NotMrNiceGuy

It depends on the hurdle rate, but with a 4% hurdle, it likely would be much higher than $130K. I tried to conservatively run some models on this from 1999 a couple months ago. For those 18 years, the value was around $160. 1992-1999 was a good run for the economy. Probably would increase the value substantially. All this to say, my guess is the VB from 92 to 2017 would be much better.

DLax85

Almost every pilot would be different - because their earnings in each of those years would be different

And none of them would have an “earned accrued floor benefit” that equaled the final/highest IRS limit because the new formula looks at ALL your years....1, 2, 3,......24, 25. Never replacing the low years.

Now, the “magic sauce” of investment returns would need to be included - but then we stray back into assumptions of the hurdle rate, investment return cap rate....and ACTUAL investment returns.

OBTW, how do we negotiate that last one?

I sincerely request all future modelers show, line by line, how the accrued benefit grows...and shows how much is “earned/floor benefit”... and how much is a function of the “magic sauce”.

I want to see the neutral case: investment return = hurdle rate (that’s what we have now)

And please publish the historical returns being used.

We’ve been told it’s a 50% equity/50% fixed income mix, but have not been shown the actual investment return #s used.

Actual equity index and actual fixed income index, please.

They could publish them on the MEC Retirement website, along with all the other IRS charts they’ve already posted.

Easy, easy, easy.

In Unity & Full Transparency,

DLax

kronan

Here's a news flash.
The "magic sauce" of investment returns is already embedded in our Pension plan.
That's why FedEx has to Report it's expected Rate of Return.

And for those following FedEx, FedEx assumes a 6.5% Rate of Return on Pension assets in the future. A mix that is a blend of equities and bonds.

FedEx will\would Continue to exercise Control of Pension assets if they chose to enter into Negotiations with us and We came to favorable terms and a VB LOA was passed. No ALPA control of the $$. No ALPA cut of the Investment fees FedEx already Pays to its investment advisors. It's my expectation that FedEx would retain the current advisors. The difference would be 2 Pots of $$, one for our current Defined Benefit Plan and one for our New Defined Benefit Plan.

As to 92-2017, should be somewhat Easy for Cheiron to model...but the pay rates that Cheiron has embedded are the Current Pay rates, so, based on the Stock Market Performance between 1992 and 2017, thinking the gains would be even higher
As a Proxy, returns on the S&p 500 from 92-99

92-7.6%
93-10.17%
94-1.19%
95-38.02%
96-23.06%
97-33.67%
98-28.73%
99-21.11%

Then the Dot.com cliff of -9.11% in 2000, followed by the -11.98% in 01 and the -22.27% in 02.
Of course, the -9, -12, -22 returns are already embedded in the current model

And it's Future earnings that count in the VB plan. PM is going Way beyond an all out sale, or perhaps you didn't notice that the Returns after 2016 are assumed to be no better than the Hurdle Rate 2017 on until the 25 YOS and 35 YOS point for our intrepid hypothetical newhires. Thus skipping the 19% S&P Stock market return in 2017. No super secret "magic sauce" included.


http://moneychimp.com/features/market_cagr.htm

kronan

Here's Vanguards take on Various Portfolio blends, must be some year by year models out there somewhere

https://personal.vanguard.com/us/ins...io-allocations

kronan

surprisingly tough to find in a table form

here's a fund from Fidelity that could act as a proxy

https://fundresearch.fidelity.com/mu...risk/316069103

kronan

Vanguard has a couple that come close

Tax Balanced version targets 50% equities, then 50% tax free municipal bonds

It's other Balanced funds are a 60/40 split


https://personal.vanguard.com/us/fun..._redirect=true

DLax85

Let’s keep it really, really simple

Have the MEC publish the actual year-by-year returns they used in the “modeler”

Name & return of each index, and the assumed allocation.

(They videos allude to the S&P 500, but not to the specific fixed income index. The videos allude to a 50/50 allocation, but please just show us the #s used)

With all that, we can examine how and why this “Variable Plan” is better....or worse.

Certainly using “career average earnings” vs “high 5” yields a lower accrued earned benefit

This is a “classic move” right out of many companies play books as they involuntarily shifted employees the new retirement plans over the past 20 years

But we are proposing this change ourselves!?!?

Of course, once we know the indexes and allocations, we should examine “future, forecast returns” in those indexes, not focus on “historical returns”

I would trust Vanguard’s projections....and have in fact posted links to those projections in other threads

One of the main reasons companies have punted their DB plan’s was because their forecast returns were “too optimistic”.

Let’s not accept a plan that uses a lower/slower yielding earned accrual method, then assumes market returns, above a given hurdle rate, will make up that deficit

DLax85

I’ve noticed many things.

The biggest is assuming ZERO improvements can be made to the current A pan

If we assume the Investment Returns = the Hurdle Rate then how can the VB plan be better?

Easy, just assume the VB Earnings Cap based on IRS limits rises 3% each year - while making no equivalent assumption in our current $260K Cap

Similarly, just assume accrued earnings continue to build beyond 25 years - while making no equivalent assumption that they could be tweaked/slightly improved beyond 25 YOS, with our current A plan

It’s the overall assumption that ZERO improvements can be made in our A plan.

Zero! It’s completly static! It’s new VB or nothing.

That mindset puts us at a big disadvantage.

pinseeker

Ok. This isn't hard. The model that the union is using is assuming future pay raises and caps. We already know what the caps and pay rates and market returns were from 1992 until 2017. We also know what hurdle rate was being used in the model, so why change that. By the way, the lower the hurdle rate, the better the return, so 4% would be better than 5%. So, again, what would a pilot who was hired in 1992 at 1992 pay rates and and using the known IRS earnings caps and 1000 X pay rate that the union used in their model get in retirement. We can even use their assumed historic upgrade time.

We know what our current A plan has paid out historically and we can certainly figure out what the proposed VB plan would have paid out using actual numbers. Let's compare those numbers.

kronan

I am at a Loss here. If PM and Cheiron produce these numbers, you'll suddenly be a proponent of the VB Plan?

Contrary to everything I've said regarding the relative value of a Traditional A plan compared to the VB plan...if they produce these numbers you'll switch over to a VB plan proponent?

IS the Starting Point in 92 an FO or an FE? And, what pray tell, would make you think the VB plan would produce better results than our Traditional A plan? WB Capt payrate didn't exceed 260 until our Bridge TA, and that was only in the 2nd Year.
As a Comparison, WB FO pay will be 238 at the end of our current CBA-typical bargaining time frame will have that value in the 260 ballpark at the beginning of our next TA. Shoot, WB FO in our Current CBA exceeds that of NB Capt in our Previous.

And Does PM and the NC Committee Really have to outline the relative merits of having a floating FAE versus the VB plan..really. They outline the Assumed payraises for someone hired today and come up with 605,745 for the hourly in 2043. Do a little Math to account for the annual pay raises immediately prior to retirement in 2043 and the High 5 would likely be in the 514,883 ballpark (my assumption was a 15% subtraction would be close)...that equates to a 257,442 pension. As compared to the 170,802 the VB model produced

So, AGAIN, if You think Mgt would be amenable to tying our A plan to WB Capt Pay *1000. Then definitely vote NO should a TA present itself.
If You think SL simply needed a better broom to get Mgt To improve our A plan, then vote NO should a TA present itself.

A few posts back, I posted the hypothetical impact of tying our A plan to IRS DC limits as well as the impact of tying our A plan to current WB Capt pay...and really, impact per person really small. As a comparison, FedEx Corp Net Income for FY2016 was 3.02B (non-GAAP)...so, does anyone Really think FedEx couldn't have afforded at least a minimal increase in our A plan limits. Really. SS spent 2 years drumming in the comparison of what the typical 777 Capt was making and the desire to restore that A plan income replacement level to 50%. And SL came back with a 0% improvement to our A plan.

Personally, I think the chances of FedEx Improving our Traditional A plan outside of Sec 6 bargaining is 0.

And, when I think about our odds in 202X, I think the resistance will be even higher. When we hit negotiations, WB Capt pay will be 335. So, typical FedEx contract timing the next WB Capt pay should be 375 +-10-15 depending upon the duration of negotiations.

Raising That Bar won't be easy, but it would be possible. And I guarantee you, there's some Corporate minion running numbers and tradeoffs. And that minion will say raising the FAE cap pays for itself if we delay pay raises for the entire crew force for 5 years, 7 years.

There's going to be a numbers geek looking at the Total Compensation paid to FedEx pilots and saying, yes we want to give you a pay raise.

What combination of Salary Raises, B plan raises, Pension Raises do you want? Okay, for 1% pay raises over the duration of the CBA we'll raise the FAE Cap to 340-over a 30% increase. Oh, wait, you want an increase in YOS to 30...well, that's a 10% raise right there. So, YOS 30, 1% salary, and we'll raise FAE Cap to 300


Here's the Other Fun thing to consider. Pension's are Only Retroactive for Govt Workers. For us lowly Private Sector folks they are implemented into the future. Think of our Last B plan raise in 2015, it wasn't retroactive for pay we'd already received, but for Paychecks in the future. Same will hold true for Any Pension changes, whether it's to our Traditional plan or the VB plan. I would expect a 1 Jan 20XX effective date.