maxed A fund, no it is about $2 million and an annuity has all of the same bells and whistles of survivor benefits with roughly the same effects on payout. And in fact I’ll be willing to bet one of the proposals of the VAPP is buying an annuity for a pilot as he retires.

True if the company bought an annuity they lose if you die early but win if you die late. They are rich enough to cut out the middleman and the slice he takes when you buy an annuity, so they self insure. They give a big enough chunk to the PBGC.

I certainly agree about the education, it would certainly be helpful to know how much FDX contributes per pilot and per new hire to fund our A Plan. But once you realize the Union’s fondness for the VAPP is their desire to remove the 25 year ceiling it makes a little more sense.

Flyinhigh

Great recap of how this whole pension/retirement thing works. I was under the assumption that if you made it to age 60 and continued to work, your survivor would receive the 50% benefit if you passed away prior to actually retiring. In fact, I cancelled some life insurance at age 60 based on this benefit being in place.

BlueMoon

If we have an option for an annuity to be purchased at a pilots retirement, that sounds ripe for an underfunding situation. Why not just give the pilot a lump sum then when he retires. Didn’t work for Delta back in 2003-2005, when a pilot could retire and take 50% lump sum up front. The pilots who could ran for the door and That pretty much tanked the pension, which was already having problems.

KnightFlyer

You do have a 50% survivor benefit if you are vested 55+ and die before you retire. I lowered/canceled life ins too because of this.

Fdxlag2

What tanked the fund was it was underfunded, which caused pilots to want the lump sum, which increased the underfunding.

I don’t want an annuity, I like our plan just the way it is. I recognize that someone hired today will not get the same benefit out of it. I also think raising the cap or increasing the eligible years of service will be be very expensive and that money might be spent more wisely. I like the UPS model.

StarClipper

It’s amazing to see the guys who voted for the last contract now complaining about the retirement. You guys should not have vote for a contract without a fix to the retirement. That should have been the line in the sand. You guys got what you voted for and unfortunately 43% of the crew is paying the price for the shortsightedness of 57%